Chapter 02

A credit default swap (CDS) is a privately negotiated contract which you can use to:   Question 2 options:   hedge prepayment risk on a pool of mortgages.   hedge default risk on fixed income assets.   hedge interest rate risk on fixed income assets.   hedge exchange rate risk on euroyen deposits.

For optional redemption dates securities, maturity date is pre- identified by the issuer and but not declared to the investor. In which, the security is redeemed at any interest date or between two specified dates, or at any interest date on or after a specified date. Select one: a. True b. False

Choose the best answer 1.) Moa entered into a contract to trade-off its 7% interest payable for Nia T-bond plus 3% interest rate payable. From ABC’s perspective, this contract is a 2.) A contract to sell a bond investment. Entities can buy the contract through an exchange. a.)Long forward contract b.)Variable-to-fixed interest rate swap c.)Short forward contract d.)Currency swap e.)Long futures contract f.)Fixed-to-variable interest rate swap g.)Short futures contract

From page 9-2 of the VLN, what is the first thing you want to identify when approaching a bond problem? Group of answer choices A. Annual bond or semiannual bond B. Whether the market rate is different from the stated rate. C. The cash flows provided by the bond. D. The company's debt to equity ratio.

PLEASE HELP ME. THANK YOU

A primary market is: -the financial market where new security is sold for the first time. -the financial market where previously issued securities are sold the second time. -a product market where previously issued securities are resold (traded). -product market where products are sold for the second time Explain the correct option answer well.

A swap: Group of answer choices B. Gives the holder the right to see the underlying bond. A. Allows the buyer to purchase the underlying instrument. C. Is an OTC agreement to exchange the cash flows of two different securities. D. Not effective at managing interest rate risks.

Identify which of the following instrumets are used for hedging receivables Forex Borrowing Choose..V Choose... No Yes Choose... Spot Contract Futures Contract, Option contract Choose... Forward Contract Choose... Forex Lending Choose...

A contract to sell a bond investment. Entities can buy the contract through an exchange. a.)Long forward contract b.)Variable-to-fixed interest rate swap c.)Short forward contract d.)Currency swap e.)Long futures contract f.)Fixed-to-variable interest rate swap g.)Short futures contract

In the context of financial derivatives, what is a futures contract? A) An agreement to exchange assets at a predetermined price and date. B) A contract that grants the holder the right, but not the obligation, to buy or sell an asset. C) A contract to buy or sell a specific quantity of an asset at a future date at a price specified today. D) A contract that provides regular interest payments and returns the principal at maturity.

Debt securities are instruments that provide the holder a promise to pay the instrument's face value (or par value) at the maturity date and interest payment at specific intervals. Question 2 options: True False

The process by which a loan, or more commonly a group, or pool, of loans, is packaged into a deal structure and mortgaged-backed securities are created and issued.  These are tranched or split into different risk levels, thereby allowing investors to buy varying levels of risk.   a. securitization b. tranching c. collateralized d. prepayment

which one is correct please confirm? Q12: A long contract requires that the investor     sell securities in the future.     buy securities in the future.     hedge in the future.     close out his position in the future.

A Collateralized Mortgage Obligation (CMO) allows you to create some AAA rated tranches from a pool of subprime mortgages by ordering the tranches by payback precedence.   Question 36 options:   True   False

Statement 1: The modification of the terms of an obligation is said to be substantially different if the discounted present value of cashflows under the new terms using the original effective rate is at least 10% different from the discounted present value of the remaining cashflows of the original financial liability.Statement 2: Exchange of a building to settle an obligation is an example of an asset swap.     Both statements are correct. Both statements are wrong. Only statement 1 is correct. Only statement 2 is correct.

Which of the following is the best explanation of what the call premium is?   Group of answer choices The amount above the face value an investor must pay to purchase the bond. The additional amount above the face value that the company must pay to repay the bond early. The additional amount above the market price that a company must pay to repay the bond early. The amount above the market price that an investor must pay to purchase the bond.

