Question 1

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 2

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 3

Money markets are used extensively by businesses both to warehouse surplus funds and to raise short-term funds.

Accepted Answer

A) True 
 B)False

Question 4

Negotiable certificates of deposit

Accepted Answer

A) are bearer instruments because their holders earn the interest and principal at maturity. 
B) typically have a maturity of one to four months. 
C) are usually denominated at $100,000. 
D) are all of the above. 
E) are only A and B of the above. 
A) are bearer instruments because their holders earn the interest and principal at maturity. 
B) typically have a maturity of one to four months. 
C) are usually denominated at $100,000. 
D) are all of the above. 
E) are only A and B of the above.

Question 5

Explain how and why repurchase agreements would be used.

Accepted Answer

Repurchase agreements, also known as rep

Question 6

Explain why banks, which would seem to have a comparative advantage in gathering information, have not eliminated the need for the money markets.

Accepted Answer

The answer of Explain why banks, which would seem to...

Question 7

The main role of investment companies in the money market is to

Accepted Answer

A) trade on behalf of commercial accounts. 
B) mediate the symmetric information problem between server-lender and borrower-spenders. 
C) both A and B of the above. 
D) neither A nor B of the above. 
A) trade on behalf of commercial accounts. 
B) mediate the symmetric information problem between server-lender and borrower-spenders. 
C) both A and B of the above. 
D) neither A nor B of the above.

Question 8

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 9

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 10

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 11

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

Accepted Answer

A) True 
 B)False

Question 12

The term money market is actually a misnomer, because liquid securities are traded in these markets rather than money.

Accepted Answer

A) True 
 B)False

Question 13

Federal funds

Accepted Answer

A) are short-term funds transferred between financial institutions, usually for a period of one day. 
B) actually have nothing to do with the federal government. 
C) provide banks with an immediate infusion of reserves. 
D) are all of the above. 
E) are only A and B of the above. 
A) are short-term funds transferred between financial institutions, usually for a period of one day. 
B) actually have nothing to do with the federal government. 
C) provide banks with an immediate infusion of reserves. 
D) are all of the above. 
E) are only A and B of the above.

Question 14

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 15

Money market instruments issued by the U.S. Treasury are called

Accepted Answer

A) Treasury bills. 
B) Treasury notes. 
C) Treasury bonds. 
D) Treasury strips. 
A) Treasury bills. 
B) Treasury notes. 
C) Treasury bonds. 
D) Treasury strips.

Question 16

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.

Exam 11: The Money Markets

Money market transactions

The advantage of mutual funds is that they

Money markets are used extensively by businesses both to warehouse surplus funds and to raise short-term funds.

Negotiable certificates of deposit

Explain how and why repurchase agreements would be used.

Explain why banks, which would seem to have a comparative advantage in gathering information, have not eliminated the need for the money markets.

The main role of investment companies in the money market is to

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

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

Money market instruments

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

The term money market is actually a misnomer, because liquid securities are traded in these markets rather than money.

Federal funds

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

Money market instruments issued by the U.S. Treasury are called

Commercial paper 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

Filters

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