Question 1

An advantage of a taxable entity investing in Treasury strips is that accrued interest is taxed each year even though interest is not paid.

Accepted Answer

A) True 
 B)False

Question 2

Interest income from Treasury securities is ________.

Accepted Answer

A)  subject to federal, state, and local income taxes. 
B)  subject to local income taxes but is exempt from federal income taxes. 
C)  subject to state income taxes but is exempt from federal income taxes. 
D)  subject to federal income taxes but is exempt from state and local income taxes. 
A)  subject to federal, state, and local income taxes. 
B)  subject to local income taxes but is exempt from federal income taxes. 
C)  subject to state income taxes but is exempt from federal income taxes. 
D)  subject to federal income taxes but is exempt from state and local income taxes.

Question 3

The index-linked gilts offered by the British government have coupons and final redemption amounts linked to the General Index of Retail Price (RPI), an index which is released each month by the Central Statistical Office.

Accepted Answer

A) True 
 B)False

Question 4

Describe two types of government-chartered entities.

Accepted Answer

One type is a government-owned corporati

Question 5

The inflation-adjusted principal at the beginning of the period is $203,000. Suppose that the semiannual inflation rate for the next six-month period is 1%. What will be the inflation-adjusted principal at the end of the next six-month period?

Accepted Answer

A)  $203,000 
B)  $204,030 
C)  $205,000 
D)  $205,030 
A)  $203,000 
B)  $204,030 
C)  $205,000 
D)  $205,030

Question 6

________, there is a regular calendar of offering where all winning bidders are awarded securities at the highest yield accepted by the government (i.e., the stop-out yield).

Accepted Answer

A)  In the regular calendar auction/Dutch-style auction system 
B)  In the regular calendar auction/minimum-price offering system 
C)  In the ad hoc auction system 
D)  In a tap system 
A)  In the regular calendar auction/Dutch-style auction system 
B)  In the regular calendar auction/minimum-price offering system 
C)  In the ad hoc auction system 
D)  In a tap system

Question 7

If the rate on the repo is 6.5% and the rate on the reverse repo is 6.55%, the dealer firm is borrowing at 6.5% and lending at 6.55%, locking in a spread of 0.55% (fifty-five basis points).

Accepted Answer

A) True 
 B)False

Question 8

Two factors account for the prominent role of U.S. Treasury securities: ________.

Accepted Answer

A)  volume (in terms of shares outstanding) and liquidity. 
B)  volume (in terms of dollars outstanding) and illiquidity. 
C)  volume (in terms of dollars outstanding) and liquidity. 
D)  volume (in terms of shares outstanding) and illiquidity. 
A)  volume (in terms of shares outstanding) and liquidity. 
B)  volume (in terms of dollars outstanding) and illiquidity. 
C)  volume (in terms of dollars outstanding) and liquidity. 
D)  volume (in terms of shares outstanding) and illiquidity.

Question 9

Which of the below statements is FALSE?

Accepted Answer

A)  In the United States, the U.S. Treasury issues fixed-rate bonds and bonds (Treasury Inflation Protection Securities) whose coupon rate is indexed to the rate of inflation. 
B)  Obligation debt is the obligation of a country's central government. 
C)  Sovereign bonds are of the two general categories: economic risk (which refers to assessment of the ability of a government to satisfy its obligations) and political risk (which refers to assessment of the willingness of a government to satisfy its obligations). 
D)  The reason for distinguishing between local debt ratings and foreign currency debt ratings is that historically, the default frequency differs by the currency denomination of the debt. 
A)  In the United States, the U.S. Treasury issues fixed-rate bonds and bonds (Treasury Inflation Protection Securities) whose coupon rate is indexed to the rate of inflation. 
B)  Obligation debt is the obligation of a country's central government. 
C)  Sovereign bonds are of the two general categories: economic risk (which refers to assessment of the ability of a government to satisfy its obligations) and political risk (which refers to assessment of the willingness of a government to satisfy its obligations). 
D)  The reason for distinguishing between local debt ratings and foreign currency debt ratings is that historically, the default frequency differs by the currency denomination of the debt.

Question 10

Which of the below statements is FALSE?

Accepted Answer

A)  Current Treasury practice is to issue all securities with maturities of one year or less as discount securities. 
B)  There are two categories of government securities: discount and coupon securities. 
C)  Treasury securities are available in book-entry form at the Federal Reserve Bank. 
D)  Discount securities pay interest every six months, plus principal at maturity. 
A)  Current Treasury practice is to issue all securities with maturities of one year or less as discount securities. 
B)  There are two categories of government securities: discount and coupon securities. 
C)  Treasury securities are available in book-entry form at the Federal Reserve Bank. 
D)  Discount securities pay interest every six months, plus principal at maturity.

Question 11

Most central governments issue fixed-rate coupon bonds just as issued by the U.S. Department of the Treasury. Non-U.S. central governments also offer bonds with other characteristics. For example, the British government, whose bonds are referred to as gilts, offer bonds called ________. These gilts have ________ that give the holder the option to convert into a specified amount of a longer-maturity gilt (or more than one gilt) for a number of years.

