Chapter1_PractiseQs

Transactions in the wholesale market are large and

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Unformatted text preview: d mainly on the size D) (value) of the transaction. Transactions in the wholesale market are large and generally involve financial transactions of more than $1 million government corporations and financial intermediaries institutions dealing directly with large corporations or between largeauthorities. The transactions referred to in A, C and D are examples of wholesale transactions but such transactions are not limited to the types of institutions mentioned. The description in B is more general, making it the answer. See page 22. 17 A company that issues promissory notes is: A) raising funds in the commercial paper market B) issuing discount securities C) usually raising funds on an unsecured basis D) all of the above Feedback: Promissory notes are short-term, money market securities, which differ from bills in that they are unsecured. See page 26. 18 Bills of exchange are discount securities. An important feature of discount securities is: A) the term to maturity is long B) the issue price is usually greater than face value C) the holder receives regular interest payments from the issuer D) holders obtain their return on investment from the difference between the price they pay for the security and the price at less it is face Feedback: Discount securities are issued at whichthansold value and redeemed at face value. Thus, they do not involve interest payments and, while the term to maturity is often short, there are also longer term zero-coupon bonds with the same cash flow pattern. Therefore, A, B and C are all and D is the answer. See page 26. 19 XYZ Enterprises Limited needs to raise additional funding to expand its manufacturing operations. Management decidesmarket $10 million in corporate bonds over the next three months. These securities A) wholesale to issue will be issued in the: B) secondary market C) money market Feedback: A new issue is a primary rather than secondary market transaction and since bonds are long-term s ecurities they areD) capital market traded...
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