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WorksheetsLesson 3: Financial Instruments
Total questions: 50
Worksheet time: 19mins
Fill in the blank: Short term instruments belong to the ________, while long-term instruments belong to the capital market.
money market
stock market
commodity market
derivatives market
Which of the following statements is TRUE about money market instruments?
They are long-term securities
Only equity securities are short-term
They are short-term securities dealt in the money markets
They are always issued by corporations only
Cash management bills are government issued securities with maturities of less than ____ days, specifically 35 days or 42 days.
91
180
365
60
Government securities are unconditional obligations of the government issuing them and are theoretically default-free.
True
False
What are Treasury bills (T-bills) issued by the Bureau of Treasury?
Long-term government securities
Short-term government securities with 91-day, 182-day, and 364-day maturities
Corporate bonds
Bank deposits
Fill in the blank: Treasury bills (T-bills) are sold only through government securities eligible dealers (GSEDs), dealers authorized by the government to sell T-bills. Transactions are done through ________.
bidding online
physical cash
telephone calls
postal mail
Which of the following statements is TRUE about T-bills?
They pay regular interest payments
They are sold at a discount and do not earn interest
They are long-term securities
They are issued by private companies
Fill in the blank: The difference between the purchase price and the face value of a Treasury bill is generally referred to as ________.
discount yield (dy) or margin
coupon rate
par value
interest payment
What is a banker's acceptance?
A type of government bond
A time draft issued by a bank payable to a seller of goods
A type of stock
A bank deposit
What is a letter of credit?
A receipt issued by a commercial bank for the deposit of money
A contractual agreement between a bank and a buyer authorizing payment to a seller
A type of loan given to exporters
A guarantee of foreign bank default
Which of the following is NOT a function of a letter of credit?
Substituting the bank's promise for the buyer's promise
Facilitating the flow of goods and services through international markets
Guaranteeing foreign bank default
Making a commitment to honor drawings made under the credit
What does a Certificate of Deposit (CD) stipulate?
The bearer is entitled to receive annual interest
The bearer can withdraw money at any time
The CD has no maturity date
The CD is only for international transactions
What is a Negotiable Certificate of Deposit?
A bank-issued time deposit that specifies an interest rate and maturity date and is negotiable
A type of savings account with no maturity date
A government bond
A mutual fund
Negotiable Certificates of Deposit are bearer instruments, meaning they are payable to whoever holds the CD when it matures.
True
False
What is a repurchase agreement?
A contract for the sale of securities with a commitment to repurchase at a later date
A type of savings account
A mutual fund investment
A government bond
Money Market Deposit Accounts (MMDAs) are insured by the Philippine Deposit Insurance Corporation (PDIC) up to ________ per person, per bank.
P500,000
P100,000
P1,000,000
P250,000
What are money market mutual funds (MMMFs)?
Money market mutual funds (MMMFs) are investment funds that pool funds from numerous investors and invest in money market instruments offered by investment companies.
Money market mutual funds (MMMFs) are funds that invest exclusively in stocks and bonds for long-term growth.
Money market mutual funds (MMMFs) are government schemes for providing loans to small businesses.
Money market mutual funds (MMMFs) are savings accounts offered by commercial banks with fixed interest rates.
Which type of mutual fund invests primarily in shares of stock?
Bond funds
Stock funds/ equity funds
Balanced funds
Money market funds
Which type of mutual fund invests in long-term debt instruments of government or corporations?
A. Bond funds
B. Stock funds/ equity funds
C. Balanced funds
D. Money market funds
Index funds invest in a basket of securities that make up some market index as the PSEi or index of stocks.
True
False
Global funds invest in securities issued in many countries providing diversification.
True
False
What is a certificate of assignment? Fill in the blank: A certificate of assignment is an agreement that transfers the right of the seller over a security in favor of the _____?
buyer
bank
broker
government
Fill in the blank: A certificate of participation is an instrument that entitles the holder a proportionate equitable interest in the securities held by the issuing firm or an entitlement to a ____ share in a pledged revenue stream.
pro rata
nominal
fixed
variable
What are the two basic types of capital market instruments mentioned in the passage? Fill in the blank: Capital market instruments are basically either _____ securities or _____ securities.
equity, debt
debt, preference
preference, convertible
convertible, redeemable
What are the two main classifications of capital market instruments?
