Question 1

The yields on money market instruments are relatively low compared with the yields of other debt instruments.

Accepted Answer

A) True 
 B)False

Question 2

Nancy is an institutional investor who wants to "park" her funds temporarily by purchasing money market instruments. Thus, Nancy is considered a demander in the money market.

Accepted Answer

A) True 
 B)False

Question 3

Trade in money markets is dominated by

Accepted Answer

A)  investment banks and commercial banks.
B)  brokers, dealers, investment banks, and commercial banks.
C)  governments and banks.
D)  Fortune 500 corporations, wealthy individuals, and investment banks.E) All of the above
F) A) and D) B

Question 4

Why are there money markets?

Accepted Answer

Money markets exist because business firms typically have very uneven cash flows and often need a safe place to "park" those funds for the short term until they require them.

Question 5

In 1998, the government lowered the minimum denomination of T-bills so that individuals can now purchase T-bills along with institutional investors. What is the current lowest denomination of T-bills?

Accepted Answer

A)  $500
B)  $1,000
C)  $5,000
D)  $10,000E) A) and D)
F) All of the above

Question 6

Which of the following is true of commercial paper?

Accepted Answer

A)  It has a maturity of less than 90 days.
B)  It can be issued by both small businesses and large corporations.
C)  It is considered long-term debt.
D)  It is essentially unsecured IOUs.E) All of the above
F) B) and C)

Question 7

In 2008, the Federal Reserve began paying interest on the bank deposits it holds. By doing this, its goal is to

Accepted Answer

A)  establish a price floor on the interest rate on US Treasury securities.
B)  establish a price floor on the interest rate in the federal funds market.
C)  improve the liquidity of commercial banks.
D)  improve the financial position of commercial banks.E) B) and D)
F) A) and B)

Question 8

Which of these is the most accurate description of the money market?

Accepted Answer

A)  A market for financial assets that are borrowed and lent out between banks and large corporations
B)  A market of IOUs between governments and banks
C)  A market for financial assets that are a close substitute for money
D)  A market of financial assets that are a close substitute for money, largely traded between banksE) A) and C)
F) None of the above

Question 9

What concept does the following diagram illustrate regarding interest rates for three-month T-bills?

Accepted Answer

A)  Interest rates for three-month Treasury bills have been both high and low during recessions.
B)  Interest rates for three-month Treasury bills have been historically low during recessions.
C)  Interest rates for three-month T-bills have been low, even during inflationary periods.
D)  Interest rates for three-month T-bills have been relatively low since 1990.E) A) and C)
F) A) and B)

Question 10

The government doesn't actually pay interest on T-bills; instead, they are sold at

Accepted Answer

A)  face value.
B)  a discount.
C)  principal value.
D)  the highest bid price.E) C) and D)
F) A) and B)

Question 11

Which of the following statements about negotiable certificates of deposit (CDs) is true?

Accepted Answer

A)  Negotiable CDs are considered a liquid bank account.
B)  To open a negotiable CD, savers must have large amounts of savings, usually at least $100,000.
C)  The interest rates paid on negotiable CDs are determined solely by the issuing bank.
D)  Funds can be withdrawn from negotiable CDs at any time.E) A) and B)
F) B) and D)

Question 12

What are the main characteristics of money markets?

Accepted Answer

A money market is a segment of a financi...

Question 13

Which of the following is NOT a supplier of financial instruments in the primary market?

Accepted Answer

A)  The federal government
B)  Large corporations
C)  Commercial banks
D)  The Federal ReserveE) A) and C)
F) B) and C)

Question 14

Suppose you buy a 120-day T-bill with a face value of $10,000 at a price of $9,900. Your discount rate yield (DRY) would be

Accepted Answer

A)  3.0%.
B)  3.5%.
C)  4.0%.
D)  4.5%.E) A) and B)
F) A) and C) A

Question 15

A computer manufacturer in the United States does a lot of business with customers in China. Thus, it probably makes sense for the computer manufacturer to open which kind of account at its local bank?

