Exam 7: Money Markets 1

Fed funds are short term unsecured loans while repos are short term secured loans.

What is a banker's acceptance? Why are banker's acceptances ideally suited for foreign trade transactions? Why has their usage declined?

Competitive bids in T-bill auctions require the bidder to specify only the quantity of bills desired.

Interest arbitrage keeps the interest rates of the many money market securities identical.

One would expect commercial banks to hold more money market investments than pension funds.

Explain the economic function of money markets.

Reverse repos are contracts that require a firm to sell securities with the agreement to buy them back in a short period at a higher price.

Bankers' acceptances are used primarily for financing international trade.

Dealers bring buyers and sellers together; whereas brokers make a market.

Eurodollars are euro-denominated deposits in U.S. banks.

The money markets are generally not risky. Why did the money markets experience a crisis in 2007 and 2008 and how did the Fed respond?

The Federal Funds market is not available to smaller, regional banks.

Non-competitive bidders in the U. S. Treasury security auctions pay the weighted averageprice of all accepted competitive bids.