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Answer: The trustee is not required to conduct its own investigations to determine if the issuer is adhering to covenants.
**Correct Answer: A** **Explanation:** Sometimes an indenture states that trustees can rely on the issuer and the issuer's attorneys for information on whether some covenants are being adhered to. In such cases, the trustee is not required to conduct its own investigations. Trustees can only perform the actions indicated in the indenture, but are typically under no obligation to exercise the powers granted by the indenture even at the request of bondholders. The trustee is paid by the debt issuer, not by bond holders or their representatives. **Section:** Financial Markets and Products **Reference:** Global Association of Risk Professionals. Financial Markets and Products. New York, NY: Pearson, 2019. Chapter 17. Corporate Bonds. **Learning Objective:** Describe a bond indenture and explain the role of the corporate trustee in a bond indenture.
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Which of the following statements regarding a corporate trustee named in a corporate bond indenture is correct?
A
The trustee is not required to conduct its own investigations to determine if the issuer is adhering to covenants.
B
The trustee may take action beyond the indenture to protect bondholders.
C
The trustee must act at the request of a sufficient number of bondholders.
D
The trustee is paid by the bondholders or their representatives.