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There are also hybrid instruments which may be most

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Unformatted text preview: truments may be divided into three broad categories: equity, debt and derivatives. There are also hybrid instruments, which may be most accurately described as: in a corporation A) a form of equity that provides limited ownership rights B) financial instruments that entitle the holder to a claim that ranks ahead of shareholders C) financial instruments that entitle the holder to a claim over specified assets Feedback: Most, but not all, financial instruments fit into one of the three categories: debt, equity and derivatives. HybridD) financial instruments that incorporate characteristics of both because equity instruments do not fit neatly into any of these categories debt and they combine the characteristics of two of the underlying categories; typically, some of the characteristics of equity and debt. Accordingly, D is the correct answer. See page 12. 6 4 6 INCORRECT There are many types of debt instrument. Which of the following types of debt may a non-financial corporation use toV A) I, II, III, raise borrowed funds? I debentures II certificates of deposit III promissory notes IV Treasury notes V unsecured notes VI term loans B) III, IV, V, VI Feedback: Debentures, promissory notes and unsecured notes are all marketable debt securities that can be C) I, III, V, VI issued by a non-financial corporation. 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 incorrect but C is correct. See page 13. 7 4 7 CORRECT 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 C) Feedback: The term ‘negotiable’ refers to something that can be sold or transferred to another party, which the terms of the instrument can...
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