Question 1

What are the principal sources of Eurocurrency deposits? Please make a list.

Accepted Answer

Eurodollar deposits arise from:
U.S. balance of trade deficits
U.S. tourism abroad
Dollar loans made by U.S. corporations and foreign-based firms.
Uses:
Finance the import and export of goods
Supplement government tax revenues
Provide working capital for the foreign operations of U.S. multinational corporations Provide liquid reserves for the largest U.S. banks

Question 2

The volume of commercial paper outstanding exceeded $2 trillion for the first time in

Accepted Answer

A)  2000 
B)  2002 
C)  2004 
D)  2006 
E)  None of the above 
A)  2000 
B)  2002 
C)  2004 
D)  2006 
E)  None of the above D

Question 3

As a result of the Salomon scandal where Salomon cornered the market in Treasury securities, the Treasury has:

Accepted Answer

A)  Switched to the Dutch auction method of selling securities 
B)  Increased the number of dealers who can bid competitively 
C)  Switched to an open-outcry system similar to that in the futures and options markets 
D)  Increased the number of corporate bidders 
E)  Done nothing, relying on the courts to discourage market manipulation 
A)  Switched to the Dutch auction method of selling securities 
B)  Increased the number of dealers who can bid competitively 
C)  Switched to an open-outcry system similar to that in the futures and options markets 
D)  Increased the number of corporate bidders 
E)  Done nothing, relying on the courts to discourage market manipulation B

Question 4

The Korean government issues Treasury bills every week through an auction with competitive bids similar to the process used in the United States.

Accepted Answer

A) True 
 B)False

Question 5

Partly as a result of sweep accounts, U.S. bank legal reserve balances have fallen by more than half. One of the consequences caused by this decline has been:

Accepted Answer

A)  That banks must open many more savings accounts to raise reserves 
B)  That banks must curtail somewhat their commercial lending practices 
C)  An increase in the volatility of the Fed funds market due to the lessened supply of tradable reserves 
D)  All of the above 
E)  None of the above 
A)  That banks must open many more savings accounts to raise reserves 
B)  That banks must curtail somewhat their commercial lending practices 
C)  An increase in the volatility of the Fed funds market due to the lessened supply of tradable reserves 
D)  All of the above 
E)  None of the above

Question 6

The nation whose provinces issues Provincial bills, comparable to U.S. Treasury bills, is:

Accepted Answer

A)  The United Kingdom 
B)  Korea 
C)  The Philippines 
D)  Sweden 
E)  None of the above 
A)  The United Kingdom 
B)  Korea 
C)  The Philippines 
D)  Sweden 
E)  None of the above

Question 7

What role do Eurodollar deposits play in reserve management operations of U.S. banking firms? What are the advantages of Eurodol1ar borrowings over other sources of reserves for banks? What about the disadvantages?

Accepted Answer

Eurodollars are an alternative source of

Question 8

Why do some investors (savers) find commercial paper unsatisfactory for their investment needs?

Accepted Answer

The investor groups generally regard com

Question 9

Can you explain how federal agency securities are marketed?

Accepted Answer

Agency securities that reach the open ma

Question 10

Please evaluate the Eurocurrency markets from a social point of view. What are their major benefits and costs to the public and to market participants? In your opinion should these markets be more closely regulated or be relatively free of regulation?

Accepted Answer

Eurodollar trading benefits U.S. banks a

Question 11

A primary uses of the bankers acceptance

Accepted Answer

A)  Is to finance the purchase of internationally traded goods while those goods are in transit 
B)  A bankers agreement to provide a mortgage 
C)  A bankers agreement to provide a corporate loan 
D)  All of the above 
E)  None of the above 
A)  Is to finance the purchase of internationally traded goods while those goods are in transit 
B)  A bankers agreement to provide a mortgage 
C)  A bankers agreement to provide a corporate loan 
D)  All of the above 
E)  None of the above

Question 12

Actions:
(1) Investor withdraws Citi deposit, buys Belgian CD.
(2) Belgian Bank loans to Alum. Frames Co.
(3) Al. Frames Co. repays loan with interest.
(4) CD matures, Belgian Bank repays principal & interest, Investor receives proceeds and returns original deposit amount to Citi.

A British investor withdraws her million-dollar deposit from Citicorp Bank, N.A. and converts the deposit into a dollar-denominated, 30-day CD in a Belgian commercial bank at the going market rate (LIBOR) of 5.85 percent. Almost immediately, the Belgian bank makes a loan of $750,000 to an aluminum frames manufacturer at LIBOR plus 30 basis points for 21 days. When the CD matures and the deposit is returned to Citicorp, how much in interest income will the depositor receive? How much will the aluminum frame manufacturer pay in total interest expense for its 21-day bank loan? Please show the proper accounting entries for all of the foregoing transactions (including the return of funds to the original depositor).
?

Accepted Answer

The answer of Actions:
(1) Investor withdraws Citi deposit, buys Belgian...

