Question

14. Junk bonds are bonds that are rated less than investment grade by bond-rating agencies a) True b) False 15. A secured loan has a claim to specific assets ofthe borrower in the case of default. a) True b) False 16. In a conventional interest rate swap agreement, the swap buyer agrees to make a number of fixed interest rate payments to the swap seller a) True b) False 17. Currency swaps can be designed to reduce foreign exchange risk. a) True b) False 18. Derivative contracts allow an FI to manage interest rate and foreign exchange risk. a) True b) False 19. In a forward contract agreement, the quantity of product to be traded, the time of the actual trade and the price are determined at the time of the agreement. a) True b) False 20. The sensitivity of the price ofa futures contract depends on the duration of the deliverable asset underlying the contract. a) True b) False

Answer 1

.14.Junk Bonds are high yield bonds carrying a high risk of default. Hence these are non investment grade bonds with credit rating of BB or lower

Answer:

.a)TRUE

.15 Sedured Loan is a loan where the borrower pledges some asset as collateral to the loan.

Secured loan has a claim on specific asset (Pledged asset) of the borrower,

Answer:

.a) TRUE

.16. Under a conventional interest rate swap the parties agree to exchange periodic fixed and floating payments by reference to a pre-agreed notional amount

Answer:

b) FALSE

.17.

The purpose of a currency swap is to avoid risk of change in exchange rate.

Answer:

a) TRUE

18. The interest and foreign exchange risk can be managed by using derivative contracts like futures, options, swaps etc

Answer:

.a) TRUE

19. Forward contract is a contract where two parties agree to buy/sell specified goods of specified quantity at specified price at specified future time.

Answer:

.a) TRUE

20. a)TRUE