CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

Any bond issued by an agency of the U.S. Government ______.

I. is exempt from the federal income tax on interest
II. becomes a direct obligation of the U.S. Treasury in case of default
III. is secured by assets held by the agency
Correct Answer: None of them is correct!

User Contributed Comments 11

User Comment
katybo II?
01121975 becomes an obligation of the US Government, not of Treasury
Rotigga "Most federal agency securities are not obligations of the US Treasury." I don't agree with 01121975.
cp24 Isn't the treasury part of the US govt?
thekapila Its not directly a part of us govt. Treasury controls monetory policies .US govt controls fiscal only.
Khadria What does III mean? Assets which are the property of the agency? OR, Assets which are held for the mortgage loans?
steved333 It refers to assets that belong to the agency. If you're talking about mortgage loans, the assets are the real estate belonging to the purchaser of the property. But none of the US securities, whether they come from the Treasury or an agency, they are not collateralized by agency assets. There is no default risk, but if they DID default, it's not like you can go and take their office furniture...
cfatime21 Actually the Fed controls monetary policy, the Treasury physically prints currency, while the US government controls fiscal policy.
stevo why is III not correct?
Fabulous1 I would also say three is correct. Not secured by specific assets but by the agency's assets as a whole
khalifa92 I. not all quesi-government bonds are exempted from taxes.
II. it doesn't become a direct obligation to the US Treasury but investors perceive implicit guarantee.
III. is wrong because it implied that quesi-government bonds are backed by collateral which not the case always.
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