WEEK 5 - FINANCIAL INSTRUMENT

Question 1

Any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Answer 1

Financial instrument

Question 2

are CDs with a minimum face value of $100,000. They
are guaranteed by banks, cannot be redeemed before their maturation date, and can usually be sold in highly liquid secondary markets.

Answer 2

Negotiable Certificate of Deposit

Question 3

is defined as a “written acknowledgement by a bank of the receipt of money on deposit which the bank promises to pay to the depositor, bearer or to some other person or order.

Answer 3

Certificate of Deposit

Question 4

Most NCDs are not _______, meaning the bank cannot redeem the instrument prior to the maturity date.

Answer 4

Callable

Question 5

is an unsecured and negotiable moeny market instrument issued in the form of a promissory note.

Answer 5

Commercial paper

Question 6

are debt instruments issued by corporations for the purpose of
raising funds to finance the company’s short term obligations (e.g. payment of payroll, importation of raw materials, inventories).

Answer 6

Short-Term Commercial Paper

Question 7

Risks of Commercial paper

Answer 7

1. Credit rating
2. Liquidity

Question 8

Carrying value as of the balance sheet date of long-term unsecured obligations issued by
corporations and other borrowers to investors (with maturities initially due after one year or
beyond the operating cycle if longer), excluding current portion.

Answer 8

Long-Term Commercial Paper

Question 9

Types of Commercial Paper

Answer 9

1. Drafts
2. Checks
3. Notes
4. Certificates of Deposits

Question 10

is an unconditional written order by one person (the drawer) directing another person (the drawee) to pay a certain sum of money on demand or at a definite time to a named third person (the payee) or to bearer.

Answer 10

Draft

Question 11

“a draft drawn on a bank and payable on demand.”

Answer 11

Checks

Question 12

a check (putting in a future date) does not invalidate it or change its character as payable on demand. Simply changes the first time at which the payee may demand payment.

Answer 12

Postdating

Question 13

True or False:

Checks are, of course, usually written on paper forms, but a check can be written on anything—a door, a shirt, a rock—though certainly the would-be holder is not obligated to accept it.

Answer 13

True

Question 14

often called a promissory note—is a written promise to pay a specified sum of money on demand or at a definite time.

Answer 14

NOtes

Question 15

is a written acknowledgment by a bank that it has received money and agrees to repay it at a time specified in the certificate.

Answer 15

Certificates of deposit