Question 1

The Federal Reserve can influence the federal funds interest rate by buying securities,which ________ reserves,thereby ________ the federal funds rate.

Accepted Answer

A)  adds; raising 
B)  removes; lowering 
C)  adds; lowering 
D)  removes; raising 
A)  adds; raising 
B)  removes; lowering 
C)  adds; lowering 
D)  removes; raising

Question 2

The Fed can influence the federal funds interest rate by adjusting the level of reserves available to banks.The Fed can

Accepted Answer

A)  lower the federal funds interest rate by adding reserves. 
B)  raise the federal funds interest rate by removing reserves. 
C)  remove reserves by selling securities. 
D)  do all of the above. 
E)  do only A and B of the above. 
A)  lower the federal funds interest rate by adding reserves. 
B)  raise the federal funds interest rate by removing reserves. 
C)  remove reserves by selling securities. 
D)  do all of the above. 
E)  do only A and B of the above.

Question 3

The Fed can influence the federal funds rate by adjusting the level of reserves in the banking system.

Accepted Answer

A) True 
 B)False

Question 4

Why would we expect rates on money market securities to move together?

Accepted Answer

Money market securities are short-term d

Question 5

Explain how the Federal Reserve can influence the federal funds interest rate.

Accepted Answer

The Federal Reserve can influence the fe

Question 6

Money market transactions

Accepted Answer

A)  do not take place in any one particular location or building. 
B)  are usually arranged purchases and sales between participants over the phone by traders and completed electronically. 
C)  are both A and B of the above. 
D)  are none the the above. 
A)  do not take place in any one particular location or building. 
B)  are usually arranged purchases and sales between participants over the phone by traders and completed electronically. 
C)  are both A and B of the above. 
D)  are none the the above.

Question 7

The banking industry

Accepted Answer

A)  should have an efficiency advantage in gathering information that would eliminate the need for the money markets. 
B)  exists primarily to mediate the asymmetric information problem between saver-lenders and borrower-spenders. 
C)  is subject to more regulations and governmental costs than the money markets. 
D)  all of the above are true. 
E)  only A and B of the above are true. 
A)  should have an efficiency advantage in gathering information that would eliminate the need for the money markets. 
B)  exists primarily to mediate the asymmetric information problem between saver-lenders and borrower-spenders. 
C)  is subject to more regulations and governmental costs than the money markets. 
D)  all of the above are true. 
E)  only A and B of the above are true.

Question 8

Which of the following statements about the money markets are true?

Accepted Answer

A)  Not all commercial banks deal for their customers in the secondary market. 
B)  Money markets are used extensively by businesses both to warehouse surplus funds and to raise short-term funds. 
C)  The single most influential participant in the U.S. money market is the U.S. Treasury Department. 
D)  All of the above are true. 
E)  Only A and B of the above are true. 
A)  Not all commercial banks deal for their customers in the secondary market. 
B)  Money markets are used extensively by businesses both to warehouse surplus funds and to raise short-term funds. 
C)  The single most influential participant in the U.S. money market is the U.S. Treasury Department. 
D)  All of the above are true. 
E)  Only A and B of the above are true.

Question 9

Money market instruments

Accepted Answer

A)  are usually sold in large denominations. 
B)  have low default risk. 
C)  mature in one year or less. 
D)  are characterized by all of the above. 
E)  are characterized by only A and B of the above. 
A)  are usually sold in large denominations. 
B)  have low default risk. 
C)  mature in one year or less. 
D)  are characterized by all of the above. 
E)  are characterized by only A and B of the above.

Question 10

Unlike most money market securities,commercial paper

Accepted Answer

A)  is not generally traded in a secondary market. 
B)  usually has a term to maturity that is longer than a year. 
C)  is not popular with most money market investors because of the high default risk. 
D)  all of the above. 
E)  only A and B of the above. 
A)  is not generally traded in a secondary market. 
B)  usually has a term to maturity that is longer than a year. 
C)  is not popular with most money market investors because of the high default risk. 
D)  all of the above. 
E)  only A and B of the above.

Question 11

Federal funds are

Accepted Answer

A)  usually overnight investments. 
B)  borrowed by banks that have a deficit of reserves. 
C)  lent by banks that have an excess of reserves. 
D)  all of the above. 
E)  only A and B of the above. 
A)  usually overnight investments. 
B)  borrowed by banks that have a deficit of reserves. 
C)  lent by banks that have an excess of reserves. 
D)  all of the above. 
E)  only A and B of the above.

