International Finance and Treasury MCQ Questions and Solutions with Explanations | Management

Type of bonds in which whole issues matures on a single date is considered as term bonds. A term bond refers to bonds from the same issue with the same maturity dates. In effect, term bonds mature on a specific date in the future and the bond face value must be repaid to the bondholder on that date. The term of the bond is the amount of time between bond issuance and bond maturity.

Foreign bonds issued in United Kingdom financial institutions are classified as bull dog bonds. Bulldog bond is a type of bond purchased by buyers interested in earning a revenue stream from the British pound or sterling. A bulldog bond is traded in the United Kingdom. If the revenue is used to reduce debt that is also in British pounds, the exchange rate risk is decreased.

When characteristics of bonds are perceived as unfavourable or favourable to holders of bond then differences of yield spread must changes. Organizations in order to raise capital issue bond to investors which is nothing but a financial contract, where the organization promises to pay the principal amount and interest (in the form of coupons) to the holder of the bond after a certain date. (Also called maturity date).Some Bonds do not pay interest to the investors, however it is mandatory for the issuers to pay the principal amount to the investors.

Treasury securities are considered as exempted from federal taxes. The federal income tax is the tax levied by the United States Internal Revenue Service (IRS) on the annual earnings of individuals, corporations, trusts, and other legal entities. Federal income taxes are applied to all forms of earnings that make up a taxpayer's taxable income, such as employment earnings or capital gains.

Bonds that are usually unsecured and are only backed by worthiness of issuing firm are classified as debentures. Debentures are a debt instrument used by companies and government to issue the loan. The loan is issued to corporates based on their reputation at a fixed rate of interest. Debentures are also known as a bond which serves as an IOU between issuers and purchaser.

Interest rate on Eurobonds are paid annually. A Eurobond is debt instrument that's denominated in a currency other than the home currency of the country or market in which it is issued.

Foreign bonds issued in United States financial institutions are classified as Yankee bonds. Yankee bonds are bonds issued in the U.S. bond market by a foreign entity, and they are denominated in U.S. dollars. Governments, companies, and other entities issue Yankee bonds.

Thin trading of municipal bonds in secondary markets is because of lack of information. Municipal bonds are loans investors make to local governments. They are issued by cities, states, counties, or other local governments. For that reason, the interest they pay on the bonds is tax-free.

In firm commitment underwriting, securities issued are then sold to investors at relatively higher price. In the securities industry an underwriter is a company, usually an investment bank, that helps companies introduce their new securities to the market. In the insurance business, an underwriter is a company liable for insured losses in return for a fee (premium).

Return on callable bond = Rate of return on non-callable bonds + Value of issuer option
= $370 + $250 = $620.