Exam 7: Money Markets 1

The higher yields of federal agency securities relative to T-bills are attributed mostly to the lower marketability of agency securities.

The money market provides liquidity for deficit spending units (DSUs); the capital market provides opportunities for capital growth for DSUs.

All money market instruments are short-term liability securities.

Federal Reserve open market operations, reserve requirement changes, and discount rate policy directly impact interest rates in the money market.

On August 8, 2011, Finance Yahoo! reported a 90-day T-Bill with a face value of $10,000 that was quoted at 3.25 bid, 3.05 ask. Given the above information, what were the sell and buy prices of this T-bill?

For large corporations, commercial paper is a more expensive but more stable alternative to bank borrowing.

Commercial banks are important indirect guarantors of some commercial paper.

Money market securities provide low denominations, low default risk investmentsand are designed to appeal to individual investors with excess cash.

Commercial banks act as dealers and are major investors in Treasury securities.

Treasury bills are the least marketable among money market securities.

What are the fundamental characteristics of money market debt instruments? Explain why these characteristics are important to money market participants who are investing and financing.

The money market is a dealer market rather than an exchange and has no specific location.

Individual investors are typically indirect investors in money markets.

Treasury bills are sold on an add-on basis, with interest paid separately at maturity.

Describe how commercial banks participate in the money markets.

The money market is a market where liquidity is bought and sold.

Finance company commercial paper is more likely to be placed directly than corporate commercial paper.

Money market borrowers are small in number compared to money market lenders.

The majority of fed funds loan are for 30 days.

Explain why most money market interest rates tend to move together over time.