Question 1

Suppose that you purchase a 182-day Treasury bill for $9,850 that is worth $10,000 when it matures.The security's annualized yield if held to maturity is about

Accepted Answer

A)  1.5%. 
B)  2%. 
C)  3%. 
D)  6%. 
A)  1.5%. 
B)  2%. 
C)  3%. 
D)  6%. C

Question 2

The T-bill is not an investment to be used for anything but temporary storage of excess funds because it barely keeps up with inflation.

Accepted Answer

A) True 
 B)False  True

Question 3

Explain how and why repurchase agreements would be used.

Accepted Answer

Repurchase agreements, also known as repos, are a type of short-term borrowing where one party sells securities to another party with a promise to buy them back at a later date. This type of arrangement is commonly used in the financial markets as a way for banks and other financial institutions to raise short-term funds.

There are several reasons why repurchase agreements would be used. Firstly, they provide a source of short-term liquidity for financial institutions. By using repos, these institutions can quickly raise cash to meet their funding needs without having to sell off their securities holdings.

Secondly, repurchase agreements are used as a way to manage the supply of money in the financial system. When the central bank conducts open market operations, it can use repos to inject or withdraw liquidity from the market, which can help influence short-term interest rates.

Additionally, repurchase agreements can be used as a way for investors to earn a return on their cash holdings. By entering into a repo agreement, investors can lend their cash to a counterparty in exchange for interest income, with the securities serving as collateral to protect against default.

Overall, repurchase agreements are a versatile tool used in the financial markets for managing liquidity, influencing interest rates, and generating returns on cash holdings.

Question 4

Money market instruments issued by the U.S.Treasury are called

Accepted Answer

A)  Treasury bills. 
B)  Treasury notes. 
C)  Treasury bonds. 
D)  Treasury strips. 
A)  Treasury bills. 
B)  Treasury notes. 
C)  Treasury bonds. 
D)  Treasury strips.

Question 5

Which of the following statements about the money markets are true?

Accepted Answer

A)  Most money market securities do not pay interest. Instead, the investor pays less for the security than it will be worth when it matures. 
B)  Pension funds invest a portion of their assets in the money market to have sufficient liquidity to meet their obligations. 
C)  Unlike most participants in the money market, the U.S. Treasury Department is always a demander of money market funds and never a supplier. 
D)  All of the above are true. 
E)  Only A and B of the above are true. 
A)  Most money market securities do not pay interest. Instead, the investor pays less for the security than it will be worth when it matures. 
B)  Pension funds invest a portion of their assets in the money market to have sufficient liquidity to meet their obligations. 
C)  Unlike most participants in the money market, the U.S. Treasury Department is always a demander of money market funds and never a supplier. 
D)  All of the above are true. 
E)  Only A and B of the above are true.

Question 6

The Treasury accepts noncompetitive bids in ascending order of yield until the accepted bids reach the offering amount.

Accepted Answer

A) True 
 B)False

Question 7

The term money market is actually a misnomer,because liquid securities are traded in these markets rather than money.

Accepted Answer

A) True 
 B)False

Question 8

Commercial paper securities are unsecured promissory notes,issued by corporations,that mature in no more than 270 days.

Accepted Answer

A) True 
 B)False

Question 9

Money markets are used extensively by businesses both to warehouse surplus funds and to raise short-term funds.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements are true of Treasury bills?

Accepted Answer

A)  The market for Treasury bills is extremely deep and liquid. 
B)  Occasionally, investors find that earnings on T-bills do not compensate them for changes in purchasing power due to inflation. 
C)  By volume, most Treasury bills are sold to individuals who submit noncompetitive bids. 
D)  All of the above are true. 
E)  Only A and B of the above are true. 
A)  The market for Treasury bills is extremely deep and liquid. 
B)  Occasionally, investors find that earnings on T-bills do not compensate them for changes in purchasing power due to inflation. 
C)  By volume, most Treasury bills are sold to individuals who submit noncompetitive bids. 
D)  All of the above are true. 
E)  Only A and B of the above are true.

Question 11

Explain why the money markets are referred to as wholesale markets.

Accepted Answer

The money markets are referred to as who

Question 12

When inflation rose in the late 1970s,

Accepted Answer

A)  consumers moved money out of money market mutual funds because their returns did not keep pace with inflation. 
B)  banks solidified their advantage over money markets by offering higher deposit rates. 
C)  brokerage houses introduced highly popular money market mutual funds, which drew significant amounts of money out of bank deposits. 
D)  consumers were unable to take advantage of higher rates in money markets because of the requirement of large transaction sizes. 
A)  consumers moved money out of money market mutual funds because their returns did not keep pace with inflation. 
B)  banks solidified their advantage over money markets by offering higher deposit rates. 
C)  brokerage houses introduced highly popular money market mutual funds, which drew significant amounts of money out of bank deposits. 
D)  consumers were unable to take advantage of higher rates in money markets because of the requirement of large transaction sizes.

