CME-1 Financial Instruments 2

Question 1

What is the 'par value' (face value) of a bond?

Accepted Answer

The principal amount the issuer agrees to repay at maturity

Answer

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.

Question 2

What is a 'rights issue' in the Saudi equity market?

Accepted Answer

An offering of new shares to existing shareholders proportional to their current holdings at a discount

Answer

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.

Question 3

What distinguishes 'preferred shares' from ordinary shares in Saudi Arabia?

Accepted Answer

Preferred shares typically have priority on dividends and/or assets in liquidation but may have restricted or no voting rights

Answer

Preferred shares confer dividend priority and/or liquidation preference over ordinary shareholders, but often come with limited or no voting rights.

Question 4

What is a 'repurchase agreement' (repo) in the Saudi money market?

Accepted Answer

A short-term borrowing arrangement where securities are sold with an agreement to repurchase them at a higher price on a later date

Answer

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.

Question 5

What is the primary risk for investors in fixed-rate bonds when interest rates rise?

Accepted Answer

Interest rate risk: the bond's market value falls as rising rates make its fixed coupon less competitive

Answer

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.

CME-1 Practice Test

CME-1 Practice Test

CME-1 Financial Instruments 2