UNIT 4: LOANS & CREDITS

What is a corporate bond?

• A type of stock investment

• A loan issued by the government

• A form of debt finance used by companies to raise capital

• An equity finance method for banks

What is disintermediation in the context of banking?

• Issuing loans at a higher interest rate

• Borrowing directly from the public, cutting out the bank

• Raising equity through shares

• Borrowing money from other banks

Why do large corporations prefer bonds over bank loans?

• Bonds offer lower interest rates

• Banks refuse to lend to large corporations

• Bonds are more flexible

• Bonds are not taxed

What is the principal in a bond?

• The amount of interest paid

• The face value or original investment

• The bank issuing the bond

• The maturity date of the bond

What is a bond's yield?

• The interest payment made on the bond

• The maturity date of the bond

• The risk rating of the bond

• The amount the bondholder initially invested

What role do investment banks play in issuing bonds?

• They buy the bonds themselves

• They charge fees to issue bonds for corporations

• They decide the interest rates

• They sell bonds directly to consumers

What does a AAA credit rating signify?

• High risk

• Minimal credit risk

• Moderate risk

• Financial instability

How do bond prices typically react to changes in interest rates?

• Prices remain stable

• Prices rise as interest rates fall

• Prices fall as interest rates fall

• Prices increase regardless of interest rates

What is meant by the 'maturity date' of a bond?

• The date interest payments start

• The date by which the principal must be repaid

• The date when the bond is first issued

• The time when the bond can be traded

Which of the following is NOT part of a company's financial portfolio?

• Bonds

• Securities

• Credit ratings

• Stocks