Free Online CFA Level 1 Mock Exam 8

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Fixed Income

1. Many issuers periodically roll over their commercial paper. To minimize the risk of rollover, they usually need to:

A. have sufficient T-bills as collateral.

B. apply for a bilateral loan.

C. maintain backup lines of credit with banks.

Correct Answer: C

Answer Explanation:

Under the standby line of credit, the bank provides funding for commercial paper as it matures.

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2. Party A sells a 90-day Treasury bill to Party B for USD 99.85 and promises to buy it back the next day for USD 99.87. From Party B’s point of view, this transaction could be called:

A. repo agreement.

B. reverse repo agreement.

C. forward rate agreement.

Correct Answer: B

Answer Explanation:

Party A borrows and Party B lends. From Party B’s perspective, this is a reverse repurchase. Looking at a repurchase agreement from the perspective of the lender of the cash, the transaction is known as a reverse repurchase agreement or reverse repo.

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3. The price of a Singapore dollar-denominated bond issued by a U.S. company in Singapore is most likely to be:

A. change as Singapore’s interest rates change.

B. change as U.S interest rates change.

C. be unaffected by changes in U.S. and Singaporean interest rates.

Correct Answer: A

Answer Explanation:

The currency in which a bond’s cash flows are denominated will affect which country’s interest rates will affect the price of the bond. The price of a Singapore dollar-denominated bond issued by a U.S. company will be affected by the interest rates in Singapore.

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