Financial Management: Municipal Bonds

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Questions and Answers

Who is referred to as the purchaser in relation to a traveler's check?

The person receiving the traveler's check

The bank issuing the traveler's check

The person buying the traveler's check (correct)

The person selling the goods or services

What distinguishes a demand draft from other types of drafts?

It is only payable on a specified date.

It is payable upon demand or on sight. (correct)

It can only be used for international transactions.

It requires additional verification before payment.

What is a characteristic of an Automatic Bank Draft (ABD)?

It can only be set for a single transaction.

It involves manual payment every month.

It is only useful for international payments.

It electronically deducts money from the payer's account at regular intervals. (correct)

What is the primary benefit of the Warehouse Receipt System (WRS)?

Offers easy access to finance and lowers financing costs. Signup and view all the answers

Which type of draft is issued by a bank in a single country for local transactions?

Local Draft Signup and view all the answers

What is a Warehouse Receipt (WR) primarily used for?

To serve as evidence of goods stored in a warehouse Signup and view all the answers

Which type of check is certified by the bank regarding funds availability?

Certified check Signup and view all the answers

Which of the following is NOT an advantage of trading through barter exchanges?

Increase in marketing expenses Signup and view all the answers

What does a personal check represent?

Funds drawn against the individual's checking account Signup and view all the answers

Which of the following benefits of barter exchanges helps in making idle time productive?

Eliminating billing hassle Signup and view all the answers

What characteristic defines a traveler's check?

It is preprinted and has a fixed amount Signup and view all the answers

In which case would a business check be used?

When a company pays its suppliers Signup and view all the answers

What is the primary purpose of municipal bonds?

To fund municipal projects like roads and bridges Signup and view all the answers

What is a common function of money reflected in the context of barter exchanges?

To facilitate transactions by serving as a medium of exchange Signup and view all the answers

What characterizes mortgage-backed bonds?

They are secured by collateral in the form of mortgages Signup and view all the answers

Which type of dividend involves non-cash assets?

Property dividends Signup and view all the answers

What distinguishes debenture bonds from secured bonds?

Debenture bonds are unsecured but backed by issuer's reputation Signup and view all the answers

Which bond pays interest rates based on an inflation index?

Indexed bonds Signup and view all the answers

What do liquidating dividends represent?

Return of capital to shareholders Signup and view all the answers

Which of the following is NOT a type of dividend?

Revenue dividends Signup and view all the answers

What are stock options intended for?

Allowing stockholders to purchase additional shares Signup and view all the answers

What is a potential disadvantage of storing value in certain monetary systems?

Values can degrade over time due to inflation. Signup and view all the answers

Which type of debit card is primarily associated with checking accounts?

Current Account Debit Card Signup and view all the answers

What is one distinct advantage of barter systems?

No reliance on currency is required. Signup and view all the answers

Which account type generally has a higher maintaining balance requirement?

Current Account Signup and view all the answers

What is an essential factor when preparing retained earnings for a new year?

Adding dividends to the ending balance from the previous year. Signup and view all the answers

Which type of business organization does NOT include service-oriented purposes?

Manufacturing Companies Signup and view all the answers

What is a defining characteristic of the banking and finance industry?

Enhancing the flow of money and financial services. Signup and view all the answers

Which of the following industries is primarily involved in extracting natural resources?

Mining/Extractive Industry Signup and view all the answers

What is the primary function of money as a medium of exchange?

It facilitates the trade of goods and services. Signup and view all the answers

Which of the following is characteristic of a good medium of exchange?

Should possess scarcity. Signup and view all the answers

What type of money is defined as having value because the government decrees it to be legal tender?

Fiat Money Signup and view all the answers

Which statement accurately describes fiduciary money?

It relies on trust for its value. Signup and view all the answers

What is meant by the term 'means of deferred payment' in relation to money?

It allows for payments that can be made in the future. Signup and view all the answers

Which of the following components is NOT required on a check?

Account balance Signup and view all the answers

Which characteristic of money refers to the ability to be easily transported and handled?

Portability Signup and view all the answers

In the context of a check, who is referred to as the 'drawee'?

The bank where the account is held. Signup and view all the answers

Study Notes

Municipal Bonds

Long-term instruments issued by municipalities for financing infrastructure projects such as roads, bridges, and sewage plants.

Lease-to-Buy

Lease agreements allowing lessees the option to purchase the property after a specified period.

Mortgage-backed Bonds

Bonds secured by mortgages, providing lenders with collateral for their investment.

Indexed or Purchasing Power Bonds

Interest rates tied to an inflation index, like the Consumer Price Index, to protect against inflation.

Dividends

Share of profits distributed to shareholders, classified as:
- Cash dividends: specific amount per share.
- Stock dividends: additional shares issued based on ownership.
- Property dividends: distribution of non-cash assets.
- Liquidating dividends: return of capital, often in liquidation events.

Stock Options

Pre-emptive rights allowing existing shareholders to buy additional shares to maintain ownership proportion.

Corporate Bonds

Types of corporate bonds include:
- Secured bonds: backed by collateral or assets, like mortgages.
- Debenture bonds: unsecured, relying on issuer's creditworthiness.

Warehouse Receipt (WR)

Document certifying the goods stored in a warehouse; can serve as collateral for loans.

Types of Checks

Personal Check: Issued by individuals against their checking accounts.
Business Check: Issued by companies, also drawn from their checking accounts.
Cashier's/Manager's Check: Issued by a bank, guaranteeing payment.
Certified Check: Personal check verified for funds availability.
Traveler's Check: Prepaid check for travel; easily redeemable internationally.

Functions of Money

Acts as a medium of exchange, standard of value, store of value, and means of deferred payment in legal transactions.

Good Medium of Exchange Characteristics

Scarcity: Rarity or difficulty in obtaining the medium.
Divisibility: Ability to divide into smaller units for transactions.
Portability: Ease of transport and handling.
Durability: Long-lasting physical properties.

Parties to a Check

Maker: The individual or entity writing the check.
Drawee: The bank where the check account is maintained.
Payee: The individual or entity receiving payment.

Types of Bank Drafts

Demand Draft: Payable upon immediate presentation.
Time Draft: Payable at a future date.
Local Draft: Used for local transactions within a single country.
International Draft: Valid for transactions across borders.
Automatic Bank Draft (ABD): Scheduled electronic withdrawals from accounts.

Warehouse Receipt System Benefits

Provides easier finance access, lowers transaction costs, enhances storage efficiency, and potentially increases producer profits.

Types of Debit Cards

Current Account: Checking account for everyday transactions.
Savings Account: Account primarily for savings and interest.

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Description

This quiz covers key concepts related to municipal bonds, lease-to-buy agreements, and mortgage-backed bonds. Test your understanding of how these financial instruments are used to fund municipal projects and the intricacies of secured bonds. Explore various bond types including indexed bonds.