12.pdf

12 Student: ___________________________________________________________________________

1.

Eurobonds sold in the United States may not be sold to U.S. citizens. True False

2.

In any given year, about what percent of new international bonds are likely to be Eurobonds rather than foreign bonds? A. 80% B. 45% C. 25% D. 15%

3.

In any given year, about what percent of outstanding bonds are likely to be international rather than domestic bonds? A. 70% B. 50% C. 30% D. 5%

4.

A "foreign bond" issue is A one denominated in a particular currency but sold to investors in national capital markets other than the . country that issued the denominating currency. B. one offered by a foreign borrower to investors in a national market and denominated in that nation's currency. C. for example, a German MNC issuing dollar-denominated bonds to U.S. investors. D. both b and c

5.

The four currencies in which the majority of domestic and international bonds are denominated are A. U.S. dollar, the euro, the Indian rupee, and the Chinese Yuan. B. U.S. dollar, the euro, the pound sterling, and the Swiss franc. C. U.S. dollar, the euro, the Swiss franc, and the yen. D. U.S. dollar, the euro, the pound sterling, and the yen.

6.

A "Eurobond" issue is A one denominated in a particular currency but sold to investors in national capital markets other than the . country that issued the denominating currency. B. usually a bearer bond. C. for example a Dutch borrower issuing dollar-denominated bonds to investors in the U.K., Switzerland, and the Netherlands. D. all of the above

7.

Proportionately more domestic bonds than international bonds are denominated in the ______ and the ______ while more international bonds than domestic bonds are denominated in the _________ and the ________. A. Euro; yen; dollar; pound sterling B. Dollar; pound sterling; euro; yen C. Euro; pound sterling; dollar; yen D. Dollar; yen; euro; pound sterling

8.

In any given year, rightly 80 percent of new international bonds are likely to be A. Eurobonds. B. foreign currency bonds. C. domestic bonds. D. none of the above

9.

"Yankee" bonds are A. dollar-denominated foreign bonds originally sold to U.S. investors. B. yen-denominated foreign bonds originally sold in Japan. C. pound sterling-denominated foreign bonds originally sold in the U.K. D. none of the above

10. "Samurai" bonds are A. dollar-denominated foreign bonds originally sold to U.S. investors. B. yen-denominated foreign bonds originally sold in Japan. C. pound sterling-denominated foreign bonds originally sold in the U.K. D. none of the above 11. "Dragon" bonds are A. dollar-denominated foreign bonds originally sold to U.S. investors. B. dollar-denominated bonds originally sold in Asia with non-Japanese issuers. C. pound sterling-denominated foreign bonds originally sold in the U.K. D. none of the above 12. "Bulldog" bonds are A. dollar-denominated foreign bonds originally sold to U.S. investors. B. yen-denominated foreign bonds originally sold in Japan. C. pound sterling-denominated foreign bonds originally sold in the U.K. D. none of the above 13. A "bearer bond" is one that A. shows the owner's name on the bond. B. the owner's name is recorded by the issuer. C. possession is evidence of ownership. D. both a and b 14. A "registered bond" is one that A. shows the owner's name on the bond. B. the owner's name is recorded by the issuer. C. the owner's name is assigned to a bond serial number recorded by the issuer. D. all of the above 15. U.S. security regulations require Yankee bonds and U.S. corporate bonds sold to U.S. citizens to be A. municipal bonds. B. registered bonds. C. bearer bonds. D. none of the above 16. Eurobonds are usually A. bearer bonds. B. registered bonds. C. bulldog bonds. D. foreign currency bonds. 17. Investors will generally accept a lower yield on ________ than on __________ of comparable terms, making them a less costly source of funds for the issuer to service. A. bearer bonds; registered bonds B. registered bonds; bearer bonds C. Eurobonds; domestic bonds D. domestic bonds; Eurobonds

18. With a bearer bond, A. possession is evidence of ownership. B. the issuer keeps records indicating only who the current owner of a bond is. C. the owner's name is on the bond. D. the owner's name is assigned to the bond serial number, but not indicated on the bond. 19. Publicly traded Yankee bonds must A. meet the same regulations as U.S. domestic bonds. B. meet the same regulations as Eurobonds if sold to Europeans. C. meet the same regulations as Samurai bonds if sold to Japanese. D. none of the above 20. Securities sold in the United States to public investors must be registered with the SEC, and a prospectus disclosing detailed financial information about the issuer must be provided and made available to prospective investors. This encourages foreign borrowers wishing to raise U.S. dollars to use A. the Eurobond market. B. their domestic market. C. bearer bonds. D. none of the above 21. Because __________ do not have to meet national security regulations, name recognition of the issuer is an extremely important factor in being able to source funds in the international capital market. A. Eurobonds B. Foreign bonds C. Bearer bonds D. Registered bonds 22. The shorter length of time in bringing a Eurodollar bond issue to market, coupled with the lower rate of interest that borrowers pay for Eurodollar bond financing in comparison to Yankee bond financing, are two major reasons why the Eurobond segment of the international bond market is roughly ________ the size of the foreign bond segment. A. four times B. two times C. ten times D. one hundred times 23. The Eurobond segment of the international bond market A. is roughly four times the size of the foreign bond segment. B. has considerably less regulatory hurdles than the foreign bond segment. C. typically has a lower rate of interest that borrowers pay in comparison to Yankee bond financing. D. all of the above 24. U.S. corporations A. are allowed to issue bearer bonds to non-U.S. citizens. B. are not allowed to issue bearer bonds. C. are allowed to issue treasury bonds but not T-bills. D. none of the above 25. The withholding tax on bond income was originally called the interest equalization tax. A. You can thank John F. Kennedy for imposing this tax. B. You can thank Ronald Reagan for imposing this tax. C. You can thank Jimmy Carter for imposing this tax. D. You can thank George Washington for imposing this tax.

26. Shelf registration A. allows the shelves in a set of bookshelves to remain level. B. allows an issuer to preregister a securities issue, and then "shelve" the securities for later sale. C. allows an investment bank to increase the fees they charge by charging for storage of the "shelved" securities. D. eliminates the information disclosure that many foreign firms found objectionable in the foreign bond market. 27. Private placement bond issues A. do not have to meet the strict information disclosure requirements of publicly traded issues. B. have auditing requirements that do no adhere to publicly traded issues. C. meet the strict information disclosure requirements of publicly traded issues, but have larger minimum denominations. D. none of the above 28. One unintended consequence of Sarbanes-Oxley Ais that international companies are starting to prefer issuing Eurobonds bonds in the private placement . market in the U.S. to avoid costly information disclosure required of registered bonds. B. is that international companies are starting to prefer to issue Yankee bonds in the private placement market in the U.S. Cis that international companies are starting to prefer issuing Yankee bonds in the bearer bond market in . the U.S. to avoid costly information disclosure required of registered bonds. D is that international companies have left the bond market in the U.S. to avoid costly information . disclosure required of registered bonds. 29. Global bond issues were first offered in A. 1889. B. 1989. C. 1999. D. 2007. 30. Purchasers of global bonds are A. mainly institutional investors to date. B. desirous of the increased liquidity of the issues. C. have been willing to accept lower yields. D. all of the above 31. A "global bond" issue A. is a very large international bond offering by several borrowers pooled together. B. is a very large international bond offering by a single borrower that is simultaneously sold in several national bond markets. C. has higher yields for the purchasers. D. has a lower liquidity. 32. A global bond issue denominated in U.S. dollars and issued by U.S. corporations A. trade as Eurobonds overseas. B. trade as domestic bonds in the U.S. domestic market. C. both a and b D. none of the above 33. Global bond issues A. can save U.S. issuers 20 basis points relative to domestic bonds, all else equal. B. tend to have increased liquidity relative to Eurobonds or domestic bonds. C. have been partially facilitated by rule 144A. D. all of the above