Loans and Leases
Non-negotiable/non-marketable instruments and Negotiable/marketable instruments
Bonds and Stocks
Treasury securities and Agency securities
Non-negotiable/non-marketable instruments in the capital markets include which of the following?
Loans and Leases
Bonds and Stocks
Treasury securities and Agency securities
Mutual funds and ETFs
In a capital lease, who shoulders all expenses of the property as insurance and taxes?
Lessor
Lessee
Bank
Government
Which of the following assets are usually covered by mortgages?
Land, building, and other real estate properties
Office supplies
Vehicles only
Stocks and bonds
Personal lines of credit are used for which of the following?
Home renovation
Buying a car
Vacation
Any major purchase
All of the above
Stocks can be domestic companies or stocks of foreign companies. Shares of stock may be classified as: Which of the following is NOT a classification of shares of stock?
Par value shares
No par value shares
Common shares
Bond shares
Preferred shares can be classified as to dividends. Which of the following is NOT a type of preferred share as to dividends?
cumulative
non-cumulative
participating
redeemable
Fill in the blank: The primary purpose of a par value is to fix ________ issue price of the shares.
minimum
maximum
average
nominal
Which of the following is a main feature of common stock?
Each common stock owned entitles an investor to one vote in shareholders’ meeting.
Common stock guarantees fixed dividends.
Common stock cannot be sold.
Common stock does not provide capital gains.
The benefits an investor receives from common stock include:
Voting rights and potential dividends
Guaranteed fixed returns
No risk of loss
Priority over preferred shareholders in dividends
What is one main advantage of common stock as an investment?
The investment income is usually higher.
The costs of transaction are very high.
The nominal price is higher than other securities.
The investor cannot receive operating income in cash dividends.
Which of the following is a main disadvantage of common stock as an investment?
Common stock is less risky than other securities.
The selection of these securities is simple and easy to evaluate.
The operating income is relatively low.
The main income is received from interest payments.
If a corporation issues only one class of stock, it is called ______ stock.
common
preferred
treasury
convertible
What are cumulative preferred shares?
Cumulative preferred shares are entitled to receive all passed dividends in arrears.
Cumulative preferred shares do not receive any dividends.
Cumulative preferred shares are only entitled to future dividends.
Cumulative preferred shares are the same as ordinary shares.
What are non cumulative preferred shares?
Non cumulative preferred shares are not entitled to passed dividends or dividends in arrears for cumulative shares. They receive only dividends that are currently declared.
Non cumulative preferred shares accumulate dividends over time and receive all missed payments.
Non cumulative preferred shares have voting rights in the company.
Non cumulative preferred shares are entitled to a fixed dividend regardless of company profits.
Dividends out of earnings can be in the form of:
Cash dividend
Stock dividend
Property dividend
Scrip dividend
All of the above
Property dividends are in the form of non-cash assets of the company distributed as dividends to stockholders.
True
False
Which of the following is NOT a characteristic of bonds?
A) Bonds are typically issued by corporations or government bodies for a specified term.
B) Bonds usually pay fixed periodic interest installments.
C) Bondholders gain ownership rights in the issuing company.
D) Bonds become due for payment at maturity.
Which of the following is an advantage of investing in bonds?
Unlimited profit potential
Good source of current income
High risk of large losses
Bondholders are paid after shareholders in case of default
When an investor buys a bond, they become a creditor of the issuer.
True
False
What is an income bond? Fill in the blank: Income bonds are bonds on which interest is paid when and only when earned by the ________ firm.
issuing
borrowing
investing
lending
What is an indexed bond? Fill in the blank: Indexed bonds are bonds where the values of principal and the payout rise with ________ or the value of the underlying commodity.
inflation
interest rates
exchange rates
stock prices
Secured bonds are bonds secured by the pledge of assets (plant or equipment), the title to which is transferred to bondholders in case of ________.
foreclosure
redemption
maturity
default
What are unsecured bonds? Fill in the blank: Unsecured bonds are bonds backed up by the faith and credit of the issuer instead of the pledge of ________.
assets
shares
insurance
contracts
Guaranteed bonds are bonds whose principal or income or both are guaranteed by another corporation or parent company in case of default by the issuing corporation.
True
False
Participating bonds are bonds which, following the receipt of a fixed rate of periodic interest, also receive some of the profit generated by issuing business.
True
False
