Question 1

Repos are

Accepted Answer

A)  usually low-risk loans. 
B)  usually collateralized with Treasury securities. 
C)  low interest rate loans. 
D)  all of the above. 
E)  only A and B of the above. 
A)  usually low-risk loans. 
B)  usually collateralized with Treasury securities. 
C)  low interest rate loans. 
D)  all of the above. 
E)  only A and B of the above.

Question 2

If the Fed wants to raise the federal funds interest rate,it will ________ securities to ________ the banking system.

Accepted Answer

A)  sell; add reserves to 
B)  sell; remove reserves from 
C)  buy; add reserves to 
D)  buy; remove reserves from 
A)  sell; add reserves to 
B)  sell; remove reserves from 
C)  buy; add reserves to 
D)  buy; remove reserves from

Question 3

Money market securities are short-term instruments with an original maturity of less than one year.

Accepted Answer

A) True 
 B)False

Question 4

Commercial paper has been used in various forms since the 1930s.

Accepted Answer

A) True 
 B)False

Question 5

Banks are unusual participants in the money market because they buy,but do not sell,money market instruments.

Accepted Answer

A) True 
 B)False

Question 6

Finance companies raise funds in the money market by selling

Accepted Answer

A)  commercial paper. 
B)  federal funds. 
C)  negotiable certificates of deposit. 
D)  Eurodollars. 
A)  commercial paper. 
B)  federal funds. 
C)  negotiable certificates of deposit. 
D)  Eurodollars.

Question 7

The Fed can lower the federal funds interest rate by ________ securities,thereby ________ reserves.

Accepted Answer

A)  selling; adding 
B)  selling; lowering 
C)  buying; adding 
D)  buying; lowering 
A)  selling; adding 
B)  selling; lowering 
C)  buying; adding 
D)  buying; lowering

Question 8

Asset-backed commercial paper differs from conventional commercial paper in that

Accepted Answer

A)  it is backed (secured) by some bundle of assets. 
B)  its maturity usually extends well beyond 1 year. 
C)  both A and B of the above. 
D)  neither A nor B of the above. 
A)  it is backed (secured) by some bundle of assets. 
B)  its maturity usually extends well beyond 1 year. 
C)  both A and B of the above. 
D)  neither A nor B of the above.

Question 9

The Fed is an active participant in money markets mainly because of its responsibility to

Accepted Answer

A)  lower borrowing costs to encourage capital investment. 
B)  control the money supply. 
C)  increase the interest income of retirees holding money market instruments. 
D)  assist the Securities and Exchange Commission in regulating the behavior of other money market participants. 
A)  lower borrowing costs to encourage capital investment. 
B)  control the money supply. 
C)  increase the interest income of retirees holding money market instruments. 
D)  assist the Securities and Exchange Commission in regulating the behavior of other money market participants.

Question 10

Commercial paper securities

Accepted Answer

A)  are issued only by the largest and most creditworthy corporations, as they are unsecured. 
B)  carry an interest rate that varies according to the firm's level of risk. 
C)  never have a term to maturity that exceeds 270 days. 
D)  all of the above. 
E)  only A and B of the above. 
A)  are issued only by the largest and most creditworthy corporations, as they are unsecured. 
B)  carry an interest rate that varies according to the firm's level of risk. 
C)  never have a term to maturity that exceeds 270 days. 
D)  all of the above. 
E)  only A and B of the above.

Question 11

In situations where asymmetric information problems are not severe,

Accepted Answer

A)  the money markets have a distinct cost advantage over banks in providing short-term funds. 
B)  the money markets have a distinct cost advantage over banks in providing long-term funds. 
C)  banks have a distinct cost advantage over the money markets in providing short-term funds. 
D)  the money markets cannot allocate short-term funds as efficiently as banks can. 
A)  the money markets have a distinct cost advantage over banks in providing short-term funds. 
B)  the money markets have a distinct cost advantage over banks in providing long-term funds. 
C)  banks have a distinct cost advantage over the money markets in providing short-term funds. 
D)  the money markets cannot allocate short-term funds as efficiently as banks can.