34. In terms of the types of instruments offered, A. the Yankee bond market has been more innovative than the international bond market. B. the international bond market has been much more innovative than the U.S. market. C. the most innovations have come from Milan, just like any other fashion. D. none of the above 35. Find the present value of a 2-year Treasury bond that pays a semi-annual coupon, has a coupon rate of 6%, a yield to maturity of 5%, a par value of $1,000 when the yield to maturity is 5%. A. $1,018.81 B. $1,231.15 C. $699.07 D. none of the above 36. Find the present value of a 3-year bond that pays an annual coupon, has a coupon rate of 6%, a yield to maturity of 5%, a par value of €1,000 when the yield to maturity is 5%. A. €1,018.81 B. €1,027.23 C. €1,099.96 D. none of the above 37. Find the present value of a 30-year bond that pays an annual coupon, has a coupon rate of 6%, a yield to maturity of 5%, a par value of €1,000 when the yield to maturity is 5%. A. €1,018.81 B. €1,027.23 C. €1,153.73 D. none of the above 38. The vast majority of new international bond offerings A. are straight fixed-rate notes. B. are callable and convertible. C. are convertible adjustable rate. D. are adjustable rate, with interest rate caps and collars. 39. The vast majority of new international bond offerings A. make annual coupon payments. B. have fixed coupon payments. C. have a fixed maturity. D. all of the above 40. In contrast to many domestic bonds, which make _________ coupon payments, coupon interest on Eurobonds is typically paid _________. A. semiannual; annually B. annual; semiannually C. quarterly; semiannually D. quarterly; annually 41. Straight fixed-rate bond issues have Aa designated maturity date at which the principal of the bond issue is promised to be repaid. During the . life of the bond, fixed coupon payments, which are a percentage of the face value, are paid as interest to the bondholders. Ba designated maturity date at which the principal of the bond issue is promised to be repaid. During the . life of the bond, coupon payments, which are a percentage of the face value, are computed according to a fixed formula. C. a fixed payment, which amortizes the debt, like a house payment or car payment. D. none of the above

42. The coupon interest on Eurobonds A. is paid annually. B. is paid in cash. C. is paid in arrears. D. all of the above 43. Eurobonds are usually A. registered bonds. B. bearer bonds. C. floating-rate, callable and convertible. D. denominated in the currency of the country that they are sold in. 44. Unlike a bond issue, in which the entire issue is brought to market at once, _______ is partially sold on a continuous basis through an issuance facility that allows the borrower to obtain funds only as needed on a flexible basis. A. a Euro-medium term note issue B. bearer bond C. a Euro-long term note issue D. a Euro-short term note issue 45. Euro-medium term notes A. are typically fixed-rate corporate notes issued with maturities ranging from less than a year to about ten years. B. are typically fixed-rate corporate notes issued with maturities ranging from three years to about ten years. C. are sold just like bonds in the primary market. D. none of the above 46. Six-month U.S. dollar LIBOR is currently 4.375%; your firm issued floating-rate notes indexed to sixmonth U.S. dollar LIBOR plus 50 basis points. What is the amount of the next semi-annual coupon payment per U.S. $1,000 of face value? A. $43.75 B. $48.75 C. $24.375 D. $46.875 47. Find the yield to maturity for this floating rate note: The reset date is today; coupons are paid annually according to the formula (LIBOR + ¼ percent); since issuance, there has not been a change in the issuer's credit rating. The bond has ten years to maturity and LIBOR = 3.5 percent. A. 3.5% B. 4% C. 3.75% D. There is not enough information provided to make a determination. 48. Floating-rate notes (FRN) A. experience very volatile price changes between reset dates. B. are typically medium-term bonds with coupon payments indexed to some reference rate (e.g. LIBOR). C appeal to investors with strong need to preserve the principal value of the investment should they need . to liquidate prior to the maturity of the bonds. D. both b and c 49. On a reset date, floating-rate notes A. experience very volatile price changes. B. market price will usually gravitate toward par. C. market price will usually gravitate toward par, unless the borrowers credit rating has declined. D. both b and c

50. Floating-rate notes A. are a form of adjustable rate bond. B. have contractually specified coupon payments, therefore they are fixed rate bonds. C. always trade at par value. D. both a and c 51. A five-year floating-rate note has coupons referenced to six-month dollar LIBOR, and pays coupon interest semiannually. Assume that the current six-month LIBOR is 6 percent. If the risk premium above LIBOR that the issuer must pay is 1/8 percent, the next period's coupon rate on a $1,000 face value FRN will be: A. $29.375 B. $30.000 C. $30.625 D. $61.250 52. True or false: floating rate notes behave differently in response to interest rate risk than straight fixed-rate bonds. ATrue since FRNs experience only mild price changes between reset dates, over which time the next . period's coupon payment is fixed (assuming, of course, that the reference rate corresponds to the market rate applicable to the issuer). B. False since all bonds experience an inverse price change when the market rate of interest changes. C. None of the above 53. A ten-year Floating-rate note (FRN) has coupons referenced to 3-month pound LIBOR, and pays coupon interest quarterly. Assume that the current 3-month LIBOR is 3 percent. If the risk premium above LIBOR that the issuer must pay is 1/8 percent, the next period's coupon rate on a £1,000 face value FRN will be A. £31.25. B. £15.625. C. £30.625. D. £7.8125. 54. The floor value of a convertible bond A. is the "straight bond" value. B. is the conversion value. C. is the minimum of a and b. D. is the maximum of a and b. 55. There are two types of equity related bonds: A. convertible bonds and dual currency bonds. B. convertible bonds and kitchen sink bonds. C. convertible bonds and bonds with equity warrants. D. callable bonds and exchangeable bonds. 56. Bonds with equity warrants A. are really the same as convertible bonds if the prestated price of exercising the warrant is the par value of the bond. B. can be viewed as straight debt with a call option (technically a warrant) attached. C. can only be exercised on coupon dates. D. typically are convertible as well.

57. A convertible bond pays interest annually at a coupon rate of 5% on a par value of $1,000. The bond has 10 years maturity remaining and the discount rate on otherwise identical non-convertible debt is 6.5%. The bond is convertible into shares of common stock at a conversion price of $25 per share (i.e. the bond is exchangeable for 40 shares). Today's closing stock price was $20. What is the floor value of this bond? A. B. C. D.

$800.00 $892.17 $1,250 None of the above

58. A convertible bond pays interest annually at a coupon rate of 5% on a par value of $1,000. The bond has 10 years maturity remaining and the discount rate on other-wise identical non-convertible debt is 5%. The bond is convertible into shares of common stock at a conversion price of $25 per share (i.e. the bond is exchangeable for 40 shares). Today's closing stock price was $31.25. What is the floor value of this bond? A. $800.00 B. $1,000 C. $1,250 D. None of the above 59. Consider a bond with an equity warrant. The warrant entitles the bondholder to buy 25 shares of the issuer at €50 per share for the lifetime of the bond. The bond is a 30-year zero coupon bond with a €1,000 par value that has a yield to maturity of i€ = 5 percent. The price of the bond is €500. What is the value of the warrant? A. €231.38 B. €268.62 C. €500 D. none of the above 60. Find the price of a 30-year zero coupon bond with a €1,000 par value that has a yield to maturity of i = 5 € percent. A. €231.38 B. €432.20 C. €4,321.94 D. none of the above 61. U.S. citizens must pay tax on the imputed interest represented by the fact that zero coupon bonds price gets a bit closer to par value as each year goes by. If you have a 25-year zero coupon bond with $1,000 par value, how much imputed interest will you record in the coming year if interest rates stay the same at ten percent? A. $92.30 B. $9.23 C. $0 D. none of the above 62. Zero-coupon bonds issued in 2006 are due in 2016. If they were originally sold at 55 percent of face value, the implied yield to maturity at issuance is A. 1.062%. B. 6.16%. C. 8.31%. D. cannot be determined, need more information.

