Question 1

Which of the following is NOT a money market security?

Accepted Answer

A)  Treasury bill
B)  negotiable certificate of deposit
C)  common stock
D)  federal funds

Question 2

An international interbank market facilitates the transfer of funds from banks with excess funds to those with deficient funds.

Accepted Answer

A) True 
 B)False

Question 3

____ are the most active participants in the federal funds market.

Accepted Answer

A)  Savings and loan associations
B)  Securities firms
C)  Credit unions
D)  Commercial banks

Question 4

Money market securities must have a maturity of three months or less.

Accepted Answer

A) True 
 B)False

Question 5

T-bills must offer a premium above negotiable certificates of deposit (NCDs)to compensate for less liquidity and safety.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following may be issued in the primary market by well-known creditworthy firms to borrow funds?

Accepted Answer

A)  banker's acceptances
B)  retail CDs
C)  commercial paper
D)  federal funds

Question 7

Which of the following is NOT a money market instrument?

Accepted Answer

A)  banker's acceptance
B)  commercial paper
C)  negotiable CD
D)  repurchase agreement
E)  All of these are money market instruments.

Question 8

A repurchase agreement calls for an investor to buy securities for $4,925,000 and sell them back in 60 days for $5,000,000. What is the yield?

Accepted Answer

A)  9.43 percent
B)  9.28 percent
C)  9.14 percent
D)  9.00 percent

Question 9

Exporters can hold a banker's acceptance until the date at which payment is to be made, but they frequently sell the acceptance before then at a discount to obtain cash immediately.

Accepted Answer

A) True 
 B)False

Question 10

Securities with maturities of one year or less are classified as

Accepted Answer

A)  capital market instruments.
B)  money market instruments.
C)  preferred stock.
D)  None of these are correct.

Question 11

The yield on NCDs is ____ the yield of Treasury bills of the same maturity. The difference between their yields would be especially large during a ____ period.

Accepted Answer

A)  higher than; recessionary
B)  higher than; boom economy
C)  less than; boom economy
D)  less than; recessionary

Question 12

At any given time, the yield on commercial paper is ____ the yield on a T-bill with the same maturity.

Accepted Answer

A)  slightly less than
B)  slightly higher than
C)  equal to
D)  much less than

Question 13

____ is/are sold at an auction at a discount from par value.

Accepted Answer

A)  Treasury bills
B)  Repurchase agreements
C)  Banker's acceptances
D)  Commercial paper

Question 14

A firm plans to issue 30-day commercial paper for $9,900,000. Par value is $10,000,000. What is the firm's cost of borrowing?

Accepted Answer

A)  12.12 percent
B)  11.11 percent
C)  13.00 percent
D)  14.08 percent
E)  15.25 percent

Question 15

Ignoring transaction costs, the cost of borrowing with commercial paper is equal to

Accepted Answer

A)  the yield on T-bills of the same maturity.
B)  the yield earned by investors holding the paper until maturity.
C)  the federal funds rate.
D)  the par value of the paper.

Question 16

When a firm sells its commercial paper at a ____ price than projected, its cost of raising funds will be ____ than what it initially anticipated.

Accepted Answer

A)  higher; higher
B)  lower; lower
C)  higher; lower
D)  lower; higher
E)  higher; lower AND lower; higher

Question 17

Which money market transaction is most likely to represent a loan from one commercial bank to another?

Accepted Answer

A)  banker's acceptance
B)  negotiable CD
C)  federal funds
D)  commercial paper

Question 18

The minimum denomination of commercial paper is

Accepted Answer

A)  $25,000.
B)  $100,000.
C)  $150,000.
D)  $200,000.

Question 19

There is no limit to the amount of T-bills that can be purchased by noncompetitive bidders in a T-bill auction.

Accepted Answer

A) True 
 B)False

Question 20

A ____ is not a money market security.

Accepted Answer

A)  Treasury bill
B)  negotiable certificate of deposit
C)  bond
D)  banker's acceptance
E)  All of these are money market securities.

Exam 6: Money Markets

____ are the most active participants in the federal funds market.

Correct AnswerverifiedShow Answer

A repurchase agreement calls for an investor to buy securities for $4,925,000 and sell them back in 60 days for $5,000,000. What is the yield?

Correct AnswerverifiedShow Answer

A ____ is not a money market security.

Correct AnswerverifiedShow Answer

When a firm sells its commercial paper at a ____ price than projected, its cost of raising funds will be ____ than what it initially anticipated.

Correct AnswerverifiedShow Answer

Which money market transaction is most likely to represent a loan from one commercial bank to another?

Correct AnswerverifiedShow Answer

Exporters can hold a banker's acceptance until the date at which payment is to be made, but they frequently sell the acceptance before then at a discount to obtain cash immediately.

Correct AnswerverifiedShow Answer

The minimum denomination of commercial paper is

Correct AnswerverifiedShow Answer

Which of the following is NOT a money market security?

Correct AnswerverifiedShow Answer

____ is/are sold at an auction at a discount from par value.

Correct AnswerverifiedShow Answer

A firm plans to issue 30-day commercial paper for $9,900,000. Par value is $10,000,000. What is the firm's cost of borrowing?

Correct AnswerverifiedShow Answer

Money market securities must have a maturity of three months or less.

Correct AnswerverifiedShow Answer

Which of the following may be issued in the primary market by well-known creditworthy firms to borrow funds?

Correct AnswerverifiedShow Answer

Securities with maturities of one year or less are classified as

Correct AnswerverifiedShow Answer

There is no limit to the amount of T-bills that can be purchased by noncompetitive bidders in a T-bill auction.

Correct AnswerverifiedShow Answer

An international interbank market facilitates the transfer of funds from banks with excess funds to those with deficient funds.

Correct AnswerverifiedShow Answer

Ignoring transaction costs, the cost of borrowing with commercial paper is equal to

Correct AnswerverifiedShow Answer

Which of the following is NOT a money market instrument?

Correct AnswerverifiedShow Answer

At any given time, the yield on commercial paper is ____ the yield on a T-bill with the same maturity.

Correct AnswerverifiedShow Answer

T-bills must offer a premium above negotiable certificates of deposit (NCDs)to compensate for less liquidity and safety.

Correct AnswerverifiedShow Answer

The yield on NCDs is ____ the yield of Treasury bills of the same maturity. The difference between their yields would be especially large during a ____ period.

Correct AnswerverifiedShow Answer

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When a firm sells its commercial paper at a price than projected, its cost of raising funds will be than what it initially anticipated.

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The yield on NCDs is the yield of Treasury bills of the same maturity. The difference between their yields would be especially large during a period.

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