Question 1

Rates on Federal funds and repurchase agreements are stated

Accepted Answer

A) on a bond equivalent basis with a 360-day year. 
B) on a bond equivalent basis with a 365-day year. 
C) as a discount yield with a 360-day year. 
D) as an EAR. 
E) as a discount yield with a 365-day year. 
A) on a bond equivalent basis with a 360-day year. 
B) on a bond equivalent basis with a 365-day year. 
C) as a discount yield with a 360-day year. 
D) as an EAR. 
E) as a discount yield with a 365-day year. A

Question 2

If a $10,000 par T-bill has a 3.75 percent discount quote and a 90-day maturity,what is the price of the T-bill to the nearest dollar?

Accepted Answer

A) $9,625 
B) $9,906 
C) $9,908 
D) $9,627 
E) none of the options 
A) $9,625 
B) $9,906 
C) $9,908 
D) $9,627 
E) none of the options B

Question 3

A 90-day T-bill is selling for $9,900. The par is $10,000. The effective annual return on the T-bill is (watch your rounding)

Accepted Answer

A) 4.00 percent. 
B) 4.16 percent. 
C) 4.10 percent. 
D) 4.04 percent. 
E) 4.21 percent. 
A) 4.00 percent. 
B) 4.16 percent. 
C) 4.10 percent. 
D) 4.04 percent. 
E) 4.21 percent. B

Question 4

What is the difference between a discriminating auction and a single price auction?
 How is the final price determined in a single price auction?
 Why did the Treasury switch to a single price auction?

Accepted Answer

In a discriminating price auction,differ

Question 5

From 1990 to 2013,which one of the following money market securities actually declined in terms of dollar amount outstanding?

Accepted Answer

A) commercial paper 
B) treasury bills 
C) federal funds and repos 
D) negotiable CDs 
E) banker's acceptances 
A) commercial paper 
B) treasury bills 
C) federal funds and repos 
D) negotiable CDs 
E) banker's acceptances

Question 6

A short-term unsecured promissory note issued by a company is

Accepted Answer

A) commercial paper. 
B) a T-bill. 
C) a repurchase agreement. 
D) a negotiable CD. 
E) a banker's acceptance. 
A) commercial paper. 
B) a T-bill. 
C) a repurchase agreement. 
D) a negotiable CD. 
E) a banker's acceptance.

Question 7

Everything else equal,an effective annual rate will be greater than the bond equivalent yield on the same security.

Accepted Answer

A) True 
 B)False

Question 8

LIBOR is generally _______________ the Fed funds rate because foreign bank deposits are generally ________________ domestic bank deposits.

Accepted Answer

A) greater than; less risky than 
B) less than; riskier than 
C) the same as; of equal risk to 
D) greater than; riskier than 
E) less than; less risky than 
A) greater than; less risky than 
B) less than; riskier than 
C) the same as; of equal risk to 
D) greater than; riskier than 
E) less than; less risky than

Question 9

How does a banker's acceptance (BA)help create more international trade?

Accepted Answer

Importers do not wish to pay until they

Question 10

The majority of money market securities are low-denomination,low-risk investments designed to appeal to individual investors with excess cash.

Accepted Answer

A) True 
 B)False

Question 11

A time draft payable to a seller of goods,with payment guaranteed by a bank is a

Accepted Answer

A) commercial paper security. 
B) T-bill. 
C) repurchase agreement. 
D) negotiable CD. 
E) banker's acceptance. 
A) commercial paper security. 
B) T-bill. 
C) repurchase agreement. 
D) negotiable CD. 
E) banker's acceptance.

Question 12

Commercial paper is a short-term obligation of the U.S. government issued to cover government budget deficits and to refinance maturing government debt.

Accepted Answer

A) True 
 B)False

Question 13

You buy a $10,000 par Treasury bill at $9,575 and sell it 60 days later for $9,675. What was your EAR?

Accepted Answer

A) 4.44 percent 
B) 6.29 percent 
C) 6.35 percent 
D) 6.52 percent 
E) 6.67 percent 
A) 4.44 percent 
B) 6.29 percent 
C) 6.35 percent 
D) 6.52 percent 
E) 6.67 percent

Question 14

As a corporate treasurer who is unsure how soon funds will be needed,which type of money market investment might you prefer?
 Explain the trade-offs. Would your answer differ if you had a definite time period during which you would not need the money?
 Explain.

Accepted Answer

If liquidity is a primary concern,then T

Question 15

A government securities dealer needs to make a 7 percent pretax annual return on $10 million of capital employed to make it worthwhile to make a market in T-bills. If the bid discount on $10,000 face value 90-day T-bills is 3.50 percent,and the dealer can expect to do 5,200 round trip deals today,what must the ask discount be?
 Hint:
 A round trip is a buy and a sell transaction.

