Fixed-Income Markets Issuance Trading and Funding Part 1

Question 1

Types of issuers

Answer 1

Household
Non-financial corporates
Government
Financial institutions

Question 2

Credit quality

Answer 2

Credit risk
The risk of loss if the issuer fails to make timely payments of interest and principal as they come due

Question 3

Maturity classification

Answer 3

Money market securities
Capital market securities

Question 4

Types of coupons

Answer 4

Fixed rate
Floating rate (reference rate plus spread)

Question 5

Reference rate

Answer 5

Reset periodically at the coupon date
Interbank Offered Rate (Libor)

Question 6

Interbank Offered Rate

Answer 6

The average interest rates at which banks may borrow unsecured bonds from other banks

Question 7

Spread

Answer 7

Fixed at issuance and is a function of the issuer’s credit quality or creditworthiness

Question 8

Other types of bonds

Answer 8

Tax-exempt bonds
Inflation-linked bonds

Question 9

Tax-exempt bonds

Answer 9

Bonds whose interest/coupon payments are not taxable

Question 10

Inflation-linked bonds

Answer 10

Bonds whose coupon/principal are indexed to inflation

Question 11

Purpose of Fixed-Income indices

Answer 11

To evaluate the performance of investments/investment managers
To describe a given bond market or sector

Question 12

Categories of Fixed-Income investors

Answer 12

Central banks (implement monetary policy)
Institutional investors (pension funds, hedge funds, etc)
Retail investors (mutual bonds/EFTs)