Question 12

Brokerage firms that offered money market security accounts in the 1970s had a cost advantage over banks in attracting funds because the brokerage firms

Accepted Answer

A)  were not subject to deposit reserve requirements. 
B)  were not subject to the deposit interest rate ceilings. 
C)  were not limited in how much they could borrow from depositors. 
D)  had the advantage of all the above. 
E)  had the advantage of only A and B of the above. 
A)  were not subject to deposit reserve requirements. 
B)  were not subject to the deposit interest rate ceilings. 
C)  were not limited in how much they could borrow from depositors. 
D)  had the advantage of all the above. 
E)  had the advantage of only A and B of the above.

Question 13

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

Accepted Answer

A)  add reserves to; selling 
B)  add reserves to; buying 
C)  remove reserves from; selling 
D)  remove reserves from; buying 
A)  add reserves to; selling 
B)  add reserves to; buying 
C)  remove reserves from; selling 
D)  remove reserves from; buying

Question 14

The size of the asset-backed commercial paper market nearly doubled between 2004 and 2007 to about $1 trillion.

Accepted Answer

A) True 
 B)False

Question 15

Government securities dealers frequently engage in repos to

Accepted Answer

A)  manage liquidity. 
B)  take advantage of anticipated changes in interest rates. 
C)  lend or borrow for a day or two with what is essentially a collateralized loan. 
D)  do all of the above. 
E)  do only A and B of the above. 
A)  manage liquidity. 
B)  take advantage of anticipated changes in interest rates. 
C)  lend or borrow for a day or two with what is essentially a collateralized loan. 
D)  do all of the above. 
E)  do only A and B of the above.

Question 16

Not all commercial banks deal in the secondary money market for their customers.

Accepted Answer

A) True 
 B)False

Question 17

Interest rates on banker's acceptances are low because the risk of default is very low.

Accepted Answer

A) True 
 B)False

Question 18

The advantage of mutual funds is that they

Accepted Answer

A)  require no cash up front. 
B)  give investors with relatively small amounts of cash to invest access to large-denomination securities. 
C)  always yield the highest returns. 
D)  both A and B of the above. 
A)  require no cash up front. 
B)  give investors with relatively small amounts of cash to invest access to large-denomination securities. 
C)  always yield the highest returns. 
D)  both A and B of the above.

Question 19

Explain why money market interest rates move so closely together over time.

Accepted Answer

Money market provide lending and borrowi

Question 20

In a direct placement

Accepted Answer

A)  the issuer bypasses the dealer and sells indirectly to the end investor. 
B)  the dealer sells directly to the end investor. 
C)  the issuer bypasses the dealer and sells directly to the end investor. 
D)  none of the above. 
A)  the issuer bypasses the dealer and sells indirectly to the end investor. 
B)  the dealer sells directly to the end investor. 
C)  the issuer bypasses the dealer and sells directly to the end investor. 
D)  none of the above.

Exam 11: The Money Markets

The Federal Reserve can influence the federal funds interest rate by buying securities,which ________ reserves,thereby ________ the federal funds rate.

The Fed can influence the federal funds interest rate by adjusting the level of reserves available to banks.The Fed can

The Fed can influence the federal funds rate by adjusting the level of reserves in the banking system.

Why would we expect rates on money market securities to move together?

Explain how the Federal Reserve can influence the federal funds interest rate.

Money market transactions

The banking industry

Which of the following statements about the money markets are true?

Money market instruments

Unlike most money market securities,commercial paper

Federal funds are

Brokerage firms that offered money market security accounts in the 1970s had a cost advantage over banks in attracting funds because the brokerage firms

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

The size of the asset-backed commercial paper market nearly doubled between 2004 and 2007 to about $1 trillion.

Government securities dealers frequently engage in repos to

Not all commercial banks deal in the secondary money market for their customers.

Interest rates on banker's acceptances are low because the risk of default is very low.

The advantage of mutual funds is that they

Explain why money market interest rates move so closely together over time.

In a direct placement

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

The Federal Reserve can influence the federal funds interest rate by buying securities,which reserves,thereby the federal funds rate.

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