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Question
What is credit-linked note (CLN)? Can it be complicated?Answer
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Related questions
Q:
A key factor affecting the expectation of changes in a country's exchange rate with another currency is the relative ________ of the two countries.
A) known inflation rate
B) known purchasing power
C) expected inflation rate
D) expected risk-free rate
Q:
Unlike a single-name credit default swap, the preferred settlement term for a basket default swap is cash settlement. Describe this cash settlement in terms of the termination value.
Q:
A structured finance operating company (SFOC) is a term used by Moody's to refer to an entity whose business activities and operations as well as its credit rating are based on detailed, predetermined parameters.
Q:
A ________ can result in either the transfer of the credit risk from one bank to another or from a bank to a nonbank entity.
A) cart vehicle
B) bank vehicle
C) bank entity
D) CRT vehicle
Q:
The concerns with credit derivatives and, therefore, synthetic CDOs being used as CRT vehicles include ________.
A) a concern with counterparty risk.
B) a concern with legal risks that may arise from a transaction.
C) a concern with the failure of the counterparty selling credit protection would result in the buyer of credit protection maintaining the credit exposure that it thought it had eliminated.
D) All of these
Q:
Portfolio managers can have a dealer create a ________ equal to the maturity of the reference obligation or have it constructed for a shorter time period to match the manager's investment horizon.
A) tutor
B) tenor
C) maturity
D) length
Q:
The interdealer market has evolved to where single-name credit default swaps for corporate and sovereign reference entities are ________.
A) customized.
B) standardized.
C) nonstandardized.
D) institutionalized.
Q:
The 1999 ISDA Credit Derivatives Definitions (referred to as the "1999 Definitions") provides a list of eight credit events: Which of the below includes three of these eight credit events?
A) bankruptcy, credit event upon merger, and cross deceleration.
B) cross hedge, downgrade, and failure to pay.
C) repudiation / moratorium, restructuring, and cross default.
D) repudiation / natatorium, bankruptcy, and failure to pay.
Q:
The reference entity ________.
A) is the issuer of the debt instrument and hence is also referred to as the reference issuer.
B) is the particular debt issue for which the credit protection is being sought.
C) could not be Ford Motor Credit Company.
D) could be Ford Motor Credit Company bond issue
Q:
What is forward start swap?
Q:
The buyer of a fixed-rate asset can use an interest rate floor to establish a lower bound on its investment return, yet retain the opportunity to benefit should rates increase.
Q:
A ceiling is created by buying an interest rate cap and selling an interest rate floor.
Q:
If at the settlement date the settlement rate is ________ the contract rate, the FRA buyer ________ because the buyer can borrow funds at a below-market rate.
A) equal to; suffers
B) greater than; suffers
C) less than; benefits
D) greater than; benefits
Q:
The FRA's ________ is the rate specified in the FRA at which the buyer of the FRA agrees to pay for funds and the seller of the FRA agrees to receive for investing funds.
A) reference rate
B) contract rate
C) notional rate
D) three-month LIBOR
Q:
The elements of an FRA are the ________.
A) contract rate, reference rate, settlement rate, notional amount, and settlement date.
B) stipulation rate, REPO rate, maturity rate, functional amount, and maturity date.
C) stipulation rate, reference rate, settlement rate, notional amount, and settlement date.
D) contract rate, REPO rate, terminal rate, functional amount, and terminal date.
Q:
Market participants can use interest rate futures in various ways. Name three of these ways.
Q:
Market participants can use interest rate futures to control interest rate movements, speculate on a portfolio's risk exposure to interest rate changes, hedge against adverse interest rate movements, and enhance returns when futures are mispriced.
Q:
A corporation plans to issue long-term bonds two months from now. To protect itself against a rise in interest rates, the corporation can buy put options. If interest rates rise, the interest cost of the bonds issued two months from now will be ________, but the put option will have ________ in value.
A) higher; decreased
B) lower; increased
C) higher; increased
D) lower; not changed
Q:
Suppose that a money manager knows that bonds are maturing in the near future and expects interest rates to fall. ________ can be purchased in this situation.
A) Call options
B) Put options
C) Dividend paying stocks
D) Growth firms
Q:
Suppose that a pension fund manager knows that bonds must be liquidated in 40 days to make a $5 million payment to the beneficiaries of the pension fund. If interest rates rise in 40 days, more bonds will have to be liquidated to realize $5 million. The hedger will buy put options thus following ________.
A) an unprotected call buying strategy.
B) a protective put buying strategy.
C) a protective put selling strategy.
D) an unprotected put buying strategy.
Q:
Which of the below statements is TRUE?
A) Stock options cannot be used to take advantage of the anticipated price movement of individual stocks.
B) An investor can protect against a decline in the price of a stock in her portfolio by buying a call option on that stock.
C) By taking an appropriate position in a suitable stock index option, an institutional investor can create a protective put for part of the diversified portfolio.
D) A protective put buying strategy allows an investor to protect against a decline in the price of a stock in her portfolio by buying a put option on that stock.
Q:
A corporation planning to sell long-term bonds two months from now can protect itself against a rise in interest rates by selling or taking ________ in interest rate futures now.
A) a long position
B) a passive or neutral position
C) a short position
D) an aggressive or active position
Q:
An institutional investor can create a put option synthetically by using either ________.
A) stocks or a riskless asset.
B) stock index futures or stocks.
C) stock index futures or a riskless asset.
D) stock index futures or stocks and a riskless asset.
Q:
Institutional investors can use stock index futures for seven distinct investment strategies. These include ________.
A) speculating on the movement of the bond market.
B) hedging against adverse stock price movements.
C) controlling indexed portfolios.
D) index allocation.
Q:
The strength of the binomial model based on yields is that it satisfies the put-call parity relationship by taking into consideration the yield curve, thereby allowing arbitrage opportunities.
Q:
To show how to calculate the hedge ratio, we use notation that includes the following: ________.
A) S = current asset price and C = current price of a call option.
B) Cd = intrinsic value of the call option if the asset price goes up and E = strike price of the call option.
C) d = current price of a call option and r = a risk-free one-period interest rate .
D) E = strike price of the call option and u = current asset price.
Q:
Suppose a portfolio consisting of the long position in the asset and the short position in the call option is riskless and will produce a return that equals the risk-free interest rate. A portfolio constructed in this way is called ________.
A) a risk-reduced portfolio.
B) an unhedged portfolio.
C) a hedged portfolio.
D) a speculative portfolio.
Q:
All other factors equal, the ________ the expected volatility (as measured by ________) of the price of the underlying asset, the more an investor would be willing to pay for the option, and the more an option writer would demand for it.
A) lower; the variance
B) lower; the standard deviation
C) greater; beta
D) greater; the standard deviation
Q:
The exchange rate between the U.S. dollar and the euro can be quoted as ________.
A) the amount of U.S. dollars necessary to acquire one British pound, and this is the dollar price of one pound.
B) the number of euros necessary to acquire one Japanese yet, or the yen price of one dollar.
C) the amount of U.S. dollars needed to acquire one euro, and this is the dollar price of one euro.
D) the amount of U.S. dollars needed to acquire one Mexican peso, and this is the dollar price of one peso.
Q:
The fundamental fact of international finance is that different countries issue different currencies, and the relative values of those currencies may change ________.
A) quickly, substantially, and without warning.
B) reflect economic developments.
C) as a response to political events that make no economic sense.
D) All of these