Question 1

Fed funds are short-term unsecured loans while repos are short-term secured loans.

Accepted Answer

A) True 
 B)False  True

Question 2

In a Treasury auction,preferential bidding status is granted to

Accepted Answer

A) competitive bidders. 
B) noncompetitive bidders. 
C) short sale committed bidders. 
D) commercial bank bidders. 
E) no group of bidders. 
A) competitive bidders. 
B) noncompetitive bidders. 
C) short sale committed bidders. 
D) commercial bank bidders. 
E) no group of bidders. B

Question 3

How does a banker's acceptance (BA)help create more international trade?

Accepted Answer

Importers do not wish to pay until they receive the goods and exporters do not wish to ship until they receive payment. The creation of a BA allows the exporter to ship prior to receipt of payment,while substituting the creditworthiness of a large international bank for the unknown creditworthiness of the importer.

Question 4

A U.S. exporter sells $150,000 of furniture to a Latin American importer. The exporter requires the importer to obtain a letter of credit. When the bank accepts the draft,the exporter discounts the 120-day note at a 5.25 percent discount. What is the exporter's true effective annual financing cost?

Accepted Answer

A) 5.52 percent 
B) 5.42 percent 
C) 5.34 percent 
D) 5.29 percent 
E) 5.25 percent 
A) 5.52 percent 
B) 5.42 percent 
C) 5.34 percent 
D) 5.29 percent 
E) 5.25 percent

Question 5

If a $10,000 par T-bill has a 3.75 percent discount quote and a 90-day maturity,what is the price of the T-bill to the nearest dollar?

Accepted Answer

A) $9,625. 
B) $9,906. 
C) $9,908. 
D) $9,627. 
E) None of these choices are correct. 
A) $9,625. 
B) $9,906. 
C) $9,908. 
D) $9,627. 
E) None of these choices are correct.

Question 6

Who are the major participants in money markets?

Accepted Answer

U.S. Treasury Commercial banks

Question 7

In dollars outstanding in 2016,the largest money market security was

Accepted Answer

A) commercial paper. 
B) banker's acceptances. 
C) T-bills. 
D) Fed funds and repos. 
A) commercial paper. 
B) banker's acceptances. 
C) T-bills. 
D) Fed funds and repos.

Question 8

In the T-bill secondary market the ask yield will normally be less than the bid yield.

Accepted Answer

A) True 
 B)False

Question 9

What is the price of 182-day money market security with face value of $7,000 if the BEY is 3.574%?

Accepted Answer

A) $6,877.44 
B) $6,925.48 
C) $6,634.47 
D) $6,725.36 
E) $6,452.39 
A) $6,877.44 
B) $6,925.48 
C) $6,634.47 
D) $6,725.36 
E) $6,452.39

Question 10

A negotiable CD

Accepted Answer

A) is a bank-issued transactions deposit. 
B) is a registered instrument. 
C) is a bank-issued time deposit. 
D) has denominations ranging from $50,000 to $10 million. 
E) pays discount interest. 
A) is a bank-issued transactions deposit. 
B) is a registered instrument. 
C) is a bank-issued time deposit. 
D) has denominations ranging from $50,000 to $10 million. 
E) pays discount interest.

Question 11

The U.S. Treasury switched from a discriminating price auction to a single price auction because the latter lowered the average price paid by investors.

Accepted Answer

A) True 
 B)False

Question 12

A repo is in essence a collateralized

Accepted Answer

A) banker's acceptance. 
B) certificate of deposit. 
C) Fed funds loan. 
D) commercial paper loan. 
E) Eurodollar deposit. 
A) banker's acceptance. 
B) certificate of deposit. 
C) Fed funds loan. 
D) commercial paper loan. 
E) Eurodollar deposit.

Question 13

A 90-day T-bill is selling for $9,900. The par is $10,000. The effective annual return on the T-bill is (watch your rounding)

Accepted Answer

A) 4.00 percent. 
B) 4.16 percent. 
C) 4.10 percent. 
D) 4.04 percent. 
E) 4.21 percent. 
A) 4.00 percent. 
B) 4.16 percent. 
C) 4.10 percent. 
D) 4.04 percent. 
E) 4.21 percent.

