Question 1

Explain why the money markets are referred to as wholesale markets.

Accepted Answer

The money markets are referred to as wholesale markets because they primarily deal with large denominations of financial instruments, such as government securities, certificates of deposit, and commercial paper. These markets cater to institutional investors, corporations, and financial institutions who have substantial amounts of funds to invest or borrow. The transactions in the money markets are typically conducted in large volumes and involve high-value instruments, making them more suitable for wholesale or large-scale participants. In contrast, retail markets cater to individual investors and smaller-scale transactions. Therefore, the money markets are called wholesale markets due to their focus on large-scale participants and significant financial instruments.

Question 2

If your competitive bid for a Treasury bill is successful, then you will

Accepted Answer

A) certainly pay less than if you had submitted a noncompetitive bid. 
B) probably pay more than if you had submitted a noncompetitive bid. 
C) pay the average of prices offered in other successful competitive bids. 
D) pay the same as other successful competitive bidders. 
A) certainly pay less than if you had submitted a noncompetitive bid. 
B) probably pay more than if you had submitted a noncompetitive bid. 
C) pay the average of prices offered in other successful competitive bids. 
D) pay the same as other successful competitive bidders. B

Question 3

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. A

Question 4

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 5

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

Accepted Answer

A) Most money market securities do not pay interest. Instead, the investor pays less for the security than it will be worth when it matures. 
B) Pension funds invest a portion of their assets in the money market to have sufficient liquidity to meet their obligations. 
C) Unlike most participants in the money market, the U.S. Treasury Department is always a demander of money market funds and never a supplier. 
D) All of the above are true. 
E) Only A and B of the above are true. 
A) Most money market securities do not pay interest. Instead, the investor pays less for the security than it will be worth when it matures. 
B) Pension funds invest a portion of their assets in the money market to have sufficient liquidity to meet their obligations. 
C) Unlike most participants in the money market, the U.S. Treasury Department is always a demander of money market funds and never a supplier. 
D) All of the above are true. 
E) Only A and B of the above are true.

Question 6

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 7

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 8

Eurodollars

Accepted Answer

A) are time deposits with fixed maturities and are, therefore, somewhat illiquid. 
B) may offer the borrower a lower interest rate than can be received in the domestic market. 
C) are limited to London banks. 
D) are all of the above. 
E) are only A and B of the above. 
A) are time deposits with fixed maturities and are, therefore, somewhat illiquid. 
B) may offer the borrower a lower interest rate than can be received in the domestic market. 
C) are limited to London banks. 
D) are all of the above. 
E) are only A and B of the above.

Question 9

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 10

Which of the following statements about money market securities are true?

Accepted Answer

A) The interest rates on all money market instruments move very closely together over time. 
B) The secondary market for Treasury bills is extensive and well developed. 
C) There is no well-developed secondary market for commercial paper. 
D) All of the above are true. 
E) Only A and B of the above are true. 
A) The interest rates on all money market instruments move very closely together over time. 
B) The secondary market for Treasury bills is extensive and well developed. 
C) There is no well-developed secondary market for commercial paper. 
D) All of the above are true. 
E) Only A and B of the above are true.

Question 11

A banker's acceptance is an order to pay a specified amount of money to the bearer on a given date. Banker's acceptances have been used since the twelfth century.

Accepted Answer

A) True 
 B)False

Question 12

The T-bill is not an investment to be used for anything but temporary storage of excess funds because it barely keeps up with inflation.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

Treasury bills, often referred to as T-b

Question 15

Banker's acceptances

Accepted Answer

A) can be bought and sold until they mature. 
B) are issued only by large money center banks. 
C) carry low interest rates because of the very low default risk. 
D) are all of the above. 
E) are only A and B of the above. 
A) can be bought and sold until they mature. 
B) are issued only by large money center banks. 
C) carry low interest rates because of the very low default risk. 
D) are all of the above. 
E) are only A and B of the above.

Question 16

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 17

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 18

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 19

Finance companies play a unique role in money markets by

Accepted Answer

A) giving consumers indirect access to money markets. 
B) combining consumers' investments to purchase money market securities on their behalf. 
C) borrowing in capital markets to finance purchases of money market securities. 
D) assisting the government in its sales of U.S. Treasury securities. 
A) giving consumers indirect access to money markets. 
B) combining consumers' investments to purchase money market securities on their behalf. 
C) borrowing in capital markets to finance purchases of money market securities. 
D) assisting the government in its sales of U.S. Treasury securities.

Question 20

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

Exam 11: The Money Markets

Explain why the money markets are referred to as wholesale markets.

If your competitive bid for a Treasury bill is successful, then you will

In situations where asymmetric information problems are not severe,

Unlike most money market securities, commercial paper

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

Government securities dealers frequently engage in repos to

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

Eurodollars

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

Which of the following statements about money market securities are true?

A banker's acceptance is an order to pay a specified amount of money to the bearer on a given date. Banker's acceptances have been used since the twelfth century.

The T-bill is not an investment to be used for anything but temporary storage of excess funds because it barely keeps up with inflation.

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

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

Banker's acceptances

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

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

The banking industry

Finance companies play a unique role in money markets by

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

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 Why Are They so Damaging to the Economy

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

Savings Associations and Credit Unions

Finance Companies

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