63. Zero coupon bonds A. pay interest at zero percent. B. are sold at a discount from par value. C. are attractive to Japanese investors who are not required to pay taxes on capital gains. D. both a and b. 64. Zero coupon bonds A. have no interest income. B. are sold at a premium to par value. C. gave only capital gains income. D. both a and c 65. Find the value today of a 2-year dual currency bond with annual coupons (paid in U.S. dollars at a 5 percent coupon rate) that pays £500 per $1,000 par value at maturity. The cash flows of the bond are:

The dollar-based yield to maturity is i$ = 3%; the spot exchange rate is $1.80 = £1.00; expected inflation over the next three years is π$ = 2% in the U.S. and π£ = 3% in the U.K. A. $927.62 B. $941.30 C. $965.06 D. $599.00 66. When the bond sells at par, the implicit SF/$ exchange rate at maturity of a Swiss franc/U.S. dollar dual currency bonds that pay $581.40 at maturity per SF1,000, is A. SF0.58/$1.00. B. SF1.58/$1.00. C. SF1.72/$1.00. D. SF1.95/$1.00. 67. Consider a British pound—U.S. dollar dual currency bonds that pay £581.40 at maturity per $1,000 of par value. If at maturity, the exchange rate is $1.90 = £1.00, A. you should insist on getting paid in dollars. B. investors holding this bond are better off for the exchange rate. C. the issuer of the bond is worse off for the exchange rate. D. both b and c 68. Find the value of a three-year dual currency bond with annual coupons (paid in U.S. dollars at a 5 percent coupon rate) that pays £500 per $1,000 par value at maturity. The cash flows of the bond are:

The dollar-based yield to maturity is i$ = 3%; the spot exchange rate is $1.80 = £1.00; expected inflation over the next three years is π$ = 2% in the U.S. and π£ = 3% in the U.K. A. $927.62 B. $941.30 C. $965.06 D. $987.06

69. Assuming that the bond sells at par, the implicit $/£ exchange rate at maturity of a British pound—U.S. dollar dual currency bonds that pay £581.40 at maturity per $1,000 of par value is: A. $1.95/£1.00 B. $1.72/£1.00 C. $1.58/£1.00 D. $0.5814/£1.00 70. Your firm has just issued five-year floating-rate notes indexed to six-month U.S. dollar LIBOR plus 1/4 percent. What is the amount of the first coupon payment your firm will pay per U.S. $1,000 of face value, if six-month LIBOR is currently 7.2 percent? A. $36.00 B. $37.25 C. $74.50 D. None of the above 71. Find the value today of a 2-year dual currency bond with annual coupons (paid in U.S. dollars at a 5 percent coupon rate) that pays £500 per $1,000 par value at maturity. The cash flows of the bond are:

The dollar-based yield to maturity is i$ = 3%; the spot exchange rate is $1.80 = £1.00; the pound-based yield to maturity is i£ = 4%. A. $927.77 B. $941.30 C. $965.06 D. $880.65 72. Consider an 8.5 percent Swiss franc/U.S. dollar dual-currency bonds that pays $666.67 at maturity per SF1,000 of par value. If the bond sells at par, what is the implicit SF/$ exchange rate at maturity? Will the investor be better or worse off at maturity if the actual SF/$ exchange rate is SF1.35/$1.00? A. SF1.5/$1.00; better off B. SF1.5/$1.00; worse off 73. A five-year, 4 percent Euroyen bond sells at par. A comparable risk five-year, 5.5 percent yen/dollar dual-currency bond pays $833.33 at maturity per ¥100,000 of face value. It sells for ¥110,000. What is the implied ¥/$ exchange rate at maturity? A. ¥131/$1.00 B. ¥120/$1.00 C. ¥110/$1.00 D. ¥103/$1.00 74. A five-year, 4 percent euro denominated bond sells at par. A comparable risk five-year, 5.5 percent euro/ dollar dual-currency bond pays $1,500 at maturity per €1,000 of face value. It sells for €1,250. What is the implied $/€ exchange rate at maturity? A. $1.2266/€1.00 B. €0.8153/$1.00 C. $1.25/€1.00 D. $1.50/€1.00

75. A 2-year, 4 percent euro denominated bond sells at par. A comparable risk 2-year, 5.5 percent euro/dollar dual-currency bond pays $1,500 at maturity per €1,000 of face value. It sells for €1,250. What is the implied $/€ exchange rate at maturity? A. €0.8265/$1.00 B. $1.2099/€1.00 C. $1.25/€1.00 D. $1.50/€1.00 76. A 1-year, 4 percent euro denominated bond sells at par. A comparable risk 1-year, 5.5 percent euro/dollar dual-currency bond pays $1,500 at maturity per €1,000 of face value. It sells for €1,250. What is the implied $/€ exchange rate at maturity? A. €0.8300/$1.00 B. $1.2048/€1.00 C. $1.25/€1.00 D. $1.50/€1.00 77. With regard to dual-currency bonds versus comparable straight fixed-rate bonds, A.dual currency bonds usually trade at a premium to reflect the value of the forward contract implicit in their repayment schedule. B. the interest on dual-currency bonds is usually lower than on comparable straight fixed-rate debt. C. the interest on dual-currency bonds is usually higher than on comparable straight fixed-rate debt. D. none of the above 78. A 1-year, 4 percent pound denominated bond sells at par. A comparable risk 1-year, 5.5 percent pound/ dollar dual-currency bond pays $2,000 at maturity per £1,000 of face value. It sells for £900. What is the implied direct $/£ exchange rate at maturity? A. £0.4405/$1.00 B. $1.2048/£1.00 C. $2.2701/£1.00 D. $2.0000/£1.00 79. "Investment grade" ratings are in the following categories: A. Moody's: AAA to BBB - S&P's: Aaa to Baa B. Moody's: Aaa to Baa - S&P's: AAA to BBB C. Moody's: AAA to A - S&P's: Aaa to A D. Moody's: Aaa to A - S&P's: AAA to A 80. Standard & Poor's has for years provided credit ratings on international bonds. A. The ratings reflect the safety of principal for a U.S. investor. B. Their ratings reflect the creditworthiness of the borrower and not exchange rate uncertainty. C. Their ratings reflect creditworthiness of the lender and predict the exchange rate expected to prevail at maturity. D. The ratings are biased since 40 percent of Eurobond issues are rated AAA and 30 percent are AA. 81. A disproportionate share of Eurobonds have high credit ratings in comparison to domestic and foreign bonds. (Approximately 40 percent of Eurobond issues are rated AAA and 30 percent are AA). Explanations for this include A. the issuers receiving low credit ratings invoke their publication rights and have had them withdrawn prior to dissemination. B the Eurobond market is accessible only to firms that have good credit ratings and name recognition to . begin with; hence, they are rated highly. C. there is "grade inflation" on the part of the bond rating agencies which are paid by the issuers and have to compete for business. D. both a and b

82. The credit rating of an international borrower A. depends on the volatility of the exchange rate. B. depends on the volatility, but not absolute level, of the exchange rate. C. is usually never higher than the rating assigned to the sovereign government of the country in which it resides. D. is unrelated to the rating assigned to the sovereign government of the country in which it resides. 83. Investors in corporate bonds would still be interested in sovereign credit ratings A. because the sovereign credit rating usually represents a ceiling on corporate credit ratings within that country. B. because they might play the TED spread. C. because they are the rating assigned by the country's regulators. D. none of the above 84. In any year, the Eurobond segment of the international bond market accounts for approximately what percent of new bond offering? A. 10% B. 25% C. 50% D. 80% 85. The underwriting syndicate of a bond offering is A a group of investment banks, merchant banks, and the merchant banking arms of commercial banks that . agree to buy the bond from the issuer and then resell it. B. a group of investment fund managers, brokers, and dealers who specialize in the secondary bond market. C a group of investment banks, merchant banks, and the merchant banking arms of commercial banks that . specialize in some phase of a public issuance. D. none of the above 86. Underwriters for an international bond issue will commit their own capital to buy the issue from the borrower at a discount from the issue price. The discount, or underwriting spread, is typically A. in the 1 to 1.5 percent range. B. in the 2 to 2.5 percent range. C. in the 3 to 3.5 percent range. D. in the 4 to 4.5 percent range. 87. Underwriters for a domestic bond issue will commit their own capital to buy the issue from the borrower at a discount from the issue price. The discount, or underwriting spread, is typically A. in the 1 to 1.5 percent range. B. in the 2 to 2.5 percent range. C. in the 3 to 3.5 percent range. D. in the 4 to 4.5 percent range. 88. The role of an underwriter is to A. help negotiate terms with the borrower. B. ascertain market conditions. C. manage the issuance. D. all of the above. 89. Suppose your firm issues a €100,000,000 one-year bond with a coupon rate of 8 percent per annum. The underwriting spread is 2 percent. Your actual cost of this debt is A. 8 percent. B. 10 percent. C. 10.2 percent. D. None of the above

