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CFMP > Exam #2 > Flashcards

Exam #2 Flashcards

1
Q

Also called bonds

Any debt instrument w/ future cash flows that are contractually defined and can be predetermined

A

Fixed income securities

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2
Q

Basic features of a bond

A

Tenor
Issuer
Par Value
Coupon Rate and Frequency
Currency denomination

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3
Q

YTM < coupon rate

A

Premium

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4
Q

YTM>Coupon rate

A

Discount

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5
Q

Make coupon payments in one currency and pay the face value at maturity in another currency

A

Dual-currency bonds

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6
Q

Entitles the bond holders the preference in which they want to receive interest payments and principal repayments

A

Currency option bonds

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7
Q

Celebrities can issue a bond

A
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8
Q

Fixed rate bonds features

A

All-in yield

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9
Q

Formula for credit spread

A

Credit spread = sum of risk premium + default risk-free

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10
Q

Margin or benchmark over default risk-free rate to compensate investor on the firm-specific credit risk on underlying security

A

Credit spread

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11
Q

Yield from govt securities (GS) bond used as reference for corp bond

A

Default risk-free rate

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12
Q

Formula: default risk free rate

A

Real risk free + inflation rate

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13
Q

Internet rate

A

Default risk free rate + credit spread

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14
Q

ROP are dollar-dominated bonds

A
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15
Q

FXTN

A

Fixed rate Treasury notes

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16
Q

RTB

A

Retail Treasury bonds

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17
Q

ROP

A

Republic of the Philippines bonds

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18
Q
  1. Foreign Securities Market
  2. Currency Market
  3. Equity Market
  4. Real Estate Market
  5. Capital Market
  6. Money Market
  7. Cash/Spot Market
A
  1. Very high
  2. High
  3. Medium to High
  4. Medium
  5. Low to Medium
  6. Low
  7. Very Low
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19
Q

Where funds are generated and traded

A

Financial markets

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20
Q

Funds and securities are exchanged between

A

Issuers and investors

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21
Q

Examples of fixed income security

A

Govt bonds
Index-linked bonds
High yield debt

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22
Q

All-in bond yield

A

Credit spread + default risk free

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23
Q

What type of fixed income instrument offers only a return to a default risk free rate

A

Government securities yields

24
Q

Considered default “risk free” interest rates due to a National Government ability to

A
  1. Print money
  2. Collect taxes to pay off its debt
25
Difference between corporate security yield and GS yield is the
Credit spread
26
Attributes of a benchmark
Credible Verifiable Transparent
27
Primary risks /risk considerations
Credit Market Liquidity Operations
28
Measure of income that is comparable to the dividend yield for a common share
Currency yield or running yield
29
Formula for current yield
Annual cash coupon payment/bond price
30
Provides an estimate of the bond's expected return or rate of return Reflects the per annum return
YTM/market discount rate
31
Any given amount is worth more sooner than later
32
Discount factor
= 1/(1+rt)
33
interest rate
= fv/pv-1 x 1/t
34
PV and FV depends on
Interest rate Tenor
35
Bond prices and interest rates move in opposite directions
36
The lower the seniority ranking of a bond, the higher its credit risks
37
Backed by a collateral
Secure debt
38
Represents a general claim to the issuers asset and cash flows
Unsecured debt
39
All debt within the same category
Rank pari passu
40
Independent bodies evaluating the financial strength of companies, assign ratings and assess risk of debt issue
Credit Rating agencies
41
Debt with high rating, appropriate for good credit quality for investments containing certain level of credit risk
Investment grade debt
42
Obligations with lower rating
Non-investment grade
43
Top 3 credit rating agencies
1. Fitch 2. Moody's 3. Standard and POORS (S&P)
44
Philippines is currently ranked lower medium grade
45
Secured by specific types of equipment or physical asstes
Equipment trust certificate
46
Debt obligations that represent claims to the cash flows from pools of mortgage loans, most commonly on residential property
Mortgage backed securities
47
Guarantee received from 3rd party often called a guarantor
External credit enhancement
48
4 C's
Capacity Collateral Covenants Character
49
Underwriting process
Issuer Lend Manager Syndicate Member Selling Agent
50
Macroeconomic factors of a country
GDP GNP Inflation
51
Fiscal and Monetary policies
Budget balance External debt Interest rates and yield curves
52
Debt securities purchased and held with intention of selling within 1 yr
Held for trading
53
Debt securities purchased for medium term
Available for sale
54
Debt securities for investment, intending to hold until maturity
Held to maturity
55
I = P x R x T/360
56
PV =. FV / (1+rt)
57
Fv = PV (1 + rt)

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