Question 1

The following formula is used to calculate the _____________ of a money market investment.

Accepted Answer

A) EAR 
B) APR 
C) single-payment yield 
D) discount yield 
E) BEY 
A) EAR 
B) APR 
C) single-payment yield 
D) discount yield 
E) BEY

Question 2

One-hundred-eighty-day commercial paper can be bought at a 3.75 percent discount. What are the bond equivalent yield and the effective annual rate on the commercial paper?
 Why do these rates differ?

Accepted Answer

Commercial paper price/100 of par = 100

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Eurodollar CDs would include

Accepted Answer

A) CDs denominated in euros. 
B) dollar investments by European entities in the United States. 
C) dollars deposited in Caribbean banks. 
D) dollars deposited in Europe. 
E) dollars deposited in Caribbean banks and dollars deposited in Europe. 
A) CDs denominated in euros. 
B) dollar investments by European entities in the United States. 
C) dollars deposited in Caribbean banks. 
D) dollars deposited in Europe. 
E) dollars deposited in Caribbean banks and dollars deposited in Europe.

Question 5

A banker's acceptance is

Accepted Answer

A) a time draft drawn on the exporter's bank. 
B) a method to help importers evaluate the creditworthiness of exporters. 
C) a liability of the importer and the importer's bank. 
D) an add-on instrument. 
E) for greater than one year maturity. 
A) a time draft drawn on the exporter's bank. 
B) a method to help importers evaluate the creditworthiness of exporters. 
C) a liability of the importer and the importer's bank. 
D) an add-on instrument. 
E) for greater than one year maturity.

Question 6

Money markets exist to help reduce the opportunity cost of holding cash balances.

Accepted Answer

A) True 
 B)False

Question 7

A 180-day $3 million CD has a 4.25 percent annual rate quote. If you buy the CD,how much will you collect in 180 days?

Accepted Answer

A) $3,047,439 
B) $3,045.678 
C) $3,062,877 
D) $3,063,750 
E) $3,127,500 
A) $3,047,439 
B) $3,045.678 
C) $3,062,877 
D) $3,063,750 
E) $3,127,500

Question 8

In a Treasury auction,preferential bidding status is granted to

Accepted Answer

A) competitive bidders. 
B) noncompetitive bidders. 
C) short sale committed bidders. 
D) commercial bank bidders. 
E) no group of bidders. 
A) competitive bidders. 
B) noncompetitive bidders. 
C) short sale committed bidders. 
D) commercial bank bidders. 
E) no group of bidders.

Question 9

Why do most money market securities have large denominations?

Accepted Answer

The market has developed for institution

Question 10

A 50-day maturity money market security has a bond equivalent yield of 3.60 percent. The security's EAR is

Accepted Answer

A) 3.69 percent. 
B) 3.61 percent. 
C) 3.55 percent 
D) 3.87 percent. 
E) 3.66 percent. 
A) 3.69 percent. 
B) 3.61 percent. 
C) 3.55 percent 
D) 3.87 percent. 
E) 3.66 percent.

Question 11

Euro commercial paper is a short-term obligation of the European Central Bank.

Accepted Answer

A) True 
 B)False

Question 12

Commercial paper,Treasury bills,and banker's acceptance rates are all quoted as discount yields.

Accepted Answer

A) True 
 B)False

Question 13

The most liquid of the money market securities are

Accepted Answer

A) commercial paper. 
B) banker's acceptances. 
C) T-bills. 
D) Fed funds. 
E) repurchase agreements. 
A) commercial paper. 
B) banker's acceptances. 
C) T-bills. 
D) Fed funds. 
E) repurchase agreements.

Question 14

How does a repo differ from a Fed funds transaction?
 How do their rates compare?

Accepted Answer

A repo is basically a collateralized loa

Question 15

The discount yield on a T-bill differs from the T-bill's bond equivalent yield (BEY)because
I. the discount yield is the return per dollar of face value and the BEY is a return per dollar originally invested.
II. a 360-day year is used on the discount yield and the BEY uses 365 days.
III. the discount yield is calculated without compounding,and the BEY is calculated with compounding.

Accepted Answer

A) I only 
B) II only 
C) I and II only 
D) II and III only 
E) I,II,and III 
A) I only 
B) II only 
C) I and II only 
D) II and III only 
E) I,II,and III

Question 16

Money market securities exhibit which of the following?
I. Large denomination
II. Maturity greater than one year
III. Low default risk
IV. Contractually determined cash flows

Accepted Answer

A) I,II,and III 
B) I,III,and IV 
C) II,III,and IV 
D) II and IV 
E) I,II,III,and IV 
A) I,II,and III 
B) I,III,and IV 
C) II,III,and IV 
D) II and IV 
E) I,II,III,and IV

Question 17

A negotiable CD

Accepted Answer

A) is a bank-issued transactions deposit. 
B) is a registered instrument. 
C) is a bank-issued time deposit. 
D) has denominations ranging from $50,000 to $10 million. 
E) pays discount interest. 
A) is a bank-issued transactions deposit. 
B) is a registered instrument. 
C) is a bank-issued time deposit. 
D) has denominations ranging from $50,000 to $10 million. 
E) pays discount interest.

Question 18

For the purposes for which they are used,money market securities should have which of the following characteristics?
I. Low trading costs
II. Little price risk
III. High rate of return
IV. Life greater than one year

Accepted Answer

A) I and III 
B) II and IV 
C) III and IV 
D) I and II 
E) I,II,and III 
A) I and III 
B) II and IV 
C) III and IV 
D) I and II 
E) I,II,and III

Question 19

In the T-bill auction process,the competitive bidder is guaranteed a ______________ and a noncompetitive bidder is guaranteed a _______________.

Accepted Answer

A) minimum price; maximum price 
B) maximum price; minimum price 
C) maximum price; given quantity 
D) minimum price; maximum quantity 
E) none of the options 
A) minimum price; maximum price 
B) maximum price; minimum price 
C) maximum price; given quantity 
D) minimum price; maximum quantity 
E) none of the options

Question 20

Who are the major participants in money markets?

Accepted Answer

U.S. Treasury
Commercial banks

Exam 5: Money Markets

The following formula is used to calculate the _____________ of a money market investment.

One-hundred-eighty-day commercial paper can be bought at a 3.75 percent discount. What are the bond equivalent yield and the effective annual rate on the commercial paper? Why do these rates differ?

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

Eurodollar CDs would include

A banker's acceptance is

Money markets exist to help reduce the opportunity cost of holding cash balances.

A 180-day $3 million CD has a 4.25 percent annual rate quote. If you buy the CD,how much will you collect in 180 days?

In a Treasury auction,preferential bidding status is granted to

Why do most money market securities have large denominations?

A 50-day maturity money market security has a bond equivalent yield of 3.60 percent. The security's EAR is

Euro commercial paper is a short-term obligation of the European Central Bank.

Commercial paper,Treasury bills,and banker's acceptance rates are all quoted as discount yields.

The most liquid of the money market securities are

How does a repo differ from a Fed funds transaction? How do their rates compare?

Money market securities exhibit which of the following? I. Large denomination II. Maturity greater than one year III. Low default risk IV. Contractually determined cash flows

A negotiable CD

For the purposes for which they are used,money market securities should have which of the following characteristics? I. Low trading costs II. Little price risk III. High rate of return IV. Life greater than one year

In the T-bill auction process,the competitive bidder is guaranteed a ______________ and a noncompetitive bidder is guaranteed a _______________.

Who are the major participants in money markets?

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

In the T-bill auction process,the competitive bidder is guaranteed a and a noncompetitive bidder is guaranteed a _.