90. Suppose your firm needs to raise €100,000,000 with a one-year bond with a coupon rate of 8 percent per annum. The underwriting spread is 2 percent. What should the amount of the bond offering be? A. €102,000,000 B. €102,040,816.30 C. €94,482,237 D. €110,204,081.60 91. The secondary market for Eurobonds A. is an over-the-counter market. B. is an organized exchange. C. has never developed—there is only a primary market for Eurobonds. 92. Eurobond market makers and dealers are members of the ______________, a self-regulatory body based in Zurich. A. International Currency Market Association (ICMA) B. International Bond Marketers Association (IBMA) C. International Bond Regulators Association (IBRA) D. International Capital Market Association (ICMA) 93. In the bond market, there are brokers and market makers. Which of the following are true? A Brokers accept buy or sell orders from market makers and then attempt to find a matching party for the . other side of the trade; they may also trade for their own account. B. Brokers charge a small commission for their services to the market maker that engaged them. C. Brokers do not deal directly with retail clients. D. All of the above 94. Market makers in the secondary bond market A. stand ready to buy or sell for their own account. B. quote bid and ask spreads. C. trade directly with one another, through a broker or with retail customers. D. all of the above 95. With regard to clearing procedures for bond transactions A. it is a system for transferring ownership of bonds. B. it is a system for ensuring payment from buyers to sellers. C. most Eurobond trades clear through two major clearing systems. D. all of the above 96. With regard to clearing procedures for bond transactions, when a transaction is conducted, electronic book entries are made that transfer book ownership of the bond certificates from the seller to the buyer and transfer funds from the purchaser's cash account to the seller's. However, A. physical transfer of the bonds seldom takes place. B. the physical transfer of the bonds takes place as much as 3 days later. C. the physical transfer of the bonds takes place as much as 6 weeks later. D the physical transfer of bonds only occurs if the depository banks that physically store bond certificates . are different for the buyer and seller. 97. Two major clearing systems for international bond transactions are A. Euroclear and Clearstream International. B. Euroclear and Clearasil. C. Deutsche Börse Clearing and Cedel International. D. None of the above

98. A bond market index A. is a reference rate, like LIBOR, that adjustable rate bonds use to set the coupon. B. is analogous to a stock market index, but with bond price data instead of stock price data. C. represents a price-weighted average of all bonds that exist. D. none of the above 99. The J. P. Morgan and Company Global Government Bond Index is __________ representation of the individual country government bond indexes. A. a value weighted B. a price weighted C. an unweighted 100.The Wall Street Journal publishes daily values of yields to maturity for Japanese, German, British, and Canadian Government bonds. A. Bond market participants can thereby compare the yield curve of the various countries. B. Bond market participants can thereby compare the term structure of interest rates of the various countries. C. Both a and b D. None of the above

12 Key 1.

Eurobonds sold in the United States may not be sold to U.S. citizens. TRUE Eun - Chapter 12 #1 Topic: National Security Regulation

2.

In any given year, about what percent of new international bonds are likely to be Eurobonds rather than foreign bonds? A. 80% B. 45% C. 25% D. 15% Eun - Chapter 12 #2 Topic: The Worlds Bond Markets: A Statistical Perspective

3.

In any given year, about what percent of outstanding bonds are likely to be international rather than domestic bonds? A. 70% B. 50% C. 30% D. 5% Eun - Chapter 12 #3 Topic: The Worlds Bond Markets: A Statistical Perspective

4.

A "foreign bond" issue is A one denominated in a particular currency but sold to investors in national capital markets other than . the country that issued the denominating currency. B. one offered by a foreign borrower to investors in a national market and denominated in that nation's currency. C. for example, a German MNC issuing dollar-denominated bonds to U.S. investors. D. both b and c Eun - Chapter 12 #4 Topic: Foreign Bonds and Eurobonds

5.

The four currencies in which the majority of domestic and international bonds are denominated are A. U.S. dollar, the euro, the Indian rupee, and the Chinese Yuan. B. U.S. dollar, the euro, the pound sterling, and the Swiss franc. C. U.S. dollar, the euro, the Swiss franc, and the yen. D. U.S. dollar, the euro, the pound sterling, and the yen. Eun - Chapter 12 #5 Topic: Foreign Bonds and Eurobonds

6.

A "Eurobond" issue is A one denominated in a particular currency but sold to investors in national capital markets other than . the country that issued the denominating currency. B. usually a bearer bond. C. for example a Dutch borrower issuing dollar-denominated bonds to investors in the U.K., Switzerland, and the Netherlands. D. all of the above Eun - Chapter 12 #6 Topic: Foreign Bonds and Eurobonds

7.

Proportionately more domestic bonds than international bonds are denominated in the ______ and the ______ while more international bonds than domestic bonds are denominated in the _________ and the ________. A. Euro; yen; dollar; pound sterling B. Dollar; pound sterling; euro; yen C. Euro; pound sterling; dollar; yen D. Dollar; yen; euro; pound sterling Eun - Chapter 12 #7 Topic: Foreign Bonds and Eurobonds

8.

In any given year, rightly 80 percent of new international bonds are likely to be A. Eurobonds. B. foreign currency bonds. C. domestic bonds. D. none of the above Eun - Chapter 12 #8 Topic: Foreign Bonds and Eurobonds

9.

"Yankee" bonds are A. dollar-denominated foreign bonds originally sold to U.S. investors. B. yen-denominated foreign bonds originally sold in Japan. C. pound sterling-denominated foreign bonds originally sold in the U.K. D. none of the above Eun - Chapter 12 #9 Topic: Foreign Bonds and Eurobonds

10.

"Samurai" bonds are A. dollar-denominated foreign bonds originally sold to U.S. investors. B. yen-denominated foreign bonds originally sold in Japan. C. pound sterling-denominated foreign bonds originally sold in the U.K. D. none of the above Eun - Chapter 12 #10 Topic: Foreign Bonds and Eurobonds

11.

"Dragon" bonds are A. dollar-denominated foreign bonds originally sold to U.S. investors. B. dollar-denominated bonds originally sold in Asia with non-Japanese issuers. C. pound sterling-denominated foreign bonds originally sold in the U.K. D. none of the above Eun - Chapter 12 #11 Topic: Foreign Bonds and Eurobonds

12.

"Bulldog" bonds are A. dollar-denominated foreign bonds originally sold to U.S. investors. B. yen-denominated foreign bonds originally sold in Japan. C. pound sterling-denominated foreign bonds originally sold in the U.K. D. none of the above Eun - Chapter 12 #12 Topic: Foreign Bonds and Eurobonds

13.

A "bearer bond" is one that A. shows the owner's name on the bond. B. the owner's name is recorded by the issuer. C. possession is evidence of ownership. D. both a and b Eun - Chapter 12 #13 Topic: Bearer Bonds and Registered Bonds

14.

