M05 – FI Government Issuers: CFAI Practice Problems


Question 1

On a sovereign government’s balance sheet, which of the following items is most appropriately classified as an asset?

  • A. Outstanding treasury bonds held by the public
  • B. Tax revenues collected during the current fiscal year
  • C. Foreign currency reserves held by the central bank

Question 2

A developing country with limited domestic capital markets seeks to finance a large infrastructure project. This sovereign government would most likely finance this project by:

  • A. Issuing only domestic currency bonds to local retail investors
  • B. Reducing government expenditures in all other areas to fund the project from the budget surplus
  • C. Issuing bonds in a major foreign currency (such as USD or EUR) in international capital markets

Question 3

In a single-price auction for government bonds, all successful bidders receive their bonds at:

  • A. The price they individually bid
  • B. The average price of all accepted bids
  • C. The same price, which is the highest yield (lowest price) among accepted competitive bids

Question 4

Government securities that were most recently issued for a given maturity are commonly referred to as:

  • A. On-the-run securities
  • B. Off-the-run securities
  • C. Benchmark securities

Question 5

A US municipal bond whose interest and principal payments are backed solely by the full taxing authority of the issuing government entity is best classified as a:

  • A. General obligation (GO) bond
  • B. Revenue bond
  • C. Conduit bond

Question 6

A government-sponsored enterprise (GSE) issues bonds to fund its operations. The primary source of repayment for these bonds is most likely:

  • A. Direct allocation from the national government’s annual budget
  • B. Cash flows generated from the agency’s own business activities and operations
  • C. Tax revenues collected by the central government on behalf of the agency