Question 1

360/n times the difference between the face value and the current value divided by the face value gives you the discount yield on an instrument.

Accepted Answer

A) True 
 B)False

Question 2

A Chinese exporter sells $200,000 of toys to a French importer. The Chinese exporter requires the French importer to obtain a letter of credit. When the bank accepts the draft,the exporter discounts the 90-day note at a 4 percent discount. What is the exporter's true effective annual financing cost?

Accepted Answer

A) 4.00 percent 
B) 4.04 percent 
C) 4.10 percent 
D) 4.16 percent 
E) 4.22 percent 
A) 4.00 percent 
B) 4.04 percent 
C) 4.10 percent 
D) 4.16 percent 
E) 4.22 percent

Question 3

In general,the federal funds rate is slightly lower than the LIBOR.

Accepted Answer

A) True 
 B)False

Question 4

Money market securities exhibit which of the following?
I. Large denomination
II. Maturity greater than one year
III. Low default risk
IV. Contractually determined cash flows

Accepted Answer

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

Question 5

A $2 million jumbo CD is paying a quoted 3.55 percent interest rate on 180-day maturity CDs. How much money will you have at maturity if you invest in the CD?

Accepted Answer

A) $2,000,000 
B) $2,035,014 
C) $2,035,500 
D) $2,071,000 
E) $2,088,400 
A) $2,000,000 
B) $2,035,014 
C) $2,035,500 
D) $2,071,000 
E) $2,088,400

Question 6

The bond equivalent yield times 365/360 is equal to the single payment yield.

Accepted Answer

A) True 
 B)False

Question 7

Given the functions of the money markets,why is it necessary for money market securities to have a maturity of one year or less and low default risk?

Accepted Answer

Because these markets are designed to pr

Question 8

The most active and important participant in the U.S. money market

Accepted Answer

A) is the U.S. Treasury. 
B) are the large banks. 
C) are the investment banks. 
D) are the insurance companies. 
E) is the Federal Reserve. 
A) is the U.S. Treasury. 
B) are the large banks. 
C) are the investment banks. 
D) are the insurance companies. 
E) is the Federal Reserve.

Question 9

Euro commercial paper is a short-term obligation of the European Central Bank.

Accepted Answer

A) True 
 B)False

Question 10

A noncompetitive bid for Treasury bill auction provides

Accepted Answer

A) all noncompetitive bidders the same price. 
B) all competitive bidders the same price. 
C) all noncompetitive bidders the same quantity. 
D) all noncompetitive bidders lesser price than the competitive bidders. 
E) all competitive bidders the same quantity. 
A) all noncompetitive bidders the same price. 
B) all competitive bidders the same price. 
C) all noncompetitive bidders the same quantity. 
D) all noncompetitive bidders lesser price than the competitive bidders. 
E) all competitive bidders the same quantity.

Question 11

LIBOR is the rate that would be charged when banks borrow from other banks in Eurodollar market.

Accepted Answer

A) True 
 B)False

Question 12

Rates on federal funds and repurchase agreements are stated

Accepted Answer

A) on a bond equivalent basis with a 360-day year. 
B) on a bond equivalent basis with a 365-day year. 
C) as a discount yield with a 360-day year. 
D) as an EAR. 
E) as a discount yield with a 365-day year. 
A) on a bond equivalent basis with a 360-day year. 
B) on a bond equivalent basis with a 365-day year. 
C) as a discount yield with a 360-day year. 
D) as an EAR. 
E) as a discount yield with a 365-day year.

Question 13

A 50-day maturity money market security has a bond equivalent yield of 3.60 percent. The security's EAR is

Accepted Answer

A) 3.69 percent. 
B) 3.61 percent. 
C) 3.55 percent. 
D) 3.87 percent. 
E) 3.66 percent. 
A) 3.69 percent. 
B) 3.61 percent. 
C) 3.55 percent. 
D) 3.87 percent. 
E) 3.66 percent.