A "registered bond" is one that A. shows the owner's name on the bond. B. the owner's name is recorded by the issuer. C. the owner's name is assigned to a bond serial number recorded by the issuer. D. all of the above Eun - Chapter 12 #14 Topic: Bearer Bonds and Registered Bonds

15.

U.S. security regulations require Yankee bonds and U.S. corporate bonds sold to U.S. citizens to be A. municipal bonds. B. registered bonds. C. bearer bonds. D. none of the above Eun - Chapter 12 #15 Topic: Bearer Bonds and Registered Bonds

16.

Eurobonds are usually A. bearer bonds. B. registered bonds. C. bulldog bonds. D. foreign currency bonds. Eun - Chapter 12 #16 Topic: Bearer Bonds and Registered Bonds

17.

Investors will generally accept a lower yield on ________ than on __________ of comparable terms, making them a less costly source of funds for the issuer to service. A. bearer bonds; registered bonds B. registered bonds; bearer bonds C. Eurobonds; domestic bonds D. domestic bonds; Eurobonds Eun - Chapter 12 #17 Topic: Bearer Bonds and Registered Bonds

18.

With a bearer bond, A. possession is evidence of ownership. B. the issuer keeps records indicating only who the current owner of a bond is. C. the owner's name is on the bond. D. the owner's name is assigned to the bond serial number, but not indicated on the bond. Eun - Chapter 12 #18 Topic: Bearer Bonds and Registered Bonds

19.

Publicly traded Yankee bonds must A. meet the same regulations as U.S. domestic bonds. B. meet the same regulations as Eurobonds if sold to Europeans. C. meet the same regulations as Samurai bonds if sold to Japanese. D. none of the above Eun - Chapter 12 #19 Topic: National Security Regulation

20.

Securities sold in the United States to public investors must be registered with the SEC, and a prospectus disclosing detailed financial information about the issuer must be provided and made available to prospective investors. This encourages foreign borrowers wishing to raise U.S. dollars to use A. the Eurobond market. B. their domestic market. C. bearer bonds. D. none of the above Eun - Chapter 12 #20 Topic: National Security Regulation

21.

Because __________ do not have to meet national security regulations, name recognition of the issuer is an extremely important factor in being able to source funds in the international capital market. A. Eurobonds B. Foreign bonds C. Bearer bonds D. Registered bonds Eun - Chapter 12 #21 Topic: National Security Regulation

22.

The shorter length of time in bringing a Eurodollar bond issue to market, coupled with the lower rate of interest that borrowers pay for Eurodollar bond financing in comparison to Yankee bond financing, are two major reasons why the Eurobond segment of the international bond market is roughly ________ the size of the foreign bond segment. A. four times B. two times C. ten times D. one hundred times Eun - Chapter 12 #22 Topic: National Security Regulation

23.

The Eurobond segment of the international bond market A. is roughly four times the size of the foreign bond segment. B. has considerably less regulatory hurdles than the foreign bond segment. C. typically has a lower rate of interest that borrowers pay in comparison to Yankee bond financing. D. all of the above Eun - Chapter 12 #23 Topic: National Security Regulation

24.

U.S. corporations A. are allowed to issue bearer bonds to non-U.S. citizens. B. are not allowed to issue bearer bonds. C. are allowed to issue treasury bonds but not T-bills. D. none of the above Eun - Chapter 12 #24 Topic: Withholding Taxes

25.

The withholding tax on bond income was originally called the interest equalization tax. A. You can thank John F. Kennedy for imposing this tax. B. You can thank Ronald Reagan for imposing this tax. C. You can thank Jimmy Carter for imposing this tax. D. You can thank George Washington for imposing this tax. Eun - Chapter 12 #25 Topic: Withholding Taxes

26.

Shelf registration A. allows the shelves in a set of bookshelves to remain level. B. allows an issuer to preregister a securities issue, and then "shelve" the securities for later sale. C. allows an investment bank to increase the fees they charge by charging for storage of the "shelved" securities. D. eliminates the information disclosure that many foreign firms found objectionable in the foreign bond market. Eun - Chapter 12 #26 Topic: Other Recent Regulatory Changes

27.

Private placement bond issues A. do not have to meet the strict information disclosure requirements of publicly traded issues. B. have auditing requirements that do no adhere to publicly traded issues. C. meet the strict information disclosure requirements of publicly traded issues, but have larger minimum denominations. D. none of the above Eun - Chapter 12 #27 Topic: Other Recent Regulatory Changes

28.

One unintended consequence of Sarbanes-Oxley Ais that international companies are starting to prefer issuing Eurobonds bonds in the private . placement market in the U.S. to avoid costly information disclosure required of registered bonds. B. is that international companies are starting to prefer to issue Yankee bonds in the private placement market in the U.S. C is that international companies are starting to prefer issuing Yankee bonds in the bearer bond market . in the U.S. to avoid costly information disclosure required of registered bonds. D is that international companies have left the bond market in the U.S. to avoid costly information . disclosure required of registered bonds. Eun - Chapter 12 #28 Topic: Other Recent Regulatory Changes

29.

Global bond issues were first offered in A. 1889. B. 1989. C. 1999. D. 2007. Eun - Chapter 12 #29 Topic: Global Bonds

30.

Purchasers of global bonds are A. mainly institutional investors to date. B. desirous of the increased liquidity of the issues. C. have been willing to accept lower yields. D. all of the above Eun - Chapter 12 #30 Topic: Global Bonds

31.

A "global bond" issue A. is a very large international bond offering by several borrowers pooled together. B. is a very large international bond offering by a single borrower that is simultaneously sold in several national bond markets. C. has higher yields for the purchasers. D. has a lower liquidity. Eun - Chapter 12 #31 Topic: Global Bonds

32.

A global bond issue denominated in U.S. dollars and issued by U.S. corporations A. trade as Eurobonds overseas. B. trade as domestic bonds in the U.S. domestic market. C. both a and b D. none of the above Eun - Chapter 12 #32 Topic: Global Bonds

33.

Global bond issues A. can save U.S. issuers 20 basis points relative to domestic bonds, all else equal. B. tend to have increased liquidity relative to Eurobonds or domestic bonds. C. have been partially facilitated by rule 144A. D. all of the above Eun - Chapter 12 #33 Topic: Global Bonds

34.

In terms of the types of instruments offered, A. the Yankee bond market has been more innovative than the international bond market. B. the international bond market has been much more innovative than the U.S. market. C. the most innovations have come from Milan, just like any other fashion. D. none of the above Eun - Chapter 12 #34 Topic: Types of Instruments

35.

Find the present value of a 2-year Treasury bond that pays a semi-annual coupon, has a coupon rate of 6%, a yield to maturity of 5%, a par value of $1,000 when the yield to maturity is 5%. A. $1,018.81 B. $1,231.15 C. $699.07 D. none of the above Eun - Chapter 12 #35 Topic: Straight Fixed-Rate Issues

36.

Find the present value of a 3-year bond that pays an annual coupon, has a coupon rate of 6%, a yield to maturity of 5%, a par value of €1,000 when the yield to maturity is 5%. A. €1,018.81 B. €1,027.23 C. €1,099.96 D. none of the above Eun - Chapter 12 #36 Topic: Straight Fixed-Rate Issues

37.

Find the present value of a 30-year bond that pays an annual coupon, has a coupon rate of 6%, a yield to maturity of 5%, a par value of €1,000 when the yield to maturity is 5%. A. €1,018.81 B. €1,027.23 C. €1,153.73 D. none of the above Eun - Chapter 12 #37 Topic: Straight Fixed-Rate Issues

38.

The vast majority of new international bond offerings A. are straight fixed-rate notes. B. are callable and convertible. C. are convertible adjustable rate. D. are adjustable rate, with interest rate caps and collars. Eun - Chapter 12 #38 Topic: Straight Fixed-Rate Issues

39.

The vast majority of new international bond offerings A. make annual coupon payments. B. have fixed coupon payments. C. have a fixed maturity. D. all of the above Eun - Chapter 12 #39 Topic: Straight Fixed-Rate Issues

40.

