Question 1

All individual countries considered, the largest government bond markets outside of the United States is ________.

Accepted Answer

A)  Italy. 
B)  Germany 
C)  France. 
D)  Japan. 
A)  Italy. 
B)  Germany 
C)  France. 
D)  Japan. D

Question 2

The large volume of total debt and the large size of any single issue have contributed to making the U.S. Treasury market the most active and hence the most liquid market ________.

Accepted Answer

A)  in the world. 
B)  in the United States. 
C)  in New York City. 
D)  on the East Coast. 
A)  in the world. 
B)  in the United States. 
C)  in New York City. 
D)  on the East Coast. A

Question 3

The Chinese bond market is the largest government bond market in the world.

Accepted Answer

A) True 
 B)False  False

Question 4

The GSEs issue two types of securities: debentures and mortgage-backed securities ________.

Accepted Answer

A)  indentures and auto-backed securities. 
B)  debentures and auto-backed securities. 
C)  indentures and mortgage-backed securities. 
D)  debentures and mortgage-backed securities. 
A)  indentures and auto-backed securities. 
B)  debentures and auto-backed securities. 
C)  indentures and mortgage-backed securities. 
D)  debentures and mortgage-backed securities.

Question 5

Which of the below statements is FALSE?

Accepted Answer

A)  The TVA was established by Congress in 1933, primarily to provide flood control, navigation, and agricultural and industrial development, and to promote the use of electric power in the Tennessee Valley region. 
B)  In the 1930s, Congress created a federally related institution, the Federal National Mortgage Association, popularly known as "Fannie Mae," which was charged with the responsibility to create a liquid secondary market for mortgages. 
C)  The Federal Agricultural Mortgage Corporation (popularly known as "Farmer Mac") provides a secondary market for first mortgage forestry land loans. 
D)  In 1970, Congress created the Federal Home Loan Mortgage Corporation (Freddie Mac). The reason for the creation of Freddie Mac was to provide support for conventional mortgages. 
A)  The TVA was established by Congress in 1933, primarily to provide flood control, navigation, and agricultural and industrial development, and to promote the use of electric power in the Tennessee Valley region. 
B)  In the 1930s, Congress created a federally related institution, the Federal National Mortgage Association, popularly known as "Fannie Mae," which was charged with the responsibility to create a liquid secondary market for mortgages. 
C)  The Federal Agricultural Mortgage Corporation (popularly known as "Farmer Mac") provides a secondary market for first mortgage forestry land loans. 
D)  In 1970, Congress created the Federal Home Loan Mortgage Corporation (Freddie Mac). The reason for the creation of Freddie Mac was to provide support for conventional mortgages.

Question 6

In regards to the primary dealer, which of the below statements is TRUE?

Accepted Answer

A)  Any firm can deal in government securities, but in implementing its open market operations, the Federal Reserve will deal directly only with dealers that it designates as unrecognized dealers. 
B)  The Federal Reserve will make a reporting dealer into a primary dealer if it is convinced that the firm will continue to meet the established criteria. 
C)  The Federal Reserve wants to be sure that firms requesting status as primary dealers have adequate capital relative to positions assumed in Treasury securities and disregard the amount of volume in Treasury securities. 
D)  A reporting dealer is a firm that is taken off the Federal Reserve's regular reporting list. 
A)  Any firm can deal in government securities, but in implementing its open market operations, the Federal Reserve will deal directly only with dealers that it designates as unrecognized dealers. 
B)  The Federal Reserve will make a reporting dealer into a primary dealer if it is convinced that the firm will continue to meet the established criteria. 
C)  The Federal Reserve wants to be sure that firms requesting status as primary dealers have adequate capital relative to positions assumed in Treasury securities and disregard the amount of volume in Treasury securities. 
D)  A reporting dealer is a firm that is taken off the Federal Reserve's regular reporting list.

