Question 1

Ignoring transaction costs, the cost of borrowing with commercial paper is equal to

Accepted Answer

A) the yield on T-bills of the same maturity. 
B) the yield earned by investors holding the paper until maturity. 
C) the federal funds rate. 
D) the par value of the paper. 
A) the yield on T-bills of the same maturity. 
B) the yield earned by investors holding the paper until maturity. 
C) the federal funds rate. 
D) the par value of the paper.

Question 2

Exporters can hold a banker's acceptance until the date at which payment is to be made, but they frequently sell the acceptance before then at a discount to obtain cash immediately.

Accepted Answer

A) True 
 B)False

Question 3

Money market securities must have a maturity of three months or less.

Accepted Answer

A) True 
 B)False

Question 4

____ is/are sold at an auction at a discount from par value.

Accepted Answer

A) Treasury bills 
B) Repurchase agreements 
C) Banker's acceptances 
D) Commercial paper 
A) Treasury bills 
B) Repurchase agreements 
C) Banker's acceptances 
D) Commercial paper

Question 5

A repurchase agreement calls for an investor to buy securities for $4,925,000 and sell them back in 60 days for $5,000,000. What is the yield?

Accepted Answer

A) 9.43 percent 
B) 9.28 percent 
C) 9.14 percent 
D) 9.00 percent 
A) 9.43 percent 
B) 9.28 percent 
C) 9.14 percent 
D) 9.00 percent

Question 6

A firm plans to issue 30-day commercial paper for $9,900,000. Par value is $10,000,000. What is the firm's cost of borrowing?

Accepted Answer

A) 12.12 percent 
B) 11.11 percent 
C) 13.00 percent 
D) 14.08 percent 
E) 15.25 percent 
A) 12.12 percent 
B) 11.11 percent 
C) 13.00 percent 
D) 14.08 percent 
E) 15.25 percent

Question 7

Which money market transaction is most likely to represent a loan from one commercial bank to another?

Accepted Answer

A) banker's acceptance 
B) negotiable CD 
C) federal funds 
D) commercial paper 
A) banker's acceptance 
B) negotiable CD 
C) federal funds 
D) commercial paper

Question 8

At any given time, the yield on commercial paper is ____ the yield on a T-bill with the same maturity.

Accepted Answer

A) slightly less than 
B) slightly higher than 
C) equal to 
D) much less than 
A) slightly less than 
B) slightly higher than 
C) equal to 
D) much less than

Question 9

Which of the following is NOT a money market security?

Accepted Answer

A) Treasury bill 
B) negotiable certificate of deposit 
C) common stock 
D) federal funds 
A) Treasury bill 
B) negotiable certificate of deposit 
C) common stock 
D) federal funds

Question 10

Which of the following may be issued in the primary market by well-known creditworthy firms to borrow funds?

Accepted Answer

A) banker's acceptances 
B) retail CDs 
C) commercial paper 
D) federal funds 
A) banker's acceptances 
B) retail CDs 
C) commercial paper 
D) federal funds

Question 11

The yield on NCDs is ____ the yield of Treasury bills of the same maturity. The difference between their yields would be especially large during a ____ period.

Accepted Answer

A) higher than; recessionary 
B) higher than; boom economy 
C) less than; boom economy 
D) less than; recessionary 
A) higher than; recessionary 
B) higher than; boom economy 
C) less than; boom economy 
D) less than; recessionary

Question 12

T-bills must offer a premium above negotiable certificates of deposit (NCDs)to compensate for less liquidity and safety.

Accepted Answer

A) True 
 B)False

Question 13

____ are the most active participants in the federal funds market.

Accepted Answer

A) Savings and loan associations 
B) Securities firms 
C) Credit unions 
D) Commercial banks 
A) Savings and loan associations 
B) Securities firms 
C) Credit unions 
D) Commercial banks

Question 14

The minimum denomination of commercial paper is

Accepted Answer

A) $25,000. 
B) $100,000. 
C) $150,000. 
D) $200,000. 
A) $25,000. 
B) $100,000. 
C) $150,000. 
D) $200,000.

Question 15

An international interbank market facilitates the transfer of funds from banks with excess funds to those with deficient funds.

Accepted Answer

A) True 
 B)False

Question 16

When a firm sells its commercial paper at a ____ price than projected, its cost of raising funds will be ____ than what it initially anticipated.

Accepted Answer

A) higher; higher 
B) lower; lower 
C) higher; lower 
D) lower; higher 
E) higher; lower AND lower; higher 
A) higher; higher 
B) lower; lower 
C) higher; lower 
D) lower; higher 
E) higher; lower AND lower; higher

Question 17

There is no limit to the amount of T-bills that can be purchased by noncompetitive bidders in a T-bill auction.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is NOT a money market instrument?

Accepted Answer

A) banker's acceptance 
B) commercial paper 
C) negotiable CD 
D) repurchase agreement 
E) All of these are money market instruments. 
A) banker's acceptance 
B) commercial paper 
C) negotiable CD 
D) repurchase agreement 
E) All of these are money market instruments.

Question 19

A ____ is not a money market security.

Accepted Answer

A) Treasury bill 
B) negotiable certificate of deposit 
C) bond 
D) banker's acceptance 
E) All of these are money market securities. 
A) Treasury bill 
B) negotiable certificate of deposit 
C) bond 
D) banker's acceptance 
E) All of these are money market securities.

Question 20

Securities with maturities of one year or less are classified as

Accepted Answer

A) capital market instruments. 
B) money market instruments. 
C) preferred stock. 
D) None of these are correct. 
A) capital market instruments. 
B) money market instruments. 
C) preferred stock. 
D) None of these are correct.

Exam 6: Money Markets

Ignoring transaction costs, the cost of borrowing with commercial paper is equal to

Exporters can hold a banker's acceptance until the date at which payment is to be made, but they frequently sell the acceptance before then at a discount to obtain cash immediately.

Money market securities must have a maturity of three months or less.

____ is/are sold at an auction at a discount from par value.

A repurchase agreement calls for an investor to buy securities for $4,925,000 and sell them back in 60 days for $5,000,000. What is the yield?

A firm plans to issue 30-day commercial paper for $9,900,000. Par value is $10,000,000. What is the firm's cost of borrowing?

Which money market transaction is most likely to represent a loan from one commercial bank to another?

At any given time, the yield on commercial paper is ____ the yield on a T-bill with the same maturity.

Which of the following is NOT a money market security?

Which of the following may be issued in the primary market by well-known creditworthy firms to borrow funds?

The yield on NCDs is ____ the yield of Treasury bills of the same maturity. The difference between their yields would be especially large during a ____ period.

T-bills must offer a premium above negotiable certificates of deposit (NCDs)to compensate for less liquidity and safety.

____ are the most active participants in the federal funds market.

The minimum denomination of commercial paper is

An international interbank market facilitates the transfer of funds from banks with excess funds to those with deficient funds.

When a firm sells its commercial paper at a ____ price than projected, its cost of raising funds will be ____ than what it initially anticipated.

There is no limit to the amount of T-bills that can be purchased by noncompetitive bidders in a T-bill auction.

Which of the following is NOT a money market instrument?

A ____ is not a money market security.

Securities with maturities of one year or less are classified as

Role of Financial Markets and Institutions

Determination of Interest Rates

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Financial Futures Markets

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Insurance and Pension Fund Operations

Pension Fund Operations

Filters

The yield on NCDs is the yield of Treasury bills of the same maturity. The difference between their yields would be especially large during a period.

When a firm sells its commercial paper at a price than projected, its cost of raising funds will be than what it initially anticipated.