In contrast to many domestic bonds, which make _________ coupon payments, coupon interest on Eurobonds is typically paid _________. A. semiannual; annually B. annual; semiannually C. quarterly; semiannually D. quarterly; annually Eun - Chapter 12 #40 Topic: Straight Fixed-Rate Issues

41.

Straight fixed-rate bond issues have Aa designated maturity date at which the principal of the bond issue is promised to be repaid. During . the life of the bond, fixed coupon payments, which are a percentage of the face value, are paid as interest to the bondholders. Ba designated maturity date at which the principal of the bond issue is promised to be repaid. During . the life of the bond, coupon payments, which are a percentage of the face value, are computed according to a fixed formula. C. a fixed payment, which amortizes the debt, like a house payment or car payment. D. none of the above Eun - Chapter 12 #41 Topic: Straight Fixed-Rate Issues

42.

The coupon interest on Eurobonds A. is paid annually. B. is paid in cash. C. is paid in arrears. D. all of the above Eun - Chapter 12 #42 Topic: Straight Fixed-Rate Issues

43.

Eurobonds are usually A. registered bonds. B. bearer bonds. C. floating-rate, callable and convertible. D. denominated in the currency of the country that they are sold in. Eun - Chapter 12 #43 Topic: Straight Fixed-Rate Issues

44.

Unlike a bond issue, in which the entire issue is brought to market at once, _______ is partially sold on a continuous basis through an issuance facility that allows the borrower to obtain funds only as needed on a flexible basis. A. a Euro-medium term note issue B. bearer bond C. a Euro-long term note issue D. a Euro-short term note issue Eun - Chapter 12 #44 Topic: Euro-Medium-Term Notes

45.

Euro-medium term notes A. are typically fixed-rate corporate notes issued with maturities ranging from less than a year to about ten years. B. are typically fixed-rate corporate notes issued with maturities ranging from three years to about ten years. C. are sold just like bonds in the primary market. D. none of the above Eun - Chapter 12 #45 Topic: Euro-Medium-Term Notes

46.

Six-month U.S. dollar LIBOR is currently 4.375%; your firm issued floating-rate notes indexed to sixmonth U.S. dollar LIBOR plus 50 basis points. What is the amount of the next semi-annual coupon payment per U.S. $1,000 of face value? A. $43.75 B. $48.75 C. $24.375 D. $46.875 Eun - Chapter 12 #46 Topic: Floating-Rate Notes

47.

Find the yield to maturity for this floating rate note: The reset date is today; coupons are paid annually according to the formula (LIBOR + ¼ percent); since issuance, there has not been a change in the issuer's credit rating. The bond has ten years to maturity and LIBOR = 3.5 percent. A. 3.5% B. 4% C. 3.75% D. There is not enough information provided to make a determination. Eun - Chapter 12 #47 Topic: Floating-Rate Notes

48.

Floating-rate notes (FRN) A. experience very volatile price changes between reset dates. B. are typically medium-term bonds with coupon payments indexed to some reference rate (e.g. LIBOR). C appeal to investors with strong need to preserve the principal value of the investment should they . need to liquidate prior to the maturity of the bonds. D. both b and c Eun - Chapter 12 #48 Topic: Floating-Rate Notes

49.

On a reset date, floating-rate notes A. experience very volatile price changes. B. market price will usually gravitate toward par. C. market price will usually gravitate toward par, unless the borrowers credit rating has declined. D. both b and c Eun - Chapter 12 #49 Topic: Floating-Rate Notes

50.

Floating-rate notes A. are a form of adjustable rate bond. B. have contractually specified coupon payments, therefore they are fixed rate bonds. C. always trade at par value. D. both a and c Eun - Chapter 12 #50 Topic: Floating-Rate Notes

51.

A five-year floating-rate note has coupons referenced to six-month dollar LIBOR, and pays coupon interest semiannually. Assume that the current six-month LIBOR is 6 percent. If the risk premium above LIBOR that the issuer must pay is 1/8 percent, the next period's coupon rate on a $1,000 face value FRN will be: A. $29.375 B. $30.000 C. $30.625 D. $61.250 Eun - Chapter 12 #51 Topic: Floating-Rate Notes

52.

True or false: floating rate notes behave differently in response to interest rate risk than straight fixedrate bonds. ATrue since FRNs experience only mild price changes between reset dates, over which time the next . period's coupon payment is fixed (assuming, of course, that the reference rate corresponds to the market rate applicable to the issuer). B. False since all bonds experience an inverse price change when the market rate of interest changes. C. None of the above Eun - Chapter 12 #52 Topic: Floating-Rate Notes

53.

A ten-year Floating-rate note (FRN) has coupons referenced to 3-month pound LIBOR, and pays coupon interest quarterly. Assume that the current 3-month LIBOR is 3 percent. If the risk premium above LIBOR that the issuer must pay is 1/8 percent, the next period's coupon rate on a £1,000 face value FRN will be A. £31.25. B. £15.625. C. £30.625. D. £7.8125. Eun - Chapter 12 #53 Topic: Floating-Rate Notes

54.

The floor value of a convertible bond A. is the "straight bond" value. B. is the conversion value. C. is the minimum of a and b. D. is the maximum of a and b. Eun - Chapter 12 #54 Topic: Equity-Related Bonds

55.

There are two types of equity related bonds: A. convertible bonds and dual currency bonds. B. convertible bonds and kitchen sink bonds. C. convertible bonds and bonds with equity warrants. D. callable bonds and exchangeable bonds. Eun - Chapter 12 #55 Topic: Equity-Related Bonds

56.

Bonds with equity warrants A. are really the same as convertible bonds if the prestated price of exercising the warrant is the par value of the bond. B. can be viewed as straight debt with a call option (technically a warrant) attached. C. can only be exercised on coupon dates. D. typically are convertible as well. Eun - Chapter 12 #56 Topic: Equity-Related Bonds

57.

A convertible bond pays interest annually at a coupon rate of 5% on a par value of $1,000. The bond has 10 years maturity remaining and the discount rate on otherwise identical non-convertible debt is 6.5%. The bond is convertible into shares of common stock at a conversion price of $25 per share (i.e. the bond is exchangeable for 40 shares). Today's closing stock price was $20. What is the floor value of this bond? A. $800.00 B. $892.17 C. $1,250 D. None of the above Eun - Chapter 12 #57 Topic: Equity-Related Bonds

58.

A convertible bond pays interest annually at a coupon rate of 5% on a par value of $1,000. The bond has 10 years maturity remaining and the discount rate on other-wise identical non-convertible debt is 5%. The bond is convertible into shares of common stock at a conversion price of $25 per share (i.e. the bond is exchangeable for 40 shares). Today's closing stock price was $31.25. What is the floor value of this bond? A. $800.00 B. $1,000 C. $1,250 D. None of the above Eun - Chapter 12 #58 Topic: Equity-Related Bonds

59.

Consider a bond with an equity warrant. The warrant entitles the bondholder to buy 25 shares of the issuer at €50 per share for the lifetime of the bond. The bond is a 30-year zero coupon bond with a €1,000 par value that has a yield to maturity of i€ = 5 percent. The price of the bond is €500. What is the value of the warrant? A. €231.38 B. €268.62 C. €500 D. none of the above Eun - Chapter 12 #59 Topic: Equity-Related Bonds

60.

Find the price of a 30-year zero coupon bond with a €1,000 par value that has a yield to maturity of i€ = 5 percent. A. €231.38 B. €432.20 C. €4,321.94 D. none of the above Eun - Chapter 12 #60 Topic: Zero-Coupon Bonds

61.

U.S. citizens must pay tax on the imputed interest represented by the fact that zero coupon bonds price gets a bit closer to par value as each year goes by. If you have a 25-year zero coupon bond with $1,000 par value, how much imputed interest will you record in the coming year if interest rates stay the same at ten percent? A. $92.30 B. $9.23 C. $0 D. none of the above Eun - Chapter 12 #61 Topic: Zero-Coupon Bonds

62.