If bonds are redeemed on maturity date, any premium or discount        a. Is carried forward and written off in the same manner as that used prior to the maturity date.   b. Should be used to calculate the gain or loss resulting from the maturity of the bonds.   c. Should be written off directly to a bond retirement account as the bond will be redeemed.   d. Will be fully amortized as its amortization period is designed to coincide with the life of the bond issue.

1 A long-term contract under which a borrower agrees to make payments of interest and principal on specific dates is called a:  Group of answer choices  common stock.  preferred stock.  bond.  equity contract.

A contract requiring a specified future monetary payment at a specified future point in time in exchange for the delivery of a specific asset is called a: *A. nonconvertible option.B. hedge.C. long contract.D. swap.

Consider a security that pays income to its holders (e.g., a dividend-paying stock, or acoupon bond). Should the forward price of this security (for a contract that matures attime T), F0,T, be higher than, lower than, or equal to the security's current spot price?Why?.

A company is trying to determine whether a debt security should be classified as a trading security or an available-for-sale security. Does the Codification provide guidance on a specific time period that an investor intends to hold a security? Is there a defined cut-off for an intended holding period? Identify the relevant authoritative guidance. (Use the following ASC citation format: ASC 000-00-00-00. Make sure to include "ASC" in your citation.)

Multiple ChoiceIdentify the choice that best completes the statement or answers the question.      9.  For a liability to exist, a. a past transaction or event must have occurred. b. the exact amount must be known. c. the identity of the party owed must be known. d. an obligation to pay cash in the future must exist.      10.  The effective interest rate on bonds is higher than the stated rate when bonds sell a. at face value. b. above face value. c. below face value. d. at maturity value.      11.  The effective interest rate on bonds is lower than the stated rate when bonds sell a. at maturity value. b. above face value. c. below face value. d. at face value.      12.  When interest expense is calculated using the effective-interest amortization method, interest expense (assuming that interest is paid annually) always equals the a. actual amount of interest paid. b. book value of the…

Based on the financial statements above, explain possible “debt to equity swap” scheme carried out by the client and what evidence do you need to collect to ensure that the client's debt to equity swap isfree from material misstatement?

Assume you are lending money to company X. A credit default swap (CDS) consists of an agreement by a third party to pay the lost principal and interest of a loan to you (the CDS buyer) if a borrower defaults on a loan. Which of the following is false? O A. A Swap completely solves the problem that company X might default OB. A Swap solves the default problem from Company X on the condition that the third party (CDS provider) will not default. O C. When financial crisis happens, the CDS seller may have to pay recovery to many CDS buyers, and then the CDS seller could default. O D. B and C are part of the reasons for 2008 Global financial crisis.

Directions: Review the following scenario and answer the question that follows: Scenario: Date of the writedown: 5/01/15 FO loan dated 12/15/2007 in the amount of $200,000 at 5% interest Amount of the writedown: $24,123 Unpaid principal and interest as of the date of the writedown: $168,123.08 Market value of the property securing the note: $144,000 The borrower is selling the security on 6/15/17 for the appraised value of $175,000. A year prior to the sale, the borrower built a small barn on the property which provides a contributory value of $20,000 according to the appraisal. 1. Calculate the amount of Shared Appreciation due.

Please answer fast.  17: reading securitization which one of the among assertions is false:   A: Collateralized mortgage obligation involves SPV B: CDO is a debt instrument where the collateral for the promise to pay is an underlying pool of the debt of obligation and even after the CDOs. C: All the assertions are correct D: When an insurance company seeks to reduce its loan exposure on its balance sheet it uses an arbitrage CDO. E: Mortgage pass-through security is a type of Mortgage-backed security but does involve SPV

Finance

Describe a credit default swap and its purpose. Note the rationale for the protection buyer and the protection seller and the cash flow between the two parties. Describe four key credit events that would trigger payment under a credit default swap.