Question 13

What are the main characteristics of money market securities?

Accepted Answer

1.
Shorter maturity i.e., one year or le

Question 14

Eurodollars

Accepted Answer

A)  are time deposits with fixed maturities and are, therefore, somewhat illiquid. 
B)  may offer the borrower a lower interest rate than can be received in the domestic market. 
C)  are limited to London banks. 
D)  are all of the above. 
E)  are only A and B of the above. 
A)  are time deposits with fixed maturities and are, therefore, somewhat illiquid. 
B)  may offer the borrower a lower interest rate than can be received in the domestic market. 
C)  are limited to London banks. 
D)  are all of the above. 
E)  are only A and B of the above.

Question 15

The U.S.Treasury Department is the single most influential participant in the U.S.money market.

Accepted Answer

A) True 
 B)False

Question 16

Activity in money markets increased significantly in the late 1970s and early 1980s because of

Accepted Answer

A)  rising short-term interest rates. 
B)  regulations that limited what banks could pay for deposits. 
C)  both A and B of the above. 
D)  neither A nor B of the above. 
A)  rising short-term interest rates. 
B)  regulations that limited what banks could pay for deposits. 
C)  both A and B of the above. 
D)  neither A nor B of the above.

Question 17

The size of the asset-backed commercial paper market nearly doubled between 2004 and 2007 to about $1 trillion.Discuss how the subprime meltdown and collapse of the ABCP market almost led to the collapse of the money market mutual fund market as well.

Accepted Answer

Before discussing how subprime meltdown

Question 18

Negotiable certificates of deposit

Accepted Answer

A)  are bearer instruments because their holders earn the interest and principal at maturity. 
B)  typically have a maturity of one to four months. 
C)  are usually denominated at $100,000. 
D)  are all of the above. 
E)  are only A and B of the above. 
A)  are bearer instruments because their holders earn the interest and principal at maturity. 
B)  typically have a maturity of one to four months. 
C)  are usually denominated at $100,000. 
D)  are all of the above. 
E)  are only A and B of the above.

Question 19

The usual maturity range for commercial paper is ________.

Accepted Answer

A)  1 to 270 days 
B)  1 to 15 days 
C)  4, 13, and 26 weeks 
D)  1 to 7 days 
A)  1 to 270 days 
B)  1 to 15 days 
C)  4, 13, and 26 weeks 
D)  1 to 7 days

Question 20

What are the major types of securities and who are the major participants in the money markets?

Accepted Answer

Types of Money Market Instruments
A larg

Exam 11: The Money Markets

Suppose that you purchase a 182-day Treasury bill for $9,850 that is worth $10,000 when it matures.The security's annualized yield if held to maturity is about

The T-bill is not an investment to be used for anything but temporary storage of excess funds because it barely keeps up with inflation.

Explain how and why repurchase agreements would be used.

Money market instruments issued by the U.S.Treasury are called

Which of the following statements about the money markets are true?

The Treasury accepts noncompetitive bids in ascending order of yield until the accepted bids reach the offering amount.

The term money market is actually a misnomer,because liquid securities are traded in these markets rather than money.

Commercial paper securities are unsecured promissory notes,issued by corporations,that mature in no more than 270 days.

Money markets are used extensively by businesses both to warehouse surplus funds and to raise short-term funds.

Which of the following statements are true of Treasury bills?

Explain why the money markets are referred to as wholesale markets.

When inflation rose in the late 1970s,

What are the main characteristics of money market securities?

Eurodollars

The U.S.Treasury Department is the single most influential participant in the U.S.money market.

Activity in money markets increased significantly in the late 1970s and early 1980s because of

The size of the asset-backed commercial paper market nearly doubled between 2004 and 2007 to about $1 trillion.Discuss how the subprime meltdown and collapse of the ABCP market almost led to the collapse of the money market mutual fund market as well.

Negotiable certificates of deposit

The usual maturity range for commercial paper is ________.

What are the major types of securities and who are the major participants in the money markets?

Why Study Financial Markets and Institutions?

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation?

Why Do Interest Rates Change?

How Do Risk and Term Structure Affect Interest Rates?

Are Financial Markets Efficient?

Why Do Financial Institutions Exist?

Why Do Financial Crises Occur and

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging with Financial Derivatives

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Finance Companies

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