Zero-coupon bonds issued in 2006 are due in 2016. If they were originally sold at 55 percent of face value, the implied yield to maturity at issuance is A. 1.062%. B. 6.16%. C. 8.31%. D. cannot be determined, need more information. Eun - Chapter 12 #62 Topic: Zero-Coupon Bonds

63.

Zero coupon bonds A. pay interest at zero percent. B. are sold at a discount from par value. C. are attractive to Japanese investors who are not required to pay taxes on capital gains. D. both a and b. Eun - Chapter 12 #63 Topic: Zero-Coupon Bonds

64.

Zero coupon bonds A. have no interest income. B. are sold at a premium to par value. C. gave only capital gains income. D. both a and c Eun - Chapter 12 #64 Topic: Zero-Coupon Bonds

65.

Find the value today of a 2-year dual currency bond with annual coupons (paid in U.S. dollars at a 5 percent coupon rate) that pays £500 per $1,000 par value at maturity. The cash flows of the bond are:

The dollar-based yield to maturity is i$ = 3%; the spot exchange rate is $1.80 = £1.00; expected inflation over the next three years is π$ = 2% in the U.S. and π£ = 3% in the U.K. A. $927.62 B. $941.30 C. $965.06 D. $599.00 Eun - Chapter 12 #65 Topic: Dual-Currency Bonds

66.

When the bond sells at par, the implicit SF/$ exchange rate at maturity of a Swiss franc/U.S. dollar dual currency bonds that pay $581.40 at maturity per SF1,000, is A. SF0.58/$1.00. B. SF1.58/$1.00. C. SF1.72/$1.00. D. SF1.95/$1.00. Eun - Chapter 12 #66 Topic: Dual-Currency Bonds

67.

Consider a British pound—U.S. dollar dual currency bonds that pay £581.40 at maturity per $1,000 of par value. If at maturity, the exchange rate is $1.90 = £1.00, A. you should insist on getting paid in dollars. B. investors holding this bond are better off for the exchange rate. C. the issuer of the bond is worse off for the exchange rate. D. both b and c Eun - Chapter 12 #67 Topic: Dual-Currency Bonds

68.

Find the value of a three-year dual currency bond with annual coupons (paid in U.S. dollars at a 5 percent coupon rate) that pays £500 per $1,000 par value at maturity. The cash flows of the bond are:

The dollar-based yield to maturity is i$ = 3%; the spot exchange rate is $1.80 = £1.00; expected inflation over the next three years is π$ = 2% in the U.S. and π£ = 3% in the U.K. A. $927.62 B. $941.30 C. $965.06 D. $987.06 Eun - Chapter 12 #68 Topic: Dual-Currency Bonds

69.

Assuming that the bond sells at par, the implicit $/£ exchange rate at maturity of a British pound— U.S. dollar dual currency bonds that pay £581.40 at maturity per $1,000 of par value is: A. $1.95/£1.00 B. $1.72/£1.00 C. $1.58/£1.00 D. $0.5814/£1.00 Eun - Chapter 12 #69 Topic: Dual-Currency Bonds

70.

Your firm has just issued five-year floating-rate notes indexed to six-month U.S. dollar LIBOR plus 1/ 4 percent. What is the amount of the first coupon payment your firm will pay per U.S. $1,000 of face value, if six-month LIBOR is currently 7.2 percent? A. $36.00 B. $37.25 C. $74.50 D. None of the above Eun - Chapter 12 #70 Topic: Dual-Currency Bonds

71.

Find the value today of a 2-year dual currency bond with annual coupons (paid in U.S. dollars at a 5 percent coupon rate) that pays £500 per $1,000 par value at maturity. The cash flows of the bond are:

The dollar-based yield to maturity is i$ = 3%; the spot exchange rate is $1.80 = £1.00; the poundbased yield to maturity is i£ = 4%. A. $927.77 B. $941.30 C. $965.06 D. $880.65 Eun - Chapter 12 #71 Topic: Dual-Currency Bonds

72.

Consider an 8.5 percent Swiss franc/U.S. dollar dual-currency bonds that pays $666.67 at maturity per SF1,000 of par value. If the bond sells at par, what is the implicit SF/$ exchange rate at maturity? Will the investor be better or worse off at maturity if the actual SF/$ exchange rate is SF1.35/$1.00? A. SF1.5/$1.00; better off B. SF1.5/$1.00; worse off Eun - Chapter 12 #72 Topic: Dual-Currency Bonds

73.

A five-year, 4 percent Euroyen bond sells at par. A comparable risk five-year, 5.5 percent yen/dollar dual-currency bond pays $833.33 at maturity per ¥100,000 of face value. It sells for ¥110,000. What is the implied ¥/$ exchange rate at maturity? A. ¥131/$1.00 B. ¥120/$1.00 C. ¥110/$1.00 D. ¥103/$1.00 Eun - Chapter 12 #73 Topic: Dual-Currency Bonds

74.

A five-year, 4 percent euro denominated bond sells at par. A comparable risk five-year, 5.5 percent euro/dollar dual-currency bond pays $1,500 at maturity per €1,000 of face value. It sells for €1,250. What is the implied $/€ exchange rate at maturity? A. $1.2266/€1.00 B. €0.8153/$1.00 C. $1.25/€1.00 D. $1.50/€1.00 Eun - Chapter 12 #74 Topic: Dual-Currency Bonds

75.

A 2-year, 4 percent euro denominated bond sells at par. A comparable risk 2-year, 5.5 percent euro/ dollar dual-currency bond pays $1,500 at maturity per €1,000 of face value. It sells for €1,250. What is the implied $/€ exchange rate at maturity? A. €0.8265/$1.00 B. $1.2099/€1.00 C. $1.25/€1.00 D. $1.50/€1.00 Eun - Chapter 12 #75 Topic: Dual-Currency Bonds

76.

A 1-year, 4 percent euro denominated bond sells at par. A comparable risk 1-year, 5.5 percent euro/ dollar dual-currency bond pays $1,500 at maturity per €1,000 of face value. It sells for €1,250. What is the implied $/€ exchange rate at maturity? A. €0.8300/$1.00 B. $1.2048/€1.00 C. $1.25/€1.00 D. $1.50/€1.00 Eun - Chapter 12 #76 Topic: Dual-Currency Bonds

77.

With regard to dual-currency bonds versus comparable straight fixed-rate bonds, A. dual currency bonds usually trade at a premium to reflect the value of the forward contract implicit in their repayment schedule. B. the interest on dual-currency bonds is usually lower than on comparable straight fixed-rate debt. C. the interest on dual-currency bonds is usually higher than on comparable straight fixed-rate debt. D. none of the above Eun - Chapter 12 #77 Topic: Dual-Currency Bonds

78.

A 1-year, 4 percent pound denominated bond sells at par. A comparable risk 1-year, 5.5 percent pound/dollar dual-currency bond pays $2,000 at maturity per £1,000 of face value. It sells for £900. What is the implied direct $/£ exchange rate at maturity? A. £0.4405/$1.00 B. $1.2048/£1.00 C. $2.2701/£1.00 D. $2.0000/£1.00 Eun - Chapter 12 #78 Topic: Dual-Currency Bonds

79.

"Investment grade" ratings are in the following categories: A. Moody's: AAA to BBB - S&P's: Aaa to Baa B. Moody's: Aaa to Baa - S&P's: AAA to BBB C. Moody's: AAA to A - S&P's: Aaa to A D. Moody's: Aaa to A - S&P's: AAA to A Eun - Chapter 12 #79 Topic: International Bond Market Credit Ratings

80.