Accepted Answer

A)  convertibles; short maturities 
B)  convertibles; long maturities 
C)  nonconvertibles; short maturities 
D)  nonconvertibles; long maturities 
A)  convertibles; short maturities 
B)  convertibles; long maturities 
C)  nonconvertibles; short maturities 
D)  nonconvertibles; long maturities

Question 12

There are four methods that have been used in distributing new securities of central governments. Which of the below is NOT one of these?

Accepted Answer

A)  One of these is the regular calendar auction/Dutch-style system. 
B)  One of these is the ad hoc auction system. 
C)  One of these is the top system/maximum-price offering system. 
D)  One of these is the regular calendar auction/minimum-price offering system. 
A)  One of these is the regular calendar auction/Dutch-style system. 
B)  One of these is the ad hoc auction system. 
C)  One of these is the top system/maximum-price offering system. 
D)  One of these is the regular calendar auction/minimum-price offering system.

Question 13

Because of the possibility of disinflation (i.e., price declines), the inflation-adjusted principal at maturity may turn out to be less than ________ value. However, the Treasury has structured TIPS so that they are redeemed at the ________ the inflation-adjusted principal and the initial par value.

Accepted Answer

A)  the initial par; lesser of 
B)  the initial par; greater of 
C)  the initial market; greater of 
D)  the initial market; lesser of 
A)  the initial par; lesser of 
B)  the initial par; greater of 
C)  the initial market; greater of 
D)  the initial market; lesser of

Question 14

Compared to the United States Treasury market, many issues in the corporate and municipal markets are ________.

Accepted Answer

A)  liquid. 
B)  illiquid. 
C)  traded easily. 
D)  none of these 
A)  liquid. 
B)  illiquid. 
C)  traded easily. 
D)  none of these

Question 15

The federal agency securities market is the market for securities issued by U.S. government-chartered entities to provide funding support for the housing and agricultural sectors of the U.S. economy, as well as to provide funding for specific U.S. government projects.

Accepted Answer

A) True 
 B)False

Question 16

________, additional bonds of a previously outstanding bond issue are auctioned where the government announces periodically that it is adding this new supply.

Accepted Answer

A)  In the regular calendar auction/Dutch-style auction system 
B)  In the regular calendar auction/minimum-price offering system 
C)  In the ad hoc auction system 
D)  In a tap system 
A)  In the regular calendar auction/Dutch-style auction system 
B)  In the regular calendar auction/minimum-price offering system 
C)  In the ad hoc auction system 
D)  In a tap system

Exam 15: Treasury and Agency Securities Markets

An advantage of a taxable entity investing in Treasury strips is that accrued interest is taxed each year even though interest is not paid.

Interest income from Treasury securities is ________.

The index-linked gilts offered by the British government have coupons and final redemption amounts linked to the General Index of Retail Price (RPI), an index which is released each month by the Central Statistical Office.

Describe two types of government-chartered entities.

The inflation-adjusted principal at the beginning of the period is $203,000. Suppose that the semiannual inflation rate for the next six-month period is 1%. What will be the inflation-adjusted principal at the end of the next six-month period?

________, there is a regular calendar of offering where all winning bidders are awarded securities at the highest yield accepted by the government (i.e., the stop-out yield).

If the rate on the repo is 6.5% and the rate on the reverse repo is 6.55%, the dealer firm is borrowing at 6.5% and lending at 6.55%, locking in a spread of 0.55% (fifty-five basis points).

Two factors account for the prominent role of U.S. Treasury securities: ________.

Which of the below statements is FALSE?

Which of the below statements is FALSE?

There are four methods that have been used in distributing new securities of central governments. Which of the below is NOT one of these?

Compared to the United States Treasury market, many issues in the corporate and municipal markets are ________.

The federal agency securities market is the market for securities issued by U.S. government-chartered entities to provide funding support for the housing and agricultural sectors of the U.S. economy, as well as to provide funding for specific U.S. government projects.

________, additional bonds of a previously outstanding bond issue are auctioned where the government announces periodically that it is adding this new supply.

Introduction

Financial Institutions, Financial Intermediaries, and Asset Management Firms

Depository Institutions: Activities and Characteristics

The U.S. Federal Reserve and the Creation of Money

Monetary Policy in the United States

Insurance Companies

Investment Companies and Exchange Traded Funds

Pension Funds

Properties and Pricing of Financial Assets

The Level and Structure of Interest Rates

The Term Structure of Interest Rates

Risk/Return and Asset Pricing Models

Primary Markets and the Underwriting of Securities

Secondary Markets

Municipal Securities Markets

Markets for Common Stock: The Basic Characteristics

Markets for Common Stock: Structure and Organization

Markets for Corporate Senior Instruments: I

Markets for Corporate Senior Instruments: II

The Markets for Bank Obligations

The Residential Mortgage Market

Mortgage-Backed Securities Market

Market for Commercial Mortgage Loans and Commercial Mortgage-Backed Securities

Market for Asset-Backed Securities

Financial Futures Markets

Options Markets

Pricing of Futures and Options Contracts

The Applications of Futures and Options Contracts

OTC Interest Rate Derivatives: Forward Rate Agreements, Swaps, Caps, and Floors

Market for Credit Risk Transfer Vehicles: Credit Derivatives and Collateralized Debt Obligations

The Market for Foreign Exchange and Risk Control Instruments

Filters