Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

The U.S. Treasury Department is the single largest borrower in the U.S. money market.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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 5

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 6

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 7

When inflation rose in the late 1970s,

Accepted Answer

A) consumers moved money out of money market mutual funds because their returns did not keep pace with inflation. 
B) banks solidified their advantage over money markets by offering higher deposit rates. 
C) brokerage houses introduced highly popular money market mutual funds, which drew significant amounts of money out of bank deposits. 
D) consumers were unable to take advantage of higher rates in money markets because of the requirement of large transaction sizes. 
A) consumers moved money out of money market mutual funds because their returns did not keep pace with inflation. 
B) banks solidified their advantage over money markets by offering higher deposit rates. 
C) brokerage houses introduced highly popular money market mutual funds, which drew significant amounts of money out of bank deposits. 
D) consumers were unable to take advantage of higher rates in money markets because of the requirement of large transaction sizes.

Question 8

Which of the following statements are true of Treasury bills?

Accepted Answer

A) The market for Treasury bills is extremely deep and liquid. 
B) Occasionally, investors find that earnings on T-bills do not compensate them for changes in purchasing power due to inflation. 
C) By volume, most Treasury bills are sold to individuals who submit noncompetitive bids. 
D) All of the above are true. 
E) Only A and B of the above are true. 
A) The market for Treasury bills is extremely deep and liquid. 
B) Occasionally, investors find that earnings on T-bills do not compensate them for changes in purchasing power due to inflation. 
C) By volume, most Treasury bills are sold to individuals who submit noncompetitive bids. 
D) All of the above are true. 
E) Only A and B of the above are true.

Question 9

Activity in money markets increased significantly in the late 1970s and early 1980s because of

Accepted Answer

A) rising short-term interest rates. 
B) regulations that limited what banks could pay for deposits. 
C) both A and B of the above. 
D) neither A nor B of the above. 
A) rising short-term interest rates. 
B) regulations that limited what banks could pay for deposits. 
C) both A and B of the above. 
D) neither A nor B of the above.

Question 10

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 11

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

Accepted Answer

A) Large banks participate in the money markets by selling large negotiable CDs. 
B) The U.S. government and corporations borrow in the money markets because cash inflows and outflows are rarely synchronized. 
C) The Federal Reserve is the single most influential participant in the U.S. money market. 
D) All of the above are true. 
E) Only A and B of the above are true. 
A) Large banks participate in the money markets by selling large negotiable CDs. 
B) The U.S. government and corporations borrow in the money markets because cash inflows and outflows are rarely synchronized. 
C) The Federal Reserve is the single most influential participant in the U.S. money market. 
D) All of the above are true. 
E) Only A and B of the above are true.

Question 12

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 13

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 14

The Treasury accepts noncompetitive bids in ascending order of yield until the accepted bids reach the offering amount.

Accepted Answer

A) True 
 B)False

Question 15

The main purpose of federal funds is to provide banks with an immediate infusion of reserves should they be short.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Commercial paper securities are unsecured promissory notes, issued by corporations, that mature in no more than 270 days.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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 20

A negotiable certificate of deposit

Accepted Answer

A) is a term security because it has a specified maturity date. 
B) is a bearer instrument, meaning whoever holds the certificate at maturity receives the principal and interest. 
C) can be bought and sold until maturity. 
D) all of the above. 
E) only A and B of the above. 
A) is a term security because it has a specified maturity date. 
B) is a bearer instrument, meaning whoever holds the certificate at maturity receives the principal and interest. 
C) can be bought and sold until maturity. 
D) all of the above. 
E) only A and B of the above.

Exam 11: The Money Markets

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

The U.S. Treasury Department is the single largest borrower in the U.S. money market.

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

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

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

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

When inflation rose in the late 1970s,

Which of the following statements are true of Treasury bills?

Activity in money markets increased significantly in the late 1970s and early 1980s because of

Repos are

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

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

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

The Treasury accepts noncompetitive bids in ascending order of yield until the accepted bids reach the offering amount.

The main purpose of federal funds is to provide banks with an immediate infusion of reserves should they be short.

Finance companies raise funds in the money market by selling

Commercial paper securities are unsecured promissory notes, issued by corporations, that mature in no more than 270 days.

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

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

A negotiable certificate of deposit

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

Filters

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

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