Financial Markets: Bond Characteristics and Bondholder Rights
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Questions and Answers

What is the primary purpose of Federal Land Banks?

  • To provide long-term credit to farmers and ranchers (correct)
  • To regulate money supply and stabilize the national currency
  • To provide short-term credit to farmers and ranchers
  • To support industrial growth and development projects

Which type of bonds is designed to provide financial support to Small and Medium Enterprises (SMEs)?

  • Currency Stabilization Bonds
  • SME Finance Bonds (correct)
  • Industrial Finance Bonds
  • Municipal Bonds

What is the main difference between municipal bonds and national bonds?

  • Municipal bonds have higher credit ratings than national bonds
  • Municipal bonds have lower liquidity than national bonds (correct)
  • Municipal bonds are issued by private entities, while national bonds are issued by government entities
  • Municipal bonds have larger issuance volumes than national bonds

Which institution issues Currency Stabilization Bonds?

<p>Bank of Korea (D)</p> Signup and view all the answers

What is the primary purpose of Industrial Finance Bonds?

<p>To support industrial growth and development projects (C)</p> Signup and view all the answers

Which type of bonds is issued by local government entities to finance specific public projects?

<p>Municipal Bonds (C)</p> Signup and view all the answers

What is the primary reason for the U.S. Treasury issuing notes and bonds?

<p>To finance its operations (B)</p> Signup and view all the answers

Why are Treasury bonds often considered to have a risk-free rate?

<p>Because the U.S. Treasury can print money to pay off the debt (B)</p> Signup and view all the answers

What is the main advantage of Treasury Inflation-Protected Securities (TIPS)?

<p>They eliminate inflation risk from holders of Treasury securities (D)</p> Signup and view all the answers

What is the effect of inflation on Treasury bonds?

<p>It lowers the real value of the money received from the bonds (B)</p> Signup and view all the answers

When were Treasury Inflation-Protected Securities (TIPS) introduced?

<p>1997 (C)</p> Signup and view all the answers

What is a key benefit of the bond market mechanism?

<p>Offering a mechanism for price discovery (A)</p> Signup and view all the answers

What is the relationship between the interest rate on Treasury bonds and the inflation rate, as shown in Figure 2?

<p>The interest rate on Treasury bonds fluctuates with the inflation rate (C)</p> Signup and view all the answers

What is the priority order for secured creditors in asset distribution?

<p>The first claim, due to collateral (B)</p> Signup and view all the answers

What is the main challenge in recovering investments in a bankrupt company?

<p>Limited assets available for liquidation (C)</p> Signup and view all the answers

Which type of bondholders face the highest interest risk?

<p>Subordinated debt holders (D)</p> Signup and view all the answers

What is the main difference between subordinated debt holders and unsecured bondholders?

<p>Priority order in asset distribution (D)</p> Signup and view all the answers

Why do bonds, despite being generally safer investments, still carry significant risks?

<p>In the case of bankruptcy, with limited assets for distribution (A)</p> Signup and view all the answers

What type of bond gives the issuer the right to redeem the bond before maturity at a predetermined price?

<p>Callable bonds (B)</p> Signup and view all the answers

What feature of Floating Rate Notes provides protection against rate fluctuations?

<p>Variable interest rate (C)</p> Signup and view all the answers

What type of bond combines elements of both debt and equity?

<p>Hybrid Securities (B)</p> Signup and view all the answers

What type of bond allows the bondholder to sell the bond back to the issuer at specified times prior to maturity?

<p>Puttable bonds (D)</p> Signup and view all the answers

Which type of bond has a variable interest rate that is adjusted periodically based on a benchmark interest rate or index?

<p>Floating Rate Notes (D)</p> Signup and view all the answers

What is a characteristic of Hybrid Securities that is similar to bonds?

<p>Fixed interest payments (C)</p> Signup and view all the answers

What was the main reason behind Nike's rapid growth?

<p>Outsourcing production to low-cost regions (A)</p> Signup and view all the answers

What was the impact of the 1996 Life magazine story on Nike's reputation?

<p>It damaged the company's reputation and led to protests (A)</p> Signup and view all the answers

What is the primary goal of sustainable finance in the global bond market?

<p>To align with the Sustainable Development Goals (SDGs) (A)</p> Signup and view all the answers

What has been the trend in ESG-linked bond issuance in recent years?

<p>A steady increase in issuance (D)</p> Signup and view all the answers

What is the primary motivation behind Nike's efforts to ensure transparency and proper working conditions in its supply chain?

<p>To improve its public reputation (A)</p> Signup and view all the answers

What is the definition of ESG-linked bonds?

<p>Bonds that align with the Sustainable Development Goals (SDGs) to fund sustainable projects (A)</p> Signup and view all the answers

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