Financial Instruments Flashcards
6 cards from real CME-1 practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Financial Instruments flashcards as text
What is the 'par value' (face value) of a bond?
Answer: The principal amount the issuer agrees to repay at maturity
Par value (face value) is the nominal value of the bond that the issuer will repay to holders at maturity, typically SAR 1,000 or SAR 10,000 per bond.
What is a 'rights issue' in the Saudi equity market?
Answer: An offering of new shares to existing shareholders proportional to their current holdings at a discount
In a rights issue, a listed company offers new shares to existing shareholders in proportion to their current holdings, usually at a discount to the market price, to raise capital.
What distinguishes 'preferred shares' from ordinary shares in Saudi Arabia?
Answer: Preferred shares typically have priority on dividends and/or assets in liquidation but may have restricted or no voting rights
Preferred shares confer dividend priority and/or liquidation preference over ordinary shareholders, but often come with limited or no voting rights.
What is a 'repurchase agreement' (repo) in the Saudi money market?
Answer: A short-term borrowing arrangement where securities are sold with an agreement to repurchase them at a higher price on a later date
A repo involves selling securities to a counterparty with a contractual obligation to repurchase them at a set price on a future date, effectively functioning as a secured short-term loan.
What is the primary risk for investors in fixed-rate bonds when interest rates rise?
Answer: Interest rate risk: the bond's market value falls as rising rates make its fixed coupon less competitive
Fixed-rate bondholders face interest rate risk: as market rates rise, the present value of the bond's fixed cash flows decreases, reducing its market price.
What is the yield to maturity (YTM) of a bond?
Answer: The total return anticipated if the bond is held until maturity, accounting for price, coupon payments, and reinvestment
YTM is the internal rate of return that equates the present value of all future cash flows (coupons + principal) to the current market price of the bond.
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