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Commercial Paper and Line of Credit

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Questions and Answers

What is the primary reason why investors are willing to accept a higher return from CDs?

To have no access to liquidity (correct)
To take advantage of higher interest rates
To have access to liquidity
To invest in a high-risk investment

What is the characteristic of a negotiable CD that allows it to be purchased and sold between investors?

It is a promissory note
It is a commercial paper
It is a time deposit account
It is a bearer instrument (correct)

How are the interest rates of CDs determined?

By the market's fixed rate
By the bank's fixed rate
By the negotiation between the depositor and the bank (correct)
By the government's regulation

What is the minimum maturity period of a Long-term Negotiable Certificate of Deposit (LTNCD)?

Five years (C) Signup and view all the answers

What is a commercial paper fundamentally?

An unsecured promissory note (A) Signup and view all the answers

Why do LTNCDs offer a higher return compared to regular time deposit accounts?

Because of the long period that depositors will be unable to withdraw the money (A) Signup and view all the answers

What is the primary purpose of repurchase agreements?

To manage liquidity and take advantage of expected changes in interest rates (A) Signup and view all the answers

What is a key characteristic of negotiable certificates of deposit?

They have a specific maturity date (A) Signup and view all the answers

How do dealers of government securities typically use repurchase agreements?

To manage liquidity and take advantage of expected changes in interest rates (D) Signup and view all the answers

What is the main difference between a certificate of deposit and a demand deposit account?

The ability to withdraw funds on demand (A) Signup and view all the answers

What is the primary use of repurchase agreements in the debt securities market?

To provide short-term cash or securities liquidity (C) Signup and view all the answers

What is the primary characteristic of a repo?

It is a collateralized loan (D) Signup and view all the answers

What is the purpose of a bank extending a line of credit to an issuer of commercial paper?

To provide a financing option in case the issuer needs to pay off the commercial paper (D) Signup and view all the answers

Why do issuers of commercial paper agree to pay the line of credit fee?

Because it is lower compared to paying interest on the commercial paper for an extended period (B) Signup and view all the answers

What is a characteristic of commercial papers in the Philippines that are exempt from registering with the SEC?

Payable to a specific person (B) Signup and view all the answers

What is the primary purpose of a banker's acceptance?

To finance the purchase of goods that have not yet been transferred from the seller to the buyer (A) Signup and view all the answers

What happens when a bank accepts a draft or a promise to pay?

The bank promises to pay the amount to the party presenting the draft (A) Signup and view all the answers

Who are the primary users of banker's acceptances?

Exporters and importers (B) Signup and view all the answers

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