Fixed Income MCQ - Fixed Income Section 1

31 A European country issued floating rate bonds denominated in U.S. dollars that pay coupons quarterly. The most likely reference rate of this bond is:

For floating rate bonds denominated in U.S. dollars the reference rate is usually the U.S. dollar Libor. If coupons are paid quarterly the reference rate will usually be the U.S. dollar 3 month Libor.

32 Which of the following statements is the most accurate?

A
Interbank offered rates are best described as the rates at which major banks can borrow from other major banks against some form of collateral.
B
Interbank offered rates are best described as the rates at which major banks can issue short-term debt.
C
Interbank offered rates are best described as the rates at which major banks can borrow unsecured funds from other major banks.

Interbank offered rates represent a set of interest rates at which major banks believe they could borrow unsecured funds from other major banks in the interbank money market for different currencies and different borrowing periods ranging from overnight to one year.

33 A company issues floating-rate bonds. The coupon rate is expressed as the six-month Libor plus a spread. The coupon payments are most likely to increase as:

The coupon payments on a floating-rate bond that is tied to the six-month Libor will reset every six months, based on changes in Libor. Thus, as Libor increases, so will the coupon payments. A is incorrect because the spread on a floating-rate bond is typically constant; it is set when the bond is issued and does not change afterward. C is incorrect because the issuer’s credit quality affects the spread and thus the coupon rate that serves as the basis for the calculation of the coupon payments, but only when the spread is see that is, at issuance.

34 A company wants to ensure that its entire bond issue is sold. The most appropriate option for the company is:

In an underwriting offering, the investment bank buys the whole issue from the issuer and takes the risk of reselling it to investors or dealers.

35 Which of the following statements is most likely to be correct about bond issuance?
Statement I: Public offerings and private placements are two mechanisms of issuing bonds in a primary market.
Statement II: Shelf registrations are a form of private placements.
Statement III: An auction is a public offering method that involves bidding.

Statement I and III are correct. Statement II is incorrect because shelf registration is a form of public offering.