978-0133427073 Test Bank Chapter 11 Part 2

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34) A negotiable certificate of deposit

A) is a term security because it has a specified maturity date.

B) is a bearer instrument, meaning whoever holds the certificate at maturity receives the

principal and interest.

C) can be bought and sold until maturity.

D) all of the above.

E) only A and B of the above.

35) Negotiable certificates of deposit

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.

36) Commercial paper securities

A) are issued only by the largest and most creditworthy corporations, as they are unsecured.

B) carry an interest rate that varies according to the firm’s level of risk.

C) never have a term to maturity that exceeds 270 days.

D) all of the above.

E) only A and B of the above.

37) Unlike most money market securities, commercial paper

A) is not generally traded in a secondary market.

B) usually has a term to maturity that is longer than a year.

C) is not popular with most money market investors because of the high default risk.

D) all of the above.

E) only A and B of the above.

38) A banker’s acceptance is

A) used to finance goods that have not yet been transferred from the seller to the buyer.

B) an order to pay a specified amount of money to the bearer on a given date.

C) a relatively new money market security that arose in the 1960s as international trade

expanded.

D) all of the above.

E) only A and B of the above.

39) Banker’s acceptances

A) can be bought and sold until they mature.

B) are issued only by large money center banks.

C) carry low interest rates because of the very low default risk.

D) are all of the above.

E) are only A and B of the above.

40) Eurodollars

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.

41) Which of the following statements about money market securities are true?

A) The interest rates on all money market instruments move very closely together over time.

B) The secondary market for Treasury bills is extensive and well developed.

C) There is no well-developed secondary market for commercial paper.

D) All of the above are true.

E) Only A and B of the above are true.

42) Money market transactions

A) do not take place in any one particular location or building.

B) are usually arranged purchases and sales between participants over the phone by traders and

completed electronically.

C) are both A and B of the above.

D) are none the the above.

43) Two important characteristics of any financial market are flexibility and

A) risk.

B) innovation.

C) tolerance.

D) capital.

44) The main role of investment companies in the money market is to

A) trade on behalf of commercial accounts.

B) mediate the symmetric information problem between server-lender and borrower-spenders.

C) both A and B of the above.

D) neither A nor B of the above.

45) In a direct placement

A) the issuer bypasses the dealer and sells indirectly to the end investor.

B) the dealer sells directly to the end investor.

C) the issuer bypasses the dealer and sells directly to the end investor.

D) none of the above.

46) The advantage of mutual funds is that they

A) require no cash up front.

B) give investors with relatively small amounts of cash to invest access to large-denomination

securities.

C) always yield the highest returns.

D) both A and B of the above.

47) Asset-backed commercial paper differs from conventional commercial paper in that

A) it is backed (secured) by some bundle of assets.

B) its maturity usually extends well beyond 1 year.

C) both A and B of the above.

D) neither A nor B of the above.

48) The usual maturity range for commercial paper is ________.

A) 1 to 270 days

B) 1 to 15 days

C) 4, 13, and 26 weeks

D) 1 to 7 days

49) The usual maturity range for fed funds is ________.

A) 1 to 270 days

B) 1 to 15 days

C) 4, 13, and 26 weeks

D) 1 to 7 days

1) Money market securities are short-term instruments with an original maturity of less than one

year.

2) Money market securities include Treasury bills, commercial paper, federal funds, repurchase

agreements, negotiable certificates of deposit, banker’s acceptances, and Eurodollars.

3) The term money market is actually a misnomer, because liquid securities are traded in these

markets rather than money.

4) Money markets are referred to as retail markets because small individual investors are the

primary buyers of money market securities.

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

market.

6) The U.S. Treasury Department is the single largest borrower in the U.S. money market.

7) Banks are unusual participants in the money market because they buy, but do not sell, money

market instruments.

8) Money markets are used extensively by businesses both to warehouse surplus funds and to

raise short-term funds.

9) The market for U.S. Treasury bills is a shallow market because so few individual investors

buy T-bills.

10) 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.

11) The main purpose of federal funds is to provide banks with an immediate infusion of

reserves should they be short.

12) The Fed can influence the federal funds rate by adjusting the level of reserves in the banking

system.

13) Commercial paper securities are unsecured promissory notes, issued by corporations, that

mature in no more than 270 days.

14) A banker’s acceptance is an order to pay a specified amount of money to the bearer on a

given date. Banker’s acceptances have been used since the twelfth century.

15) Interest rates on banker’s acceptances are low because the risk of default is very low.

16) The size of the asset-backed commercial paper market nearly doubled between 2004 and

2007 to about $1 trillion.

17) In general, money market instruments are low-risk, high-yield securities.

18) Commercial paper has been used in various forms since the 1930s.

19) The Treasury accepts noncompetitive bids in ascending order of yield until the accepted bids

reach the offering amount.

20) Not all commercial banks deal in the secondary money market for their customers.

11.3 Essay

1) Explain why banks, which would seem to have a comparative advantage in gathering

information, have not eliminated the need for the money markets.

Topic: Chapter 11.1 The Money Markets Defined