Understanding Bonds in Financial Markets

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Which of the following is a key difference between bonds and loans?

Bonds can be issued by anyone, while loans are restricted to certain institutions

Bonds have a fixed interest rate, while loan interest rates can vary

Bonds are traded in a secondary market, while loans are not (correct)

Bonds have a fixed maturity date, while loans can be open-ended

Which of the following is a characteristic of short-term financing using loans?

Financing the purchase of new machinery and equipment

Financing the purchase of furniture and household appliances (correct)

Financing the purchase of a car

Financing the purchase of a house

What is the main purpose of a mortgage agreement in the context of financing the purchase of a house?

To ensure that the borrower can sell the home at any time

To give the borrower ownership of the home

To guarantee that the borrower will make all payments on time

To give the lender ownership of the home in case the borrower fails to make payments (correct)

Which of the following is a characteristic of long-term financing using loans?

Financing the purchase of a house Signup and view all the answers

Which of the following is a key difference between bonds and loans in terms of price changes?

Bonds are vulnerable to price changes, while the nominal price of a loan usually remains unchanged Signup and view all the answers

Which of the following is a key characteristic of bonds?

Bonds can be issued by anyone or any institution Signup and view all the answers

What type of financial instrument allows the bond holder to earn income from a package of mortgages?

Mortgage-backed security Signup and view all the answers

In the context of mortgage-backed securities, who is entitled to receive payments?

The bond holder Signup and view all the answers

Why are mortgage-backed securities considered risky?

They are tied to mortgage borrower repayments Signup and view all the answers

Which financial market experienced a collapse due to mortgage-backed securities in 2007-2008?

Financial markets Signup and view all the answers

What is the key premise behind generating a rate of return from mortgage bonds?

Generating income from interest payments Signup and view all the answers

Which of the following is NOT a well-known stock market mentioned in the text?

Tokyo Stock Exchange Signup and view all the answers

What is the key difference between bonds and loans?

Bonds are long term financial instruments, while loans have short payment terms. Signup and view all the answers

How do short term bonds facilitate payments for goods?

By offering funds in advance to pay the seller of goods before the buyer is able to pay. Signup and view all the answers

What role does a bank or financial institution play in bond markets?

They act as intermediaries by purchasing bonds from buyers of goods. Signup and view all the answers

Why does a buyer issue a bond to a bank or financial institution?

To transfer the risk of payment to the bank or institution. Signup and view all the answers

How do banks make money in facilitating short term bond transactions?

By buying the promise of payment from the buyer of goods at a discount rate. Signup and view all the answers

Why is it beneficial for governments to issue Treasury bills?

To have an additional source of funds by issuing promises of payment. Signup and view all the answers

Understanding Bonds in Financial Markets

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