Question 12

Suppose that you purchase a 91-day Treasury bill for $9,850 that is worth $10,000 when it matures.The security's annualized yield if held to maturity is about

Accepted Answer

A)  4 percent. 
B)  5 percent. 
C)  6 percent. 
D)  7 percent. 
A)  4 percent. 
B)  5 percent. 
C)  6 percent. 
D)  7 percent.

Question 13

The usual maturity range for fed funds is ________.

Accepted Answer

A)  1 to 270 days 
B)  1 to 15 days 
C)  4, 13, and 26 weeks 
D)  1 to 7 days 
A)  1 to 270 days 
B)  1 to 15 days 
C)  4, 13, and 26 weeks 
D)  1 to 7 days

Question 14

In general,money market instruments are low-risk,high-yield securities.

Accepted Answer

A) True 
 B)False

Question 15

The market for U.S.Treasury bills is a shallow market because so few individual investors buy T-bills.

Accepted Answer

A) True 
 B)False

Question 16

Money market securities have all the following characteristics except they are not

Accepted Answer

A)  short term. 
B)  money. 
C)  low risk. 
D)  very liquid. 
A)  short term. 
B)  money. 
C)  low risk. 
D)  very liquid.

Question 17

Money market securities include Treasury bills,commercial paper,federal funds,repurchase agreements,negotiable certificates of deposit,banker's acceptances,and Eurodollars.

Accepted Answer

A) True 
 B)False

Question 18

Money markets are referred to as retail markets because small individual investors are the primary buyers of money market securities.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is the largest borrower in the money markets?

Accepted Answer

A)  Commercial banks 
B)  Large corporations 
C)  The U.S. Treasury 
D)  U.S. firms engaged in foreign trade 
A)  Commercial banks 
B)  Large corporations 
C)  The U.S. Treasury 
D)  U.S. firms engaged in foreign trade

Question 20

How are Treasury bills sold? How do competitive and noncompetitive bids differ?

Accepted Answer

Treasury bills, often referred to as T-b

Exam 11: The Money Markets

Repos are

If the Fed wants to raise the federal funds interest rate,it will ________ securities to ________ the banking system.

Money market securities are short-term instruments with an original maturity of less than one year.

Commercial paper has been used in various forms since the 1930s.

Banks are unusual participants in the money market because they buy,but do not sell,money market instruments.

Finance companies raise funds in the money market by selling

The Fed can lower the federal funds interest rate by ________ securities,thereby ________ reserves.

Asset-backed commercial paper differs from conventional commercial paper in that

The Fed is an active participant in money markets mainly because of its responsibility to

Commercial paper securities

In situations where asymmetric information problems are not severe,

Suppose that you purchase a 91-day Treasury bill for $9,850 that is worth $10,000 when it matures.The security's annualized yield if held to maturity is about

The usual maturity range for fed funds is ________.

In general,money market instruments are low-risk,high-yield securities.

The market for U.S.Treasury bills is a shallow market because so few individual investors buy T-bills.

Money market securities have all the following characteristics except they are not

Money market securities include Treasury bills,commercial paper,federal funds,repurchase agreements,negotiable certificates of deposit,banker's acceptances,and Eurodollars.

Money markets are referred to as retail markets because small individual investors are the primary buyers of money market securities.

Which of the following is the largest borrower in the money markets?

How are Treasury bills sold? How do competitive and noncompetitive bids differ?

Why Study Financial Markets and Institutions?

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation?

Why Do Interest Rates Change?

How Do Risk and Term Structure Affect Interest Rates?

Are Financial Markets Efficient?

Why Do Financial Institutions Exist?

Why Do Financial Crises Occur and

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging with Financial Derivatives

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Finance Companies

Filters

If the Fed wants to raise the federal funds interest rate,it will securities to the banking system.

The Fed can lower the federal funds interest rate by securities,thereby reserves.