Accepted Answer

A)  Eurodollar
B)  Foreign exchange
C)  Commercial paper
D)  Federal fundsE) A) and D)
F) B) and C)

Question 16

A major automobile manufacturer typically has slow sales during the winter months, creating a cash flow problem for meeting payroll. In a situation like this, the automobile manufacturer may

Accepted Answer

A)  issue commercial paper.
B)  borrow federal funds.
C)  purchase negotiable certificates of deposit (CDs) .
D)  issue banker's acceptances.E) A) and D)
F) A) and B)

Question 17

Cameron is looking to buy $10,000 worth of T-bills. She can purchase them at all of the following places EXCEPT

Accepted Answer

A)  directly from her bank.
B)  over the Internet directly from the government.
C)  indirectly from a broker.
D)  indirectly through a mutual fund.E) C) and D)
F) B) and D)

Question 18

Suppose you buy a 120-day T-bill with a face value of $10,000 at price of $9,900. Your investment return yield (IRY) would be

Accepted Answer

A)  2.9%.
B)  3.0%.
C)  3.4%.
D)  3.7%.E) All of the above
F) A) and B)

Question 19

Which of the following explains why both competitive bids and noncompetitive bids, no one bidder is allowed to purchase more than 35% of any one issue?

Accepted Answer

A)  to make the bidding fair
B)  to make the bidding unfair
C)  to avoid the "winner's curse" due to the uncertainty over the value of the T-bills being auctioned
D)  to avoid the "loser's curse" due to the uncertainty over the value of the T-bills being auctionedE) B) and C)
F) A) and C)

Question 20

Money market instruments have a low level of default risk for which of these reasons?

Accepted Answer

A)  They are short-term IOUs.
B)  Only governments can issue them.
C)  They are issued by only the biggest and safest borrowers.
D)  There is a well-organized secondary market for the instruments.E) All of the above
F) C) and D)

Exam 15: Money Markets

The yields on money market instruments are relatively low compared with the yields of other debt instruments.

Correct AnswerverifiedShow Answer

Nancy is an institutional investor who wants to "park" her funds temporarily by purchasing money market instruments. Thus, Nancy is considered a demander in the money market.

Correct AnswerverifiedShow Answer

Trade in money markets is dominated by

Correct AnswerverifiedB

Why are there money markets?

Correct AnswerverifiedMoney markets exist because business firms typically have very uneven cash flows and often need a safe place to "park" those funds for the short term until they require them.

In 1998, the government lowered the minimum denomination of T-bills so that individuals can now purchase T-bills along with institutional investors. What is the current lowest denomination of T-bills?

Correct AnswerverifiedShow Answer

Which of the following is true of commercial paper?

Correct AnswerverifiedShow Answer

In 2008, the Federal Reserve began paying interest on the bank deposits it holds. By doing this, its goal is to

Correct AnswerverifiedShow Answer

Which of these is the most accurate description of the money market?

Correct AnswerverifiedShow Answer

What concept does the following diagram illustrate regarding interest rates for three-month T-bills?

Correct AnswerverifiedShow Answer

The government doesn't actually pay interest on T-bills; instead, they are sold at

Correct AnswerverifiedShow Answer

Which of the following statements about negotiable certificates of deposit (CDs) is true?

Correct AnswerverifiedShow Answer

What are the main characteristics of money markets?

Correct AnswerverifiedA money market is a segment of a financi...View AnswerShow Answer

Which of the following is NOT a supplier of financial instruments in the primary market?

Correct AnswerverifiedShow Answer

Suppose you buy a 120-day T-bill with a face value of $10,000 at a price of $9,900. Your discount rate yield (DRY) would be

Correct AnswerverifiedA

A computer manufacturer in the United States does a lot of business with customers in China. Thus, it probably makes sense for the computer manufacturer to open which kind of account at its local bank?

Correct AnswerverifiedShow Answer

A major automobile manufacturer typically has slow sales during the winter months, creating a cash flow problem for meeting payroll. In a situation like this, the automobile manufacturer may

Correct AnswerverifiedShow Answer

Cameron is looking to buy $10,000 worth of T-bills. She can purchase them at all of the following places EXCEPT

Correct AnswerverifiedShow Answer

Suppose you buy a 120-day T-bill with a face value of $10,000 at price of $9,900. Your investment return yield (IRY) would be

Correct AnswerverifiedShow Answer

Which of the following explains why both competitive bids and noncompetitive bids, no one bidder is allowed to purchase more than 35% of any one issue?

Correct AnswerverifiedShow Answer

Money market instruments have a low level of default risk for which of these reasons?

Correct AnswerverifiedShow Answer

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B

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Money markets exist because business firms typically have very uneven cash flows and often need a safe place to "park" those funds for the short term until they require them.

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A money market is a segment of a financi...
View Answer

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A

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