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Questions and Answers
Debt can only be categorized as short term and long term within the money market definition.
Debt can only be categorized as short term and long term within the money market definition.
True
Debt market is where equity instruments are transacted.
Debt market is where equity instruments are transacted.
False
Debt instruments are not legally enforceable evidence of financial debt.
Debt instruments are not legally enforceable evidence of financial debt.
False
Debt instruments increase liquidity and decrease transferability.
Debt instruments increase liquidity and decrease transferability.
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Short term debt instruments are expected to be repaid within less than one year.
Short term debt instruments are expected to be repaid within less than one year.
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Credit card bills can be an example of short term debt instruments in personal finance perspective.
Credit card bills can be an example of short term debt instruments in personal finance perspective.
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Short-term debt typically comes in the form of revolving lines of credit and treasury bonds.
Short-term debt typically comes in the form of revolving lines of credit and treasury bonds.
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Long-term debt instruments are obligations due in less than one year.
Long-term debt instruments are obligations due in less than one year.
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Personal finance perspective often involves car loans and mortgage payments.
Personal finance perspective often involves car loans and mortgage payments.
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Debt securities include government bonds, corporate bonds, and preferred stock.
Debt securities include government bonds, corporate bonds, and preferred stock.
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Money market debt securities have maturities greater than one year.
Money market debt securities have maturities greater than one year.
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Interest rates on debt securities are not affected by the perceived repayment ability of the borrower.
Interest rates on debt securities are not affected by the perceived repayment ability of the borrower.
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Debt securities have maturities shorter than one year.
Debt securities have maturities shorter than one year.
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All financial instruments are considered securities.
All financial instruments are considered securities.
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A debt security represents ownership position in a non-traded private company.
A debt security represents ownership position in a non-traded private company.
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Debt securities can only be exchanged for other securities, not cash.
Debt securities can only be exchanged for other securities, not cash.
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Government bonds are considered both debt instruments and debt securities.
Government bonds are considered both debt instruments and debt securities.
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The debt market is also known as the bond market.
The debt market is also known as the bond market.
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Senior tranches in a CDO have higher credit ratings than junior tranches.
Senior tranches in a CDO have higher credit ratings than junior tranches.
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Junior tranches in a CDO offer lower coupon rates compared to senior tranches.
Junior tranches in a CDO offer lower coupon rates compared to senior tranches.
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Corporate bonds are issued by national governments to raise money.
Corporate bonds are issued by national governments to raise money.
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Bonds always provide a steady income stream to investors in the form of coupon payments.
Bonds always provide a steady income stream to investors in the form of coupon payments.
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At maturity, the bond issuer repays the bondholder more than the face value of the bond.
At maturity, the bond issuer repays the bondholder more than the face value of the bond.
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Government bonds provide periodic interest payments to the buyers.
Government bonds provide periodic interest payments to the buyers.
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The coupon rate of a bond is the fixed return that an investor earns at maturity.
The coupon rate of a bond is the fixed return that an investor earns at maturity.
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Municipal bonds are issued by corporations to fund their projects.
Municipal bonds are issued by corporations to fund their projects.
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Mortgage bonds are collateralized by a pool of assets like loans and credit card debt.
Mortgage bonds are collateralized by a pool of assets like loans and credit card debt.
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Investors may purchase a bond at par, above par, or below par based on interest rate levels.
Investors may purchase a bond at par, above par, or below par based on interest rate levels.
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Asset-backed bonds are also known as Corporate Debt Obligations.
Asset-backed bonds are also known as Corporate Debt Obligations.
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The primary goal of the bond market is to provide short-term financial aid for public projects.
The primary goal of the bond market is to provide short-term financial aid for public projects.
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Study Notes
Debt Market Overview
- Debt can be categorized as short-term and long-term based on the money market definition.
- The debt market, also known as the bond market, is primarily where debt instruments are traded, not equity instruments.
Debt Instruments
- Debt instruments are not legally enforceable evidence of financial debt and can impact liquidity and transferability.
- Short-term debt instruments are expected to be repaid in less than one year, exemplified by credit card bills, revolving lines of credit, and treasury bonds.
- Long-term debt instruments include obligations such as car loans and mortgages, due over a longer timeframe.
Characteristics of Debt Securities
- Debt securities encompass government bonds, corporate bonds, and preferred stock.
- Money market debt securities typically have maturities greater than one year.
- Interest rates on debt securities remain unaffected by the perceived repayment ability of borrowers.
Trading and Valuation
- All financial instruments are classified as securities, which can only be exchanged for other securities, not cash.
- Government bonds, regarded as both debt instruments and securities, provide periodic interest payments to their holders.
Bond Structure
- Bonds guarantee a steady stream of income through coupon payments, with the issuer repaying the bondholder more than its face value at maturity.
- Municipal bonds are issued by municipalities to finance specific projects, while mortgage bonds are collateralized by pools of assets such as loans and credit card debts.
Tranche Hierarchy in CDOs
- Senior tranches in Collateralized Debt Obligations (CDOs) carry higher credit ratings than junior tranches.
- Junior tranches offer lower coupon rates compared to senior tranches, reflecting their increased risk.
Investment Aspects
- Investors can purchase bonds at par, above par, or below par prices, influenced by prevailing interest rates.
- Asset-backed bonds may also be referred to as Corporate Debt Obligations (CDOs), highlighting their backing by assets.
Market Goals
- The primary objective of the bond market is to provide short-term financial assistance for public projects, enabling governments and corporations to raise funds when needed.
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Description
Test your knowledge on capital market debt securities, debt instruments, and financial securities. Learn about the differences between debt securities and debt instruments, and understand the concept of financial instruments in the context of securities.
