Question 1

Which statement about Treasury bills is NOT true?

Accepted Answer

A)   They have maturities less than one year.
B)   Most are sold by "book-entry" method.
C)   They are sold at a discount.
D)   Interest on T-bills is tax-deductible for federal income tax purposes.E) All of the above
F) None of the above

Question 2

In terms of dollars outstanding, in recent years, what is the largest money market security?

Accepted Answer

A)   Commercial paper
B)   Banker's acceptances
C)   T-Bills
D)   Federal funds and reposE) B) and C)
F) A) and B)

Question 3

A short term unsecured promissory note issued by a company is Negotiable CD.

Accepted Answer

A) True 
 B)False

Question 4

Describe in what ways commercial banks participate in the money markets.

Accepted Answer

Commercial banks have to frequently adju...

Question 5

Banks invest in government securities for a variety of reasons except

Accepted Answer

A)   income.
B)   safety.
C)   acceptable for collateral.
D)   high relative yield.E) A) and D)
F) A) and C)

Question 6

Commercial paper is more likely to be placed directly by large finance companies.

Accepted Answer

A) True 
 B)False

Question 7

Investors in the money markets are generally willing to take which of the following risks?

Accepted Answer

A)   default risk
B)   interest rate risk
C)   liquidity risk
D)   all of the above
E)   none of the aboveF) All of the above
G) D) and E)

Question 8

Which of the following yield calculations on a Treasury bill provides the best comparison yield for competing coupon-bearing securities of the same maturity?

Accepted Answer

A)   bank discount rate
B)   CD equivalent rate
C)   bond equivalent rate
D)   the prime rate.E) B) and C)
F) C) and D)

Question 9

The most common money market instrument utilized in the Fed's open market operations is

Accepted Answer

A)   Federal Funds.
B)   commercial paper.
C)   Treasury bills.
D)   Agency securities.E) A) and B)
F) A) and C)

Question 10

The money market provides liquidity for deficit spending units; the capital market finances economic growth.

Accepted Answer

A) True 
 B)False

Question 11

Many diverse institutions borrow in the money markets, while relatively few invest.

Accepted Answer

A) True 
 B)False

Question 12

A time draft drawn on and accepted by a commercial bank that orders to pay a specified amount of money to the bearer on a given date is called a _______

Accepted Answer

A)   letter of credit
B)   negotiable certificate of deposit
C)   banker's certificate of support
D)   reverse repurchase agreement
E)   banker's acceptanceF) B) and C)
G) C) and D)

Question 13

Individual investors most often have only indirect access to the money market through commercial banks.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements is true?

Accepted Answer

A)   Discount yield is always lower than bond equivalent yield on the same security.
B)   Discount yield is always higher than bond equivalent yield on the same security.
C)   Discount yield is always equal to bond equivalent yield on the same security.
D)   Discount yield can be lower or higher than bond equivalent yield on the same security.E) C) and D)
F) A) and B)

Question 15

Large industrial U.S. corporations are involved in the money market by

Accepted Answer

A)   investing excess cash balances.
B)   buying and selling goods on credit in international trade.
C)   issuing commercial paper.
D)   all of the aboveE) A) and D)
F) C) and D)

Question 16

A repurchase agreement calls for

Accepted Answer

A)   a firm to sell securities with the agreement to buy them back later at a higher price.
B)   a firm to buy securities with the agreement to sell them back later at a higher price.
C)   a firm to sell securities with the agreement to buy them back later at a lower price.
D)   a firm to buy securities with the agreement to sell them back later at a lower price.E) B) and D)
F) None of the above

Question 17

What are the fundamental characteristics of money market debt instruments? Explain why these characteristics are important to money market participants who are investing and financing.

Accepted Answer

Money market securities are attractive t...

Question 18

Commercial banks are important indirect guarantors of commercial paper.

Accepted Answer

A) True 
 B)False

Question 19

Calculate the bond equivalent yield on a 52-day T-bill selling for 98.555% of its face value.

Accepted Answer

A)   10.85%
B)   10.75%
C)   10.54%
D)   10.29%E) All of the above
F) A) and C)

Question 20

Federal Funds are typically

Accepted Answer

A)   Treasury deposits.
B)   Federal Reserve assets.
C)   commercial bank deposits at the Federal Reserve.
D)   overnight interbank loans settled in immediately available fundsE) B) and C)
F) All of the above

Exam 7: Money Markets

Which of the following statements is true?

Correct AnswerverifiedShow Answer

The most common money market instrument utilized in the Fed's open market operations is

Correct AnswerverifiedShow Answer

The money market provides liquidity for deficit spending units; the capital market finances economic growth.

Correct AnswerverifiedShow Answer

Many diverse institutions borrow in the money markets, while relatively few invest.

Correct AnswerverifiedShow Answer

Which of the following yield calculations on a Treasury bill provides the best comparison yield for competing coupon-bearing securities of the same maturity?

Correct AnswerverifiedShow Answer

A short term unsecured promissory note issued by a company is Negotiable CD.

Correct AnswerverifiedShow Answer

Banks invest in government securities for a variety of reasons except

Correct AnswerverifiedShow Answer

Individual investors most often have only indirect access to the money market through commercial banks.

Correct AnswerverifiedShow Answer

In terms of dollars outstanding, in recent years, what is the largest money market security?

Correct AnswerverifiedShow Answer

Large industrial U.S. corporations are involved in the money market by

Correct AnswerverifiedShow Answer

What are the fundamental characteristics of money market debt instruments? Explain why these characteristics are important to money market participants who are investing and financing.

Correct AnswerverifiedMoney market securities are attractive t...View AnswerShow Answer

Commercial banks are important indirect guarantors of commercial paper.

Correct AnswerverifiedShow Answer

Calculate the bond equivalent yield on a 52-day T-bill selling for 98.555% of its face value.

Correct AnswerverifiedShow Answer

Commercial paper is more likely to be placed directly by large finance companies.

Correct AnswerverifiedShow Answer

A time draft drawn on and accepted by a commercial bank that orders to pay a specified amount of money to the bearer on a given date is called a _______

Correct AnswerverifiedShow Answer

Federal Funds are typically

Correct AnswerverifiedShow Answer

Which statement about Treasury bills is NOT true?

Correct AnswerverifiedShow Answer

A repurchase agreement calls for

Correct AnswerverifiedShow Answer

Investors in the money markets are generally willing to take which of the following risks?

Correct AnswerverifiedShow Answer

Describe in what ways commercial banks participate in the money markets.

Correct AnswerverifiedCommercial banks have to frequently adju...View AnswerShow Answer

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Money market securities are attractive t...
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Commercial banks have to frequently adju...
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