FRNs And MTNs

Question 1

What are FRNs?

Answer 1

Bonds
Variable coupon equal to a money market reference rate e.g. Libor or federal funds

Plus a quoted spread, spread remains consistent

Question 2

Name the 2 types of FRNS and explain what they are

Answer 2

Vanilla (coupon rate linked to LIBOR plus a spread, as well as a fixed maturity date)

Perpetual (no redemption date)

Question 3

What are MTNs?

Answer 3

A debt note that usually matures (is paid back) in 5-10 years, but the term may be less than one year or as long as 100 years.

Can be issued on a fixed or floating coupon basis

Question 4

What’s the key word for FRNs

Answer 4

Variable rate

Adjusted at 3 or 6 monthly intervals In line with LIBOR.

When short term rates rise, the coupon will increase on the next interest refixing date

When rates go down the coupon falls

Question 5

What’s the key word for MTNs

Answer 5

Flexible (more flexible than bonds or FRNs, because diff currencies, coupons, maturities

Question 6

What is the equivalent of eurocredits?

Answer 6

FRNs because the notes are a floating rate asset available to individual investors

Question 7

What are FRNs a component of?

Answer 7

Of the international bond market - notes are bearer securities that are issued in the Eurobond primary market and traded in the secondary market

Question 8

What are the issue procedures for FRNs ?

Answer 8

Same as for Eurobonds

Question 9

How are MTNs issued ?

Answer 9

At odd intervals

To meet the borrowers requirements for funds

To utilise various maturities and currencies