Question 1

The rate of return on a repo is

Accepted Answer

A) determined by the rate of return on the underlying collateral. 
B) strongly affected by the current Fed funds rate at the time of the repo. 
C) determined at the time of the repo. 
D) determined by the rate of return on the underlying collateral and determined at the time of the repo. 
E) strongly affected by the current Fed funds rate at the time of the repo and determined at the time of the repo. 
A) determined by the rate of return on the underlying collateral. 
B) strongly affected by the current Fed funds rate at the time of the repo. 
C) determined at the time of the repo. 
D) determined by the rate of return on the underlying collateral and determined at the time of the repo. 
E) strongly affected by the current Fed funds rate at the time of the repo and determined at the time of the repo.

Question 2

Money markets exist to help reduce the opportunity cost of holding cash balances.

Accepted Answer

A) True 
 B)False

Question 3

Why do most money market securities have large denominations?

Accepted Answer

The market has developed for institution

Question 4

The following formula is used to calculate the ________ of a money market investment.   ×

Accepted Answer

A) EAR 
B) APR 
C) single-payment yield 
D) discount yield 
E) BEY 
A) EAR 
B) APR 
C) single-payment yield 
D) discount yield 
E) BEY

Question 5

The largest secondary money market in the United States is the secondary market for T-bills.

Accepted Answer

A) True 
 B)False

Question 6

Eurodollar CDs would include

Accepted Answer

A) CDs denominated in Euros. 
B) dollar investments by European entities in the United States. 
C) dollars deposited in Caribbean banks. 
D) dollars deposited in Europe. 
E) dollars deposited in Caribbean banks and dollars deposited in Europe. 
A) CDs denominated in Euros. 
B) dollar investments by European entities in the United States. 
C) dollars deposited in Caribbean banks. 
D) dollars deposited in Europe. 
E) dollars deposited in Caribbean banks and dollars deposited in Europe.

Question 7

A dealer is quoting a $10,000 face 180-day T-bill quoted at 2.75 bid,2.65 ask. You could buy this bill at ________ or sell it at ________.

Accepted Answer

A) $9,869.23; $9,864.36. 
B) $9,864.36; $9,869.23. 
C) $9,867.50; $9,862.50. 
D) $9,862.50; $9,867.50. 
E) None of these choices are correct. 
A) $9,869.23; $9,864.36. 
B) $9,864.36; $9,869.23. 
C) $9,867.50; $9,862.50. 
D) $9,862.50; $9,867.50. 
E) None of these choices are correct.

Question 8

Which of the following descriptions does not apply to money market securities?

Accepted Answer

A) Short-term 
B) Low-risk 
C) Highly liquid 
D) Long maturity 
E) High denominations 
A) Short-term 
B) Low-risk 
C) Highly liquid 
D) Long maturity 
E) High denominations

Question 9

Commercial paper,Treasury bills,and banker's acceptance rates are all quoted as discount yields.

Accepted Answer

A) True 
 B)False

Question 10

A government securities dealer needs to make a 7 percent pretax annual return on $10 million of capital employed to make it worthwhile to make a market in T-bills. If the bid discount on $10,000 face value 90-day T-bills is 3.50 percent,and the dealer can expect to do 5,200 round trip deals today,what must the ask discount be? Hint: A round trip is a buy and a sell transaction.

Accepted Answer

Bid Price = $10,000 × [1 − .035 × (90/36

Question 11

Which one of the following statements about commercial paper is not true? Commercial paper issued in the United States

Accepted Answer

A) is an unsecured short-term promissory note. 
B) has a maximum maturity of 270 days. 
C) is virtually always rated by at least one ratings agency. 
D) has no secondary market. 
E) carries an interest rate above the prime rate. 
A) is an unsecured short-term promissory note. 
B) has a maximum maturity of 270 days. 
C) is virtually always rated by at least one ratings agency. 
D) has no secondary market. 
E) carries an interest rate above the prime rate.

Question 12

The majority of money market securities are low-denomination,low-risk investments designed to appeal to individual investors with excess cash.

