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</p> Signup and view all the answers

    What is the primary purpose of Industrial Finance Bonds?

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

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

    <p>1997</p> Signup and view all the answers

    What is a key benefit of the bond market mechanism?

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

    Which type of bondholders face the highest interest risk?

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

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

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

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

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

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

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

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

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

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