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)?

    <p>Five years</p> Signup and view all the answers

    What is a commercial paper fundamentally?

    <p>An unsecured promissory note</p> Signup and view all the answers

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

    <p>Because of the long period that depositors will be unable to withdraw the money</p> Signup and view all the answers

    What is the primary purpose of repurchase agreements?

    <p>To manage liquidity and take advantage of expected changes in interest rates</p> Signup and view all the answers

    What is a key characteristic of negotiable certificates of deposit?

    <p>They have a specific maturity date</p> Signup and view all the answers

    How do dealers of government securities typically use repurchase agreements?

    <p>To manage liquidity and take advantage of expected changes in interest rates</p> Signup and view all the answers

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

    <p>The ability to withdraw funds on demand</p> Signup and view all the answers

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

    <p>To provide short-term cash or securities liquidity</p> Signup and view all the answers

    What is the primary characteristic of a repo?

    <p>It is a collateralized loan</p> Signup and view all the answers

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

    <p>To provide a financing option in case the issuer needs to pay off the commercial paper</p> Signup and view all the answers

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

    <p>Because it is lower compared to paying interest on the commercial paper for an extended period</p> Signup and view all the answers

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

    <p>Payable to a specific person</p> Signup and view all the answers

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

    <p>To finance the purchase of goods that have not yet been transferred from the seller to the buyer</p> Signup and view all the answers

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

    <p>The bank promises to pay the amount to the party presenting the draft</p> Signup and view all the answers

    Who are the primary users of banker's acceptances?

    <p>Exporters and importers</p> Signup and view all the answers

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