Fixed-Income Markets Issuance Trading and Funding Part 3

Question 1

Characteristics of non sovereign bonds

Answer 1

Credit rating is high as a rate of default is low
source of revenue is the local taxing authority
funds raised are for public projects (roads, schools, etc)

Question 2

Characteristics of quasi government bonds

Answer 2

Credit risk is low
source of revenue specific projects, not taxes

Question 3

Types of bank loans

Answer 3

Bilateral loan
syndicated loan

Linked to reference rate

Question 4

Bilateral loan

Answer 4

A loan from a single lender to a single borrower

Question 5

Syndicated loan

Answer 5

A loan from a group of lenders, called the syndicate, to a single borrower

Question 6

Commercial paper

Answer 6

A flexible, readily available, and low-cost instrument issued by companies to meet their short-term needs

Question 7

Why do companies use commercial paper

Answer 7

For working capital and seasonal demands for cash
as a source of bridge financing

Question 8

Characteristics of commercial paper

Answer 8

The yield is greater than the yield on short-term sovereign bonds
default is low as they are short-term in nature
rolling over the paper: matured CP
rollover risk: unable to issue new CP
back up lines of credit: pay off maturing CP

Question 9

US commercial paper

Answer 9

The largest commercial paper market in the world

Question 10

US commercial paper features

Answer 10

Currency: U.S. dollar
maturity: overnight to 270 days
interest: discount basis
settlement: trade date
negotiable: can be sold to another party

Question 11

Eurocommercial paper

Answer 11

Commercial paper issued in the international market

Question 12

Eurocommercial paper features

Answer 12

Currency: any currency
maturity: overnight to 364 days
interest: interest-bearing bases
settlement: trade date plus 2 days
negotiable: can be sold to another party

Question 13

Differences between USCP and ECP

Answer 13

USCP is sold at a discount, and the par value is paid on maturity
ECP is sold at par, and interest along with the par value is paid at maturity

Question 14

Corporate bonds characteristics

Answer 14

Maturity
coupon payment structures
contingency provisions

Question 15

Maturity

Answer 15

Short-term (note): 5 years of less
medium-term (note): greater than 5 and less than 12 years
long-term (bond): greater than 12 years

Question 16

Coupon payment structures

Answer 16

Conventional coupon bond (fixed)
floating-rate note (reference rate)
credit-linked coupon bond (credit quality)
zero-coupon bonds (no coupon paid)
deferred coupon bond (pay higher coupon later)
payment-in-kind coupon bond (securities)

Question 17

Principal repayments structures

Answer 17

Serial maturity structure (matures in parts)
term maturity structure (paid at maturity)
sinking fund arrangement

Question 18

Contingency provisions

Answer 18

Call provision
Put provision
convertible Bond