Question 1

When firms sell commercial paper at a ____ price than they projected, their cost of raising funds is ____ than projected.

Accepted Answer

A)  higher; higher
B)  lower; lower
C)  A and B
D)  none of the aboveE) A) and D)
F) A) and C)

Question 2

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 the above are money market securities.F) B) and D)
G) A) and C)

Question 3

Which of the following statements is incorrect with respect to the federal funds rate?

Accepted Answer

A)  It is the rate charged by financial institutions on loans they extend to each other.
B)  It is not influenced by the supply and demand for funds in the federal funds market.
C)  The federal funds rate is closely monitored by all types of firms.
D)  Many market participants view changes in the federal funds rate to be an indicator of potential changes in other money market rates.
E)  The Federal Reserve adjusts the amount of funds in depository institutions in order to influence the federal funds rate.F) All of the above
G) D) and E)

Question 4

The effective yield of a foreign money market security is ____ when the foreign currency weakens against the dollar.

Accepted Answer

A)  increased
B)  reduced
C)  always negative
D)  unaffectedE) None of the above
F) All of the above

Question 5

Junk commercial paper is commercial paper that is not rated or rated low.

Accepted Answer

A) True 
 B)False

Question 6

At a given point in time, the actual price paid for a three-month Treasury bill is

Accepted Answer

A)  usually equal to the par value.
B)  more than the price paid for a six-month Treasury bill.
C)  equal to the price paid for a six-month Treasury bill.
D)  none of the aboveE) A) and B)
F) A) and C)

Question 7

Which of the following is true of money market instruments?

Accepted Answer

A)  Their yields are highly correlated over time.
B)  They typically sell for par value when they are initially issued (especially T-bills and commercial paper) .
C)  Treasury bills have the highest yield.
D)  They all make periodic coupon (interest)  payments.
E)  A and BF) All of the above
G) A) and B)

Question 8

When a bank guarantees a future payment to a firm, the financial instrument used is called

Accepted Answer

A)  a repurchase agreement.
B)  a negotiable CD.
C)  a banker's acceptance.
D)  commercial paper.E) A) and C)
F) C) and D)

Question 9

Commercial paper is

Accepted Answer

A)  always directly placed with investors.
B)  always placed with the help of commercial paper dealers.
C)  placed either directly or with the help of commercial paper dealers.
D)  always placed by bank holding companies.E) A) and B)
F) B) and C)

Question 10

____ 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 paperE) B) and C)
F) A) and D)

Question 11

An investor purchased an NCD a year ago in the secondary market for $980,000. He redeems it today and receives $1,000,000. He also receives interest of $30,000. The investor's annualized yield on this investment is

Accepted Answer

A)  2.0 percent.
B)  5.10 percent.
C)  5.00 percent.
D)  2.04 percent.E) B) and C)
F) A) and D)

Question 12

Large corporations typically make ____ bids for T-bills so they can purchase larger amounts.

Accepted Answer

A)  competitive
B)  noncompetitive
C)  very small
D)  none of the aboveE) B) and D)
F) A) and B)

Question 13

Which of the following is not a money market instrument?

Accepted Answer

A)  banker's acceptance
B)  commercial paper
C)  negotiable CDs
D)  repurchase agreements
E)  all of the above are money market instrumentsF) A) and B)
G) A) and C)

Question 14

Most repo transactions use government securities.

Accepted Answer

A) True 
 B)False

Question 15

Because money market securities have a short-term maturity and typically cannot be sold easily, they provide investors with a low degree of liquidity.

Accepted Answer

A) True 
 B)False

Question 16

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)  greater than; recessionary
B)  greater than; boom economy
C)  less than; boom economy
D)  less than; recessionaryE) None of the above
F) C) and D)

Question 17

Money market securities are issued in the primary market through a telecommunications network by the Treasury, corporations, and financial intermediaries that wish to obtain short-term financing.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)  higher; higher
B)  lower; lower
C)  higher; lower
D)  lower; higher
E)  Answers C and D are correct.F) C) and D)
G) None of the above

Question 19

During periods of uncertainty about the economy, there is a shift from risky money market securities to Treasury securities.

Accepted Answer

A) True 
 B)False

Question 20

The rate on Eurodollar floating rate CDs is based on

Accepted Answer

A)  a weighted average of European prime rates.
B)  the London Interbank Offer Rate.
C)  the U.S. prime rate.
D)  a weighted average of European discount rates.E) A) and C)
F) B) and C)

Exam 6: Money Markets

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

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

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An investor purchased an NCD a year ago in the secondary market for $980,000. He redeems it today and receives $1,000,000. He also receives interest of $30,000. The investor's annualized yield on this investment is

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Which of the following is not a money market instrument?

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At a given point in time, the actual price paid for a three-month Treasury bill is

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Because money market securities have a short-term maturity and typically cannot be sold easily, they provide investors with a low degree of liquidity.

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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.

Correct AnswerverifiedShow Answer

When firms sell commercial paper at a ____ price than they projected, their cost of raising funds is ____ than projected.

Correct AnswerverifiedShow Answer

Large corporations typically make ____ bids for T-bills so they can purchase larger amounts.

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Money market securities are issued in the primary market through a telecommunications network by the Treasury, corporations, and financial intermediaries that wish to obtain short-term financing.

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A ____ is not a money market security.

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Commercial paper is

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Most repo transactions use government securities.

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When a bank guarantees a future payment to a firm, the financial instrument used is called

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The rate on Eurodollar floating rate CDs is based on

Correct AnswerverifiedShow Answer

The effective yield of a foreign money market security is ____ when the foreign currency weakens against the dollar.

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Junk commercial paper is commercial paper that is not rated or rated low.

Correct AnswerverifiedShow Answer

During periods of uncertainty about the economy, there is a shift from risky money market securities to Treasury securities.

Correct AnswerverifiedShow Answer

Which of the following is true of money market instruments?

Correct AnswerverifiedShow Answer

Which of the following statements is incorrect with respect to the federal funds rate?

Correct AnswerverifiedShow Answer

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When a firm sells its commercial paper at a price than projected, their cost of raising funds will be than what they 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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When firms sell commercial paper at a price than they projected, their cost of raising funds is than projected.

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