Accepted Answer

A) True 
 B)False

Question 13

You are a corporate treasurer for Esso Oil. The quoted rate on dollar-denominated euro commercial paper has just blipped down recently. Your firm can issue $10 million of 180-day euro commercial paper in the London markets at 3.45 percent. You can also invest the proceeds in the United States in comparable maturity negotiable dollar-denominated CDs,which are quoting 3.95 percent. Ignoring any transactions costs,how much money,if any,can Esso make by borrowing in the euro markets and investing in the United States? Is this a good deal or not? Should you expect it to last? Explain.

Accepted Answer

Initial proceeds from issuing euro comme

Question 14

The discount yield on a T-bill differs from the T-bill's bond equivalent yield (BEY)because
I. the discount yield is the return per dollar of face value and the BEY is a return per dollar originally invested.
II. a 360-day year is used on the discount yield and the BEY uses 365 days.
III. the discount yield is calculated without compounding,and the BEY is calculated with compounding.

Accepted Answer

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

Question 15

A 180-day $3 million CD has a 4.25 percent annual rate quote. If you buy the CD,how much will you collect in 180 days?

Accepted Answer

A) $3,047,439 
B) $3,045.678 
C) $3,062,877 
D) $3,063,750 
E) $3,127,500 
A) $3,047,439 
B) $3,045.678 
C) $3,062,877 
D) $3,063,750 
E) $3,127,500

Question 16

The most liquid of the money market securities are

Accepted Answer

A) commercial paper. 
B) banker's acceptances. 
C) T-bills. 
D) Fed funds. 
E) repurchase agreements. 
A) commercial paper. 
B) banker's acceptances. 
C) T-bills. 
D) Fed funds. 
E) repurchase agreements.

Question 17

You buy a $10,000 par Treasury bill at $9,575 and sell it 60 days later for $9,675. What was your EAR?

Accepted Answer

A) 4.44 percent 
B) 6.29 percent 
C) 6.35 percent 
D) 6.52 percent 
E) 6.67 percent 
A) 4.44 percent 
B) 6.29 percent 
C) 6.35 percent 
D) 6.52 percent 
E) 6.67 percent

Question 18

What is the difference between a discriminating auction and a single price auction? How is the final price determined in a single price auction? Why did the Treasury switch to a single price auction?

Accepted Answer

In a discriminating price auction,differ

Question 19

Commercial paper is a short-term obligation of the U.S. government issued to cover government budget deficits and to refinance maturing government debt.

Accepted Answer

A) True 
 B)False

Question 20

One-hundred-eighty-day commercial paper can be bought at a 3.75 percent discount. What are the bond equivalent yield and the effective annual rate on the commercial paper? Why do these rates differ?

Accepted Answer

Commercial paper price/100 of par = 100

Exam 5: Money Markets

The rate of return on a repo is

Money markets exist to help reduce the opportunity cost of holding cash balances.

Why do most money market securities have large denominations?

The following formula is used to calculate the ________ of a money market investment. ×

The largest secondary money market in the United States is the secondary market for T-bills.

Eurodollar CDs would include

A dealer is quoting a $10,000 face 180-day T-bill quoted at 2.75 bid,2.65 ask. You could buy this bill at ________ or sell it at ________.

Which of the following descriptions does not apply to money market securities?

Commercial paper,Treasury bills,and banker's acceptance rates are all quoted as discount yields.

Which one of the following statements about commercial paper is not true? Commercial paper issued in the United States

The majority of money market securities are low-denomination,low-risk investments designed to appeal to individual investors with excess cash.

A 180-day $3 million CD has a 4.25 percent annual rate quote. If you buy the CD,how much will you collect in 180 days?

The most liquid of the money market securities are

You buy a $10,000 par Treasury bill at $9,575 and sell it 60 days later for $9,675. What was your EAR?

What is the difference between a discriminating auction and a single price auction? How is the final price determined in a single price auction? Why did the Treasury switch to a single price auction?

Commercial paper is a short-term obligation of the U.S. government issued to cover government budget deficits and to refinance maturing government debt.

One-hundred-eighty-day commercial paper can be bought at a 3.75 percent discount. What are the bond equivalent yield and the effective annual rate on the commercial paper? Why do these rates differ?

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

Filters

A dealer is quoting a $10,000 face 180-day T-bill quoted at 2.75 bid,2.65 ask. You could buy this bill at or sell it at .