Question 7

The purpose of ________ is to facilitate adequate, dependable credit and related services to the agricultural sector of the economy.

Accepted Answer

A)  Freddie Mac 
B)  Fannie Mae 
C)  the Tennessee Valley Authority 
D)  the Federal Farm Credit Bank System (FFCBS) 
A)  Freddie Mac 
B)  Fannie Mae 
C)  the Tennessee Valley Authority 
D)  the Federal Farm Credit Bank System (FFCBS)

Question 8

Financial theory tells us that the theoretical value of a Treasury security should be equal to the present value of the cash flow where each cash flow is discounted at the appropriate theoretical spot rate.

Accepted Answer

A) True 
 B)False

Question 9

GSE stands for ________.

Accepted Answer

A)  government-sponsored entity. 
B)  government-sponsored enterprise. 
C)  government-supported enterprise. 
D)  government-supported entity. 
A)  government-sponsored entity. 
B)  government-sponsored enterprise. 
C)  government-supported enterprise. 
D)  government-supported entity.

Question 10

A significant depreciation of the local currency relative to a foreign currency in which a debt obligation is denominated will impair a national government's ability to satisfy such obligation.

Accepted Answer

A) True 
 B)False

Question 11

The repo rate will be slightly below the federal funds rate because a repo involves collateralized borrowing, while a federal funds transaction is unsecured borrowing.

Accepted Answer

A) True 
 B)False

Question 12

In assessing the credit quality of local currency debt, S&P emphasizes foreign government policies that foster or impede timely debt service.

Accepted Answer

A) True 
 B)False

Question 13

The GSEs issue debentures and mortgage-backed securities and these securities are backed by the full faith and credit of the U.S. government.

Accepted Answer

A) True 
 B)False

Question 14

Illustrate the process of stripping.

Accepted Answer

To illustrate the process, suppose $100

Question 15

In regards, to the auction for Treasury securities, which of the below statements is FALSE?

Accepted Answer

A)  Noncompetitive tenders may be submitted for up to a $1 million face amount and are based on quantity, not yield. 
B)  The auction results are determined by first deducting the total noncompetitive tenders and nonpublic purchases (such as purchases by the Federal Reserve itself) from the total securities being auctioned. 
C)  Bids are arranged from the lowest price to the highest price. 
D)  The highest yield accepted by the Treasury is referred to as the stop yield, and bidders at that yield are awarded a percentage of their total tender. 
A)  Noncompetitive tenders may be submitted for up to a $1 million face amount and are based on quantity, not yield. 
B)  The auction results are determined by first deducting the total noncompetitive tenders and nonpublic purchases (such as purchases by the Federal Reserve itself) from the total securities being auctioned. 
C)  Bids are arranged from the lowest price to the highest price. 
D)  The highest yield accepted by the Treasury is referred to as the stop yield, and bidders at that yield are awarded a percentage of their total tender.

Question 16

Unlike primary dealers, ________ had to make large cash deposits or provide guarantees to ensure that they could fulfill their obligation to purchase the securities for which they bid.

Accepted Answer

A)  nonprimary dealers 
B)  recognized dealers 
C)  reporting dealers 
D)  All of these 
A)  nonprimary dealers 
B)  recognized dealers 
C)  reporting dealers 
D)  All of these

Question 17

A Treasury bill with 36 days to maturity, a face value of $100,000, and selling for $99,000 would be quoted at what on a bank discount basis?

Accepted Answer

A)  5.00% 
B)  7.00% 
C)  8.50% 
D)  10.00% 
A)  5.00% 
B)  7.00% 
C)  8.50% 
D)  10.00%

Question 18

Which of the following statements about TIPs is TRUE?

Accepted Answer

A)  TIPs refer to Treasury inflation protection securities. 
B)  TIPs adjust for inflation. 
C)  The Treasury has issued TIPS that are notes and bonds. 
D)  All of these 
A)  TIPs refer to Treasury inflation protection securities. 
B)  TIPs adjust for inflation. 
C)  The Treasury has issued TIPS that are notes and bonds. 
D)  All of these

Question 19

The Treasury does not issue zero-coupon notes or bonds.

