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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
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
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
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...
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This note was uploaded on 03/26/2012 for the course FIN 1612 at University of New South Wales.