Series 7 Exam Question 27: Answer and Explanation

Question: 27

Which TWO of the following are TRUE regarding sovereign bonds?

I. They are issued by foreign corporations

II. They are issued by foreign governments

III. The interest and principal is paid in U.S. dollars

IV. The interest and principal is paid in the issuer's currency

• A. I and III
• B. I and IV
• C. II and III
• D. II and IV

Correct Answer: D

Explanation:

D. Sovereign bonds are ones issued by foreign governments. The principal and interest is paid in the issuer's currency, not U.S. dollars. Since the interest and principal is not paid in U.S. dollars, investors also face currency risk.