Accepted Answer

A) True 
 B)False

Question 20

________ pay a fixed coupon (usually 4%) with the increase in the CPI added to the capital value of the bond and paid on maturity.

Accepted Answer

A)  Fixed-indexed securities 
B)  Capital-indexed securities 
C)  Fixed-coupon securities 
D)  CPI securities 
A)  Fixed-indexed securities 
B)  Capital-indexed securities 
C)  Fixed-coupon securities 
D)  CPI securities

Exam 15: Treasury and Agency Securities Markets

All individual countries considered, the largest government bond markets outside of the United States is ________.

The large volume of total debt and the large size of any single issue have contributed to making the U.S. Treasury market the most active and hence the most liquid market ________.

The Chinese bond market is the largest government bond market in the world.

The GSEs issue two types of securities: debentures and mortgage-backed securities ________.

Which of the below statements is FALSE?

In regards to the primary dealer, which of the below statements is TRUE?

The purpose of ________ is to facilitate adequate, dependable credit and related services to the agricultural sector of the economy.

Financial theory tells us that the theoretical value of a Treasury security should be equal to the present value of the cash flow where each cash flow is discounted at the appropriate theoretical spot rate.

GSE stands for ________.

A significant depreciation of the local currency relative to a foreign currency in which a debt obligation is denominated will impair a national government's ability to satisfy such obligation.

The repo rate will be slightly below the federal funds rate because a repo involves collateralized borrowing, while a federal funds transaction is unsecured borrowing.

In assessing the credit quality of local currency debt, S&P emphasizes foreign government policies that foster or impede timely debt service.

The GSEs issue debentures and mortgage-backed securities and these securities are backed by the full faith and credit of the U.S. government.

Illustrate the process of stripping.

In regards, to the auction for Treasury securities, which of the below statements is FALSE?

Unlike primary dealers, ________ had to make large cash deposits or provide guarantees to ensure that they could fulfill their obligation to purchase the securities for which they bid.

A Treasury bill with 36 days to maturity, a face value of $100,000, and selling for $99,000 would be quoted at what on a bank discount basis?

Which of the following statements about TIPs is TRUE?

The Treasury does not issue zero-coupon notes or bonds.

________ pay a fixed coupon (usually 4%) with the increase in the CPI added to the capital value of the bond and paid on maturity.

Introduction

Financial Institutions, Financial Intermediaries, and Asset Management Firms

Depository Institutions: Activities and Characteristics

The U.S. Federal Reserve and the Creation of Money

Monetary Policy in the United States

Insurance Companies

Investment Companies and Exchange Traded Funds

Pension Funds

Properties and Pricing of Financial Assets

The Level and Structure of Interest Rates

The Term Structure of Interest Rates

Risk/Return and Asset Pricing Models

Primary Markets and the Underwriting of Securities

Secondary Markets

Municipal Securities Markets

Markets for Common Stock: The Basic Characteristics

Markets for Common Stock: Structure and Organization

Markets for Corporate Senior Instruments: I

Markets for Corporate Senior Instruments: II

The Markets for Bank Obligations

The Residential Mortgage Market

Mortgage-Backed Securities Market

Market for Commercial Mortgage Loans and Commercial Mortgage-Backed Securities

Market for Asset-Backed Securities

Financial Futures Markets

Options Markets

Pricing of Futures and Options Contracts

The Applications of Futures and Options Contracts

OTC Interest Rate Derivatives: Forward Rate Agreements, Swaps, Caps, and Floors

Market for Credit Risk Transfer Vehicles: Credit Derivatives and Collateralized Debt Obligations

The Market for Foreign Exchange and Risk Control Instruments

Filters