Question 1

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.

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

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 4

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 5

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 6

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 7

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 8

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 9

What are the major types of securities and who are the major participants in the money markets?

Accepted Answer

The answer of What are the major types of securities...

Question 10

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 11

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

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

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 14

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

Accepted Answer

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

Question 15

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 16

Commercial banks are large holders of ________ and are the major issuer of ________.

Accepted Answer

A) negotiable certificates of deposit; U.S. government securities 
B) U)S. government securities; negotiable certificates of deposit 
C) commercial paper; Eurodollars 
D) Eurodollars; commercial paper 
A) negotiable certificates of deposit; U.S. government securities 
B) U)S. government securities; negotiable certificates of deposit 
C) commercial paper; Eurodollars 
D) Eurodollars; commercial paper

Exam 11: The Money Markets

A negotiable certificate of deposit

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

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

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

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

Money market transactions

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

What are the major types of securities and who are the major participants in the money markets?

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

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

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.

Finance companies raise funds in the money market by selling

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

Eurodollars

Commercial banks are large holders of ________ and are the major issuer of ________.

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

Commercial banks are large holders of and are the major issuer of .