Question 14

A corporate treasurer is looking to invest about $4 million for 60 days. Commercial paper rates are a 3.65 percent discount and CD rates are 3.66 percent. Comparing the bond equivalent yields over a 365-day year,which is the best alternative? What is the opportunity cost of leaving the funds idle? (Watch your rounding.)

Accepted Answer

Find the BEY on each CP: Price = $4 mill

Question 15

A short-term unsecured promissory note issued by a company is

Accepted Answer

A) commercial paper. 
B) a T-bill. 
C) a repurchase agreement. 
D) a negotiable CD. 
E) a banker's acceptance. 
A) commercial paper. 
B) a T-bill. 
C) a repurchase agreement. 
D) a negotiable CD. 
E) a banker's acceptance.

Question 16

If your firm enters into an overnight reverse repurchase agreement,your firm is

Accepted Answer

A) borrowing Fed funds temporarily. 
B) selling a security now while agreeing to buy it back tomorrow. 
C) giving an unsecured loan to the counterparty. 
D) procuring a banker's acceptance. 
E) None of these choices are correct. 
A) borrowing Fed funds temporarily. 
B) selling a security now while agreeing to buy it back tomorrow. 
C) giving an unsecured loan to the counterparty. 
D) procuring a banker's acceptance. 
E) None of these choices are correct.

Question 17

The most significant borrower in the U.S. money markets?

Accepted Answer

A) Are commercial banks 
B) Are large corporations 
C) Is the U.S. Treasury 
D) Are the investment banks 
E) Are the insurance companies 
A) Are commercial banks 
B) Are large corporations 
C) Is the U.S. Treasury 
D) Are the investment banks 
E) Are the insurance companies

Question 18

For the purposes for which they are used,money market securities should have which of the following characteristics?
I. Low trading costs
II. Little price risk
III. High rate of return
IV. Life greater than one year

Accepted Answer

A) I and III 
B) II and IV 
C) III and IV 
D) I and II 
E) I,II,and III 
A) I and III 
B) II and IV 
C) III and IV 
D) I and II 
E) I,II,and III

Question 19

How does a repo differ from a Fed funds transaction? How do their rates compare?

Accepted Answer

A repo is basically a collateralized loa

Question 20

A banker's acceptance is

Accepted Answer

A) a time draft drawn on the exporter's bank. 
B) a method to help importers evaluate the creditworthiness of exporters. 
C) a liability of the importer and the importer's bank. 
D) an add-on instrument. 
E) for greater than one year maturity. 
A) a time draft drawn on the exporter's bank. 
B) a method to help importers evaluate the creditworthiness of exporters. 
C) a liability of the importer and the importer's bank. 
D) an add-on instrument. 
E) for greater than one year maturity.

Exam 5: Money Markets

Fed funds are short-term unsecured loans while repos are short-term secured loans.

In a Treasury auction,preferential bidding status is granted to

How does a banker's acceptance (BA)help create more international trade?

A U.S. exporter sells $150,000 of furniture to a Latin American importer. The exporter requires the importer to obtain a letter of credit. When the bank accepts the draft,the exporter discounts the 120-day note at a 5.25 percent discount. What is the exporter's true effective annual financing cost?

If a $10,000 par T-bill has a 3.75 percent discount quote and a 90-day maturity,what is the price of the T-bill to the nearest dollar?

Who are the major participants in money markets?

In dollars outstanding in 2016,the largest money market security was

In the T-bill secondary market the ask yield will normally be less than the bid yield.

What is the price of 182-day money market security with face value of $7,000 if the BEY is 3.574%?

A negotiable CD

The U.S. Treasury switched from a discriminating price auction to a single price auction because the latter lowered the average price paid by investors.

A repo is in essence a collateralized

A 90-day T-bill is selling for $9,900. The par is $10,000. The effective annual return on the T-bill is (watch your rounding)

A short-term unsecured promissory note issued by a company is

If your firm enters into an overnight reverse repurchase agreement,your firm is

The most significant borrower in the U.S. money markets?

For the purposes for which they are used,money market securities should have which of the following characteristics? I. Low trading costs II. Little price risk III. High rate of return IV. Life greater than one year

How does a repo differ from a Fed funds transaction? How do their rates compare?

A banker's acceptance is

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, monetary Policy, and Interest Rates

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

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