Deck 29: International Bond Markets

Question 1

In the United Kingdom, a pound-denominated bond issued by a Japanese corporation and subsequently traded in the United Kingdom's bond market:

A) Is part of the Japanese foreign bond market.
B) Is part of the United Kingdom's foreign bond market.
C) Is nicknamed a "samurai bond."
D) a and c only.
E) b and c only.

Answer 1

Is part of the United Kingdom's foreign bond market.

Question 2

The global bond market can be classified into the national bond market and:

A) The international bond market.
B) The external bond market.
C) The offshore bond market.
D) The Eurobond market.
E) All of the above.

Answer 2

All of the above.

Question 3

Australia is classified within the:

A) Euro zone market bloc.
B) Non-euro zone market bloc.
C) Dollar bloc.
D) United Kingdom bloc.
E) Emerging markets bloc.

Answer 3

Dollar bloc.

Question 4

All of the following regarding Euro straights are true EXCEPT:

A) They make coupon payments semiannually.
B) They are referred to as "plain vanilla" bonds.
C) They are fixed-rate coupon bonds.
D) They are issued on an unsecured basis.
E) They are usually issued by high-quality entities.

Question 5

An issue that has both a minimum and a maximum coupon rate is said to be:

A) Capped.
B) Floored.
C) Drop-locked.
D) Collared.
E) Restricted.

Question 6

The coupon rate on a floating-rate note may be:

A) LIBOR.
B) A stated margin.
C) The bid on LIBOR.
D) A spread over LIBID.
E) The arithmetic average of LIBOR and LIBID.

Question 7

A dual-currency issue:

A) Pays coupon interest in one currency and the principal in a second currency.
B) Pays coupon interest in two different currencies.
C) Pays the principal in two different currencies.
D) Is one that is issued in a different currency than the one the investor pays with.
E) None of the above.

Question 8

Which type of bond allows the warrant owner to buy additional bonds from the issuer at the same price and yield as the host bond?

A) Equity warrant.
B) Debt warrant.
C) Currency warrant.
D) Depreciation warrant.
E) All of the above.

Question 9

If the yield to maturity on a Eurodollar bond is 5% then the bond-equivalent yield is:

A) 4.05%.
B) 4.94%.
C) 5.00%.
D) 5.06%.
E) 5.58%.

Question 10

When making a direct comparison between the yield to maturity on a U.S. fixed-rate
Bond and a Eurodollar fixed rate bond:

A) An adjustment must be made because Eurodollar bonds pay annually rather than semiannually.
B) Given the yield on a Eurodollar fixed-rate bond, the bond-equivalent yield will always be lower.
C) Given the yield on a U.S. fixed-rate bond, the yield to maturity on an annual basis is always less than the yield to maturity on a bond-equivalent basis.
D) a and b only.
E) a and c only.

Question 11

By mid 2007, the European government bond market:

A) Represented about 40% of the world's outstanding government bonds.
B) Was second only to the U.S. Treasury market in terms of size.
C) Was about 50% larger than the Japanese government bond market.
D) a and b only.
E) a and c only.

Question 12

In a tap system:

A) There is a regular calendar auction.
B) Winning bidders are allocated securities at the highest yield accepted by the government.
C) Additional bonds of a previously outstanding bond issue are auctioned.
D) Auctions are announced when market conditions appear favorable.
E) Winning bidders are allocated securities at the yield they bid.

Question 13

From the issuing government's perspective:

A) The ad hoc auction system introduces less market volatility than a regular calendar auction.
B) The ad hoc auction system offers less flexibility in raising funds than a regular calendar auction.
C) The ad hoc auction system provides greater stability in scheduling.
D) a and b only.
E) All of the above.

Question 14

Outside of the U.S. inflation-indexed bonds are known as:

A) TIPS.
B) HICPS.
C) Indexers.
D) Linkers.
E) None of the above.

Question 15

With regard to the rating of sovereign bonds, political risk:

A) Is an assessment of the ability of a government to satisfy its obligations.
B) Is an assessment of the willingness of a government to satisfy its obligations.
C) Is assessed based on qualitative analysis of the economic and political factors that influence a government's economic policies.
D) a and b only.
E) b and c only.

Question 16

Governments of emerging markets issue:

A) Eurobonds.
B) Brady bonds.
C) Global bonds.
D) a and b only.
E) All of the above.

Question 17

All of the following are true regarding covered bonds EXCEPT:

A) They are issued by banks.
B) The covered bonds market has become a major sector of the global bonds market.
C) Their use of public sector loans as collateral has been in decline.
D) The cover pool is static over the life of a covered bond.
E) The collateral for covered bonds is predominantly residential and commercial mortgages.

Question 18

The decline in the share of Brady bonds is due to:

A) The fact that many countries have not been able to improve their financial condition so as to raise more money by issuing global bonds and Eurobonds.
B) The lesser liquidity of past-due interest bonds.
C) The decline in emerging markets bond issues.
D) The retirement of these bonds by their issuers.
E) All of the above.

Question 19

Because they are created using the securitization process, covered bonds are often compared to:

A) Residential mortgage-backed securities.
B) Commercial mortgage-backed securities.
C) Asset-backed securities.
D) a and b only.
E) All of the above.

Question 20

The Pfandbriefe market:

A) Is the second largest covered bonds market.
B) Is the largest asset in the European bond market.
C) Is slightly more than one-half of the German bond market.
D) Collateralizes all its bonds by either commercial or residential mortgages.
E) a and b only.

Question 21

There is no uniform system for classifying the sectors of the global bond market.

Question 22

Dollar-denominated bonds issued by Spanish entities are nicknamed "matador bonds."

Question 23

The general objective of the Inter-American Development Bank is to improve the efficiency of the international financial trading markets.

Question 24

A drop-lock bond is one that automatically changes the floating coupon rate into a fixed coupon rate under certain circumstances.

Question 25

LIBID is the arithmetic average of LIBOR and LIMEAN.

Question 26

While U.S. government debt is not rated by any nationally recognized statistical rating organization, the debt of other national governments is rated.

Question 27

In general, the securities issued by governments of emerging market countries are denominated in U.S. dollars.

Question 28

Past-due interest bonds are less frequently traded than principal bonds, and therefore have lesser liquidity.

Question 29

Brady bonds are growing in importance in the emerging bond market.

Question 30

For covered bonds, the composition of the cover pool may change over time.

Question 31

Describe the methods of distribution of new government securities.

Question 32

Explain sovereign debt ratings assigned by ratings agencies.

Question 33

Discuss the differences between covered bonds and residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), and other asset-backed securities (ABS).