Unformatted text preview: on. A corporation can also borrow by obtaining a term loan from a bank or
D) I, III, However, a non-financial corporation cannot issue certificates of deposit or Treasury
other financial institution.IV, V
notes. Certificates of deposit are issued by authorised deposit-taking institutions and Treasury notes are issued
by the government. Therefore, A, B and D are all but C is . See page 13.
A non-negotiable financial instrument is one where:
A) ownership of the instrument cannot legally be transferred
B) the terms of the instrument cannot be varied after it has been issued
Feedback: The term ‘negotiable’ refers to something that can be sold or transferred to another party, which
the terms of the instrument can be varied by agreement between the issuer and holder
corresponds to the meaning in A. Alternatives B, C and D refer to changes that might be negotiated between two
D) the term to maturity of the instrument contracts that are
parties. (This flexibility may be present in the context of cannot be extended private agreements between two
parties and cannot be transferred to anyone else. In contrast, negotiable (or marketable) instruments have terms
that are (i) clearly stated at the time they are issued and (ii) not easily changed at any later time.) See page 13.
Which of the following statements about derivatives contracts is correct?
A) futures contracts are standardised and traded on an exchange
forward contracts differ from futures contracts only in that forward contracts are standardised
C) an option contract gives the buyer both rights and obligations
Feedback: As stated in A, futures contracts are standardised and traded on an organised exchange but the
s tatements in B, CD) a currency swap errors. Specifically, forward contracts are not standardised; an option gives
and D all contain fixes the interest rate for a loan denominated in a foreign currency
the buyer rights but not obligations and a currency swap fixes an exchange rate rather than an inter...
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