Accepted Answer

Bid Price = $10,000 × [1 - .035×(90/360)

Question 16

A U.S. exporter sells $150,000 of furniture to a Latin American importer. The exporter requires the importer to obtain a letter of credit. When the bank accepts the draft,the exporter discounts the 120-day note at a 5.25 percent discount. What is the exporter's true effective annual financing cost?

Accepted Answer

A) 5.52 percent 
B) 5.42 percent 
C) 5.34 percent 
D) 5.29 percent 
E) 5.25 percent 
A) 5.52 percent 
B) 5.42 percent 
C) 5.34 percent 
D) 5.29 percent 
E) 5.25 percent

Question 17

Which one of the following statements about commercial paper is NOT true?
Commercial paper issued in the United States

Accepted Answer

A) is an unsecured short-term promissory note. 
B) has a maximum maturity of 270 days. 
C) is virtually always rated by at least one ratings agency. 
D) has no secondary market. 
E) carries an interest rate above the prime rate. 
A) is an unsecured short-term promissory note. 
B) has a maximum maturity of 270 days. 
C) is virtually always rated by at least one ratings agency. 
D) has no secondary market. 
E) carries an interest rate above the prime rate.

Question 18

A corporate treasurer is looking to invest about $4 million for 60 days. Commercial paper rates are a 3.65 percent discount and CD rates are 3.66 percent. Comparing the bond equivalent yields over a 365-day year,which is the best alternative?
 What is the opportunity cost of leaving the funds idle?
 (Watch your rounding.)

Accepted Answer

Find the BEY on each
CP: Price = $4 mill

Question 19

A repo is in essence a collateralized

Accepted Answer

A) banker's acceptance. 
B) certificate of deposit. 
C) Fed funds loan. 
D) commercial paper loan. 
E) Eurodollar deposit. 
A) banker's acceptance. 
B) certificate of deposit. 
C) Fed funds loan. 
D) commercial paper loan. 
E) Eurodollar deposit.

Question 20

You are a corporate treasurer for Esso Oil. The quoted rate on dollar denominated euro commercial paper has just blipped down recently. Your firm can issue $10 million of 180-day euro commercial paper in the London markets at 3.45 percent. You can also invest the proceeds in the United States in comparable maturity negotiable dollar-denominated CDs,which are quoting 3.95 percent. Ignoring any transactions costs,how much money,if any,can Esso make by borrowing in the euro markets and investing in the United States?
 Is this a good deal or not?
 Should you expect it to last?
 Explain.

Accepted Answer

Initial proceeds from issuing euro comme

Exam 5: Money Markets

Rates on Federal funds and repurchase agreements are stated

If a $10,000 par T-bill has a 3.75 percent discount quote and a 90-day maturity,what is the price of the T-bill to the nearest dollar?

A 90-day T-bill is selling for $9,900. The par is $10,000. The effective annual return on the T-bill is (watch your rounding)

What is the difference between a discriminating auction and a single price auction? How is the final price determined in a single price auction? Why did the Treasury switch to a single price auction?

From 1990 to 2013,which one of the following money market securities actually declined in terms of dollar amount outstanding?

A short-term unsecured promissory note issued by a company is

Everything else equal,an effective annual rate will be greater than the bond equivalent yield on the same security.

LIBOR is generally _______________ the Fed funds rate because foreign bank deposits are generally ________________ domestic bank deposits.

How does a banker's acceptance (BA)help create more international trade?

The majority of money market securities are low-denomination,low-risk investments designed to appeal to individual investors with excess cash.

A time draft payable to a seller of goods,with payment guaranteed by a bank is a

Commercial paper is a short-term obligation of the U.S. government issued to cover government budget deficits and to refinance maturing government debt.

You buy a $10,000 par Treasury bill at $9,575 and sell it 60 days later for $9,675. What was your EAR?

As a corporate treasurer who is unsure how soon funds will be needed,which type of money market investment might you prefer? Explain the trade-offs. Would your answer differ if you had a definite time period during which you would not need the money? Explain.

A U.S. exporter sells $150,000 of furniture to a Latin American importer. The exporter requires the importer to obtain a letter of credit. When the bank accepts the draft,the exporter discounts the 120-day note at a 5.25 percent discount. What is the exporter's true effective annual financing cost?

Which one of the following statements about commercial paper is NOT true? Commercial paper issued in the United States

A repo is in essence a collateralized

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, Monetary Policy, and Interest Rates

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, Credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters

LIBOR is generally _ the Fed funds rate because foreign bank deposits are generally __ domestic bank deposits.