Question 14

From 1990 to 2016,which one of the following money market securities actually declined in terms of dollar amount outstanding?

Accepted Answer

A) Commercial paper 
B) Treasury bills 
C) Federal funds and repos 
D) Negotiable CDs 
E) Banker's acceptances 
A) Commercial paper 
B) Treasury bills 
C) Federal funds and repos 
D) Negotiable CDs 
E) Banker's acceptances

Question 15

Maturities on Eurodollar CDs are usually more than one year.

Accepted Answer

A) True 
 B)False

Question 16

In the T-bill auction process,the competitive bidder is guaranteed a ________ and a noncompetitive bidder is guaranteed a ________.

Accepted Answer

A) minimum price; maximum price. 
B) maximum price; minimum price. 
C) maximum price; given quantity. 
D) minimum price; maximum quantity. 
E) None of these choices are correct. 
A) minimum price; maximum price. 
B) maximum price; minimum price. 
C) maximum price; given quantity. 
D) minimum price; maximum quantity. 
E) None of these choices are correct.

Question 17

A time draft payable to a seller of goods with payment guaranteed by a bank is a

Accepted Answer

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

Question 18

As a corporate treasurer who is unsure how soon funds will be needed,which type of money market investment might you prefer? Explain the trade-offs. Would your answer differ if you had a definite time period during which you would not need the money? Explain.

Accepted Answer

If liquidity is a primary concern,then T

Question 19

Everything else equal,an effective annual rate will be greater than the bond equivalent yield on the same security.

Accepted Answer

A) True 
 B)False

Question 20

LIBOR is generally ________ the Fed funds rate because foreign bank deposits are generally ________ than domestic bank deposits.

Accepted Answer

A) greater than; less risky 
B) less than; more risky 
C) the same as; equally risk 
D) greater than; more risky 
E) less than; less risky 
A) greater than; less risky 
B) less than; more risky 
C) the same as; equally risk 
D) greater than; more risky 
E) less than; less risky

Exam 5: Money Markets

360/n times the difference between the face value and the current value divided by the face value gives you the discount yield on an instrument.

In general,the federal funds rate is slightly lower than the LIBOR.

Money market securities exhibit which of the following? I. Large denomination II. Maturity greater than one year III. Low default risk IV. Contractually determined cash flows

A $2 million jumbo CD is paying a quoted 3.55 percent interest rate on 180-day maturity CDs. How much money will you have at maturity if you invest in the CD?

The bond equivalent yield times 365/360 is equal to the single payment yield.

Given the functions of the money markets,why is it necessary for money market securities to have a maturity of one year or less and low default risk?

The most active and important participant in the U.S. money market

Euro commercial paper is a short-term obligation of the European Central Bank.

A noncompetitive bid for Treasury bill auction provides

LIBOR is the rate that would be charged when banks borrow from other banks in Eurodollar market.

Rates on federal funds and repurchase agreements are stated

A 50-day maturity money market security has a bond equivalent yield of 3.60 percent. The security's EAR is

From 1990 to 2016,which one of the following money market securities actually declined in terms of dollar amount outstanding?

Maturities on Eurodollar CDs are usually more than one year.

In the T-bill auction process,the competitive bidder is guaranteed a ________ and a noncompetitive bidder is guaranteed a ________.

A time draft payable to a seller of goods with payment guaranteed by a bank is a

As a corporate treasurer who is unsure how soon funds will be needed,which type of money market investment might you prefer? Explain the trade-offs. Would your answer differ if you had a definite time period during which you would not need the money? Explain.

Everything else equal,an effective annual rate will be greater than the bond equivalent yield on the same security.

LIBOR is generally ________ the Fed funds rate because foreign bank deposits are generally ________ than domestic bank deposits.

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

In the T-bill auction process,the competitive bidder is guaranteed a and a noncompetitive bidder is guaranteed a .

LIBOR is generally the Fed funds rate because foreign bank deposits are generally than domestic bank deposits.