CHAP6/EXO2 Debt describes a financial agreement in which a borrower receives fun

Question

CHAP6/EXO2

Debt describes a financial agreement in which a borrower receives funds from a lender (or investor) and agrees to pay the funds back either gradually over time or on the maturity date of the debt instrument. The specific terms of different debt securities can vary greatly. In many cases, the borrower agrees to make periodic, usually annual or semiannual, interest payments. However, sometimes borrowers avoid periodic interest payments by agreeing to borrow a given amount and repay a maturity, or face, value that is greater than the amount borrowed. Such a debt instrument is said to be issued at____. Aero Systems Inc. (ASI) recently made a sale to a foreign trading partner, but the customer does not need to make a payment for 30 days. ASI wants assurances that payment will be made in full before it makes shipment. Which type of short-term debt security should ASI and other firms in a similar situation use to remedy this situation? A commercial paper A negotiable certificate of deposit A Eurodollar deposit money market mutual fund A banker's acceptance Jackson Drilling Company (JDC) is a U.S. multinational firm that conducts business and holds funds throughout Europe and Asia. To support its Asian operations, Marshall has deposited several million U.S. dollars in a Tokyo bank. This is an example of: A money market mutual fund A Eurodollar deposit A certificate of deposit A banker's acceptance A commercial paper

Explanation / Answer

zero-coupon bond is a bond that is issued at deep discount to its face value but pays no interest.

1. A banker's acceptance is a future payment guaranteed by the bank and describes the terms of payment.

2. Eurodollar deposit is the deposit denominated in US Dollars at banks outside US.

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