Question 13

In the late 1990's, the U.S. Treasury reduced the amount of T-bills it issued. Reasons for this include:

Accepted Answer

A)  The Treasury reached the congressionally-mandated ceiling for T-bill issuance 
B)  As commercial paper became more popular, the T-bill fell out of favor 
C)  Fewer needed to be issued due to U.S. Government budget surpluses 
D)  All of the above 
E)  Choices A and B only 
A)  The Treasury reached the congressionally-mandated ceiling for T-bill issuance 
B)  As commercial paper became more popular, the T-bill fell out of favor 
C)  Fewer needed to be issued due to U.S. Government budget surpluses 
D)  All of the above 
E)  Choices A and B only

Question 14

Japanese bank CDs were first permitted by the Ministry of Finance at the beginning of the 1980s.

Accepted Answer

A) True 
 B)False

Question 15

Nonprime CDs pay investors lower interest yields than prime CDs.

Accepted Answer

A) True 
 B)False

Question 16

Non personal time deposits are a type of transaction deposit.

Accepted Answer

A) True 
 B)False

Question 17

T-bills can now be purchased in sizes as low as $1,000.

Accepted Answer

A) True 
 B)False

Question 18

Some Canadian-bank CDs are available in both Canadian and U.S. dollars.

Accepted Answer

A) True 
 B)False

Question 19

The winners' curse explains the incentive for bidders in a U.S. Treasury auction to attempt to corner the market.

Accepted Answer

A) True 
 B)False

Question 20

A commercial paper note with a $1 million par value and maturing in 60 days has an expected discount rate (DR) at maturity of 6 percent. What was its purchase price? What is this note's expected coupon equivalent (investment) yield (IR)?

Accepted Answer

DR = 6% = $1 million - purchase price x

Exam 11: Commercial Banks, Major Corporations, and Federal Credit Agencies in the Money Market

What are the principal sources of Eurocurrency deposits? Please make a list.

The volume of commercial paper outstanding exceeded $2 trillion for the first time in

As a result of the Salomon scandal where Salomon cornered the market in Treasury securities, the Treasury has:

The Korean government issues Treasury bills every week through an auction with competitive bids similar to the process used in the United States.

Partly as a result of sweep accounts, U.S. bank legal reserve balances have fallen by more than half. One of the consequences caused by this decline has been:

The nation whose provinces issues Provincial bills, comparable to U.S. Treasury bills, is:

What role do Eurodollar deposits play in reserve management operations of U.S. banking firms? What are the advantages of Eurodol1ar borrowings over other sources of reserves for banks? What about the disadvantages?

Why do some investors (savers) find commercial paper unsatisfactory for their investment needs?

Can you explain how federal agency securities are marketed?

Please evaluate the Eurocurrency markets from a social point of view. What are their major benefits and costs to the public and to market participants? In your opinion should these markets be more closely regulated or be relatively free of regulation?

A primary uses of the bankers acceptance

In the late 1990's, the U.S. Treasury reduced the amount of T-bills it issued. Reasons for this include:

Japanese bank CDs were first permitted by the Ministry of Finance at the beginning of the 1980s.

Nonprime CDs pay investors lower interest yields than prime CDs.

Non personal time deposits are a type of transaction deposit.

T-bills can now be purchased in sizes as low as $1,000.

Some Canadian-bank CDs are available in both Canadian and U.S. dollars.

The winners' curse explains the incentive for bidders in a U.S. Treasury auction to attempt to corner the market.

A commercial paper note with a $1 million par value and maturing in 60 days has an expected discount rate (DR) at maturity of 6 percent. What was its purchase price? What is this note's expected coupon equivalent (investment) yield (IR)?

Functions and Roles of the Financial System in the Global Economy

Financial Assets, Money, Financial Transactions, and Financial Institutions

The Financial Information Marketplace

The Future of the Financial System and the Money and Capital Markets

The Determinants of Interest Rates: Competing Ideas

Measuring and Calculating Interest Rates and Financial Asset Prices

Inflation and Deflation, Yield Curves, and Duration: Impact on Interest Rates and Asset Prices

The Risk Structure of Interest Rates: Defaults, Prepayments, Taxes, and Other Rate-Determining Factors

Interest-Rate Forecasting and Hedging: Swaps, Financial Futures, and Options

Introduction to the Money Market and the Roles Played by Governments and Security Dealers

Roles and Services of the Federal Reserve and Other Central Banks Around the World

The Tools and Goals of Central Bank Monetary Policy

The Commercial Banking Industry: Structure, Products, and Management

Nonbank Thrift Institutions: Savings and Loans, Savings Banks, Credit Unions, and Money Market Funds

Mutual Funds, Insurance Companies, Investment Banks, and Other Financial Firms

Regulation of the Financial Institutions Sector

Federal, State, and Local Governments Operating in the Financial Markets

Business Borrowing: Corporate Bonds, Asset-Backed Securities, Bank Loans, and Other Forms of Business Debt

The Market for Corporate

Consumer Lending and Borrowing

The Residential Mortgage Market Stock

International Transactions and Currency Values

International Banking

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