Thus the statement in d is not applicable to an

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Unformatted text preview: Thus the statement in D is not applicable to an efficient financial system, making it the answer. See page 8. 4 Debt may be either secured or unsecured. Which of the following is correct? A) secured debt is debt that can be traded in the capital market B) the promise that secured debt will be repaid is supported by a claim over specified assets Feedback: Secured debt is less risky for lenders than unsecured debt because the borrower’s promise to repay C) secured debt is more risky for the lender than unsecured debt the loan is supported by a claim over certain assets or a guarantee from a third party. This means that if the D) the risks of secured and unsecured have been pledged as security and sell them. Secured borrower defaults the lender can seize the assets thatdebt are essentially the same debt may be marketable but this is not necessarily the case. In summary, A, C and D are and B is the only answer. See page 13. 5 Financial instruments 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 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 corporati...
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