Standard & Poor's has for years provided credit ratings on international bonds. A. The ratings reflect the safety of principal for a U.S. investor. B. Their ratings reflect the creditworthiness of the borrower and not exchange rate uncertainty. C. Their ratings reflect creditworthiness of the lender and predict the exchange rate expected to prevail at maturity. D. The ratings are biased since 40 percent of Eurobond issues are rated AAA and 30 percent are AA. Eun - Chapter 12 #80 Topic: International Bond Market Credit Ratings

81.

A disproportionate share of Eurobonds have high credit ratings in comparison to domestic and foreign bonds. (Approximately 40 percent of Eurobond issues are rated AAA and 30 percent are AA). Explanations for this include A. the issuers receiving low credit ratings invoke their publication rights and have had them withdrawn prior to dissemination. B the Eurobond market is accessible only to firms that have good credit ratings and name recognition . to begin with; hence, they are rated highly. C. there is "grade inflation" on the part of the bond rating agencies which are paid by the issuers and have to compete for business. D. both a and b Eun - Chapter 12 #81 Topic: International Bond Market Credit Ratings

82.

The credit rating of an international borrower A. depends on the volatility of the exchange rate. B. depends on the volatility, but not absolute level, of the exchange rate. C. is usually never higher than the rating assigned to the sovereign government of the country in which it resides. D. is unrelated to the rating assigned to the sovereign government of the country in which it resides. Eun - Chapter 12 #82 Topic: International Bond Market Credit Ratings

83.

Investors in corporate bonds would still be interested in sovereign credit ratings A. because the sovereign credit rating usually represents a ceiling on corporate credit ratings within that country. B. because they might play the TED spread. C. because they are the rating assigned by the country's regulators. D. none of the above Eun - Chapter 12 #83 Topic: International Bond Market Credit Ratings

84.

In any year, the Eurobond segment of the international bond market accounts for approximately what percent of new bond offering? A. 10% B. 25% C. 50% D. 80% Eun - Chapter 12 #84 Topic: Eurobond Market Structure and Practices

85.

The underwriting syndicate of a bond offering is A a group of investment banks, merchant banks, and the merchant banking arms of commercial banks . that agree to buy the bond from the issuer and then resell it. B. a group of investment fund managers, brokers, and dealers who specialize in the secondary bond market. a C group of investment banks, merchant banks, and the merchant banking arms of commercial banks . that specialize in some phase of a public issuance. D. none of the above Eun - Chapter 12 #85 Topic: Primary Market

86.

Underwriters for an international bond issue will commit their own capital to buy the issue from the borrower at a discount from the issue price. The discount, or underwriting spread, is typically A. in the 1 to 1.5 percent range. B. in the 2 to 2.5 percent range. C. in the 3 to 3.5 percent range. D. in the 4 to 4.5 percent range. Eun - Chapter 12 #86 Topic: Primary Market

87.

Underwriters for a domestic bond issue will commit their own capital to buy the issue from the borrower at a discount from the issue price. The discount, or underwriting spread, is typically A. in the 1 to 1.5 percent range. B. in the 2 to 2.5 percent range. C. in the 3 to 3.5 percent range. D. in the 4 to 4.5 percent range. Eun - Chapter 12 #87 Topic: Primary Market

88.

The role of an underwriter is to A. help negotiate terms with the borrower. B. ascertain market conditions. C. manage the issuance. D. all of the above. Eun - Chapter 12 #88 Topic: Primary Market

89.

Suppose your firm issues a €100,000,000 one-year bond with a coupon rate of 8 percent per annum. The underwriting spread is 2 percent. Your actual cost of this debt is A. 8 percent. B. 10 percent. C. 10.2 percent. D. None of the above Eun - Chapter 12 #89 Topic: Primary Market

90.

Suppose your firm needs to raise €100,000,000 with a one-year bond with a coupon rate of 8 percent per annum. The underwriting spread is 2 percent. What should the amount of the bond offering be? A. €102,000,000 B. €102,040,816.30 C. €94,482,237 D. €110,204,081.60 Eun - Chapter 12 #90 Topic: Primary Market

91.

The secondary market for Eurobonds A. is an over-the-counter market. B. is an organized exchange. C. has never developed—there is only a primary market for Eurobonds. Eun - Chapter 12 #91 Topic: Secondary Market

92.

Eurobond market makers and dealers are members of the ______________, a self-regulatory body based in Zurich. A. International Currency Market Association (ICMA) B. International Bond Marketers Association (IBMA) C. International Bond Regulators Association (IBRA) D. International Capital Market Association (ICMA) Eun - Chapter 12 #92 Topic: Secondary Market

93.

In the bond market, there are brokers and market makers. Which of the following are true? A Brokers accept buy or sell orders from market makers and then attempt to find a matching party for . the other side of the trade; they may also trade for their own account. B. Brokers charge a small commission for their services to the market maker that engaged them. C. Brokers do not deal directly with retail clients. D. All of the above Eun - Chapter 12 #93 Topic: Secondary Market

94.

Market makers in the secondary bond market A. stand ready to buy or sell for their own account. B. quote bid and ask spreads. C. trade directly with one another, through a broker or with retail customers. D. all of the above Eun - Chapter 12 #94 Topic: Secondary Market

95.

With regard to clearing procedures for bond transactions A. it is a system for transferring ownership of bonds. B. it is a system for ensuring payment from buyers to sellers. C. most Eurobond trades clear through two major clearing systems. D. all of the above Eun - Chapter 12 #95 Topic: Clearing Procedures

96.

With regard to clearing procedures for bond transactions, when a transaction is conducted, electronic book entries are made that transfer book ownership of the bond certificates from the seller to the buyer and transfer funds from the purchaser's cash account to the seller's. However, A. physical transfer of the bonds seldom takes place. B. the physical transfer of the bonds takes place as much as 3 days later. C. the physical transfer of the bonds takes place as much as 6 weeks later. D the physical transfer of bonds only occurs if the depository banks that physically store bond . certificates are different for the buyer and seller. Eun - Chapter 12 #96 Topic: Clearing Procedures

97.

Two major clearing systems for international bond transactions are A. Euroclear and Clearstream International. B. Euroclear and Clearasil. C. Deutsche Börse Clearing and Cedel International. D. None of the above Eun - Chapter 12 #97 Topic: Clearing Procedures

98.

A bond market index A. is a reference rate, like LIBOR, that adjustable rate bonds use to set the coupon. B. is analogous to a stock market index, but with bond price data instead of stock price data. C. represents a price-weighted average of all bonds that exist. D. none of the above Eun - Chapter 12 #98 Topic: International Bond Market Indexes

99.

The J. P. Morgan and Company Global Government Bond Index is __________ representation of the individual country government bond indexes. A. a value weighted B. a price weighted C. an unweighted Eun - Chapter 12 #99 Topic: International Bond Market Indexes

100.

The Wall Street Journal publishes daily values of yields to maturity for Japanese, German, British, and Canadian Government bonds. A. Bond market participants can thereby compare the yield curve of the various countries. B. Bond market participants can thereby compare the term structure of interest rates of the various countries. C. Both a and b D. None of the above Eun - Chapter 12 #100 Topic: International Bond Market Indexes

12 Summary Category Eun - Chapter 12 Topic: Bearer Bonds and Registered Bonds Topic: Clearing Procedures Topic: Dual-Currency Bonds Topic: Equity-Related Bonds Topic: Euro-Medium-Term Notes Topic: Eurobond Market Structure and Practices Topic: Floating-Rate Notes Topic: Foreign Bonds and Eurobonds Topic: Global Bonds Topic: International Bond Market Credit Ratings Topic: International Bond Market Indexes Topic: National Security Regulation Topic: Other Recent Regulatory Changes Topic: Primary Market Topic: Secondary Market Topic: Straight Fixed-Rate Issues Topic: The Worlds Bond Markets: A Statistical Perspective Topic: Types of Instruments Topic: Withholding Taxes Topic: Zero-Coupon Bonds

# of Questions 100 6 3 14 6 2 1 8 9 5 5 3 6 3 6 4 9 2 1 2 5