Chapter 06: Money Markets
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1. Securities with maturities of one year or less are classified as
a.
capital market instruments.
b.
money market instruments.
c.
preferred stock.
d.
none of the above
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
2. Which of the following is not a money market security?
a.
Treasury bill
b.
negotiable certificate of deposit
c.
common stock
d.
federal funds
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
3. ____ is/are sold at an auction at a discount from par value.
a.
b.
c.
d.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
4. Jarrod King, a private investor, purchases a Treasury bill with a $10,000 par value for $9,645. One hundred days later,
Jarrod sells the T-bill for $9,719. What is Jarrod’s expected annualized yield from this transaction?
a.
13.43 percent
b.
2.78 percent
c.
10.55 percent
Chapter 06: Money Markets
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d.
2.80 percent
e.
none of the above
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
5. Assume investors require a 5 percent annualized return on a six-month T-bill with a par value of $10,000. The price
investors would be willing to pay is $____.
a.
10,000
b.
9,524
c.
9,756
d.
none of the above
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
6. A newly issued T-bill with a $10,000 par value sells for $9,750, and has a 90-day maturity. What is the discount?
a.
10.26 percent
b.
0.26 percent
c.
$2,500
d.
10.00 percent
e.
11.00 percent
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
7. Large corporations typically make ____ bids for T-bills so they can purchase larger amounts.
a.
competitive
b.
noncompetitive
c.
very small
d.
none of the above
ANSWER:
a
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8. At any given time, the yield on commercial paper is ____ the yield on a T-bill with the same maturity.
a.
slightly less than
b.
slightly higher than
c.
equal to
d.
A and B both occur with about equal frequency
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
9. T-bills and commercial paper are sold
a.
with a stated coupon rate.
b.
at a discount from par value.
c.
at a premium about par value.
d.
A and C
e.
none of the above
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
10. Commercial paper has a maximum maturity of ____ days.
a.
45
b.
270
c.
360
d.
none of the above
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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11. An investor buys commercial paper with a 60-day maturity for $985,000. Par value is $1,000,000, and the investor
holds it to maturity. What is the annualized yield?
a.
8.62 percent
b.
8.78 percent
c.
8.90 percent
d.
9.14 percent
e.
9.00 percent
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
12. 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?
a.
12.12 percent
b.
11.11 percent
c.
13.00 percent
d.
14.08 percent
e.
15.25 percent
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
KEYWORDS:
Bloom’s: Application
13. Which of the following is not a money market instrument?
a.
banker‘s acceptance
b.
commercial paper
c.
negotiable CDs
d.
repurchase agreements
e.
All of the above are money market instruments.
ANSWER:
e
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.06.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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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 B
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
18. An investor purchased an NCD a year ago in the secondary market for $980,000. She redeems it today and receives
$1,000,000. She also receives interest of $30,000. The investor’s annualized yield on this investment is
a.
2.0 percent.
b.
5.10 percent.
c.
5.00 percent.
d.
2.04 percent.
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
19. An investor initially purchased securities at a price of $9,923,418, with an agreement to sell them back at a price of
$10,000,000 at the end of a 90-day period. The repo rate is ____ percent.
a.
3.10
b.
0.77
c.
1.00
d.
none of the above
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
20. The rate at which depository institutions effectively lend or borrow funds from each other is the ____.
a.
federal funds rate
b.
discount rate
c.
prime rate
Chapter 06: Money Markets
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d.
repo rate
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
21. ____ are the most active participants in the federal funds market.
a.
Savings and loan associations
b.
Securities firms
c.
Credit unions
d.
Commercial banks
ANSWER:
d
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
22. Eurodollar deposits
a.
are U.S. dollars deposited in the United States by European investors.
b.
are subject to interest rate ceilings.
c.
have a relatively large spread between deposit and loan rates (compared to the spread between deposits and
loans in the United States).
d.
are not subject to reserve requirements.
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.06.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
23. Which money market transaction is most likely to represent a loan from one commercial bank to another?
a.
banker‘s acceptance
b.
negotiable CD
c.
federal funds
d.
commercial paper
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
Chapter 06: Money Markets
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Page 9
be especially large during a ____ period.
a.
higher than; recessionary
b.
higher than; boom economy
c.
less than; boom economy
d.
less than; recessionary
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
28. Which of the following is sometimes issued in the primary market by nonfinancial firms to borrow funds?
a.
NCDs
b.
retail CDs
c.
commercial paper
d.
federal funds
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
29. The so-called “flight to quality” causes the risk differential between risky and risk-free securities to be
a.
eliminated.
b.
reduced.
c.
increased.
d.
unchanged (there is no effect).
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.06.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
30. The effective yield of a foreign money market security is ____ when the foreign currency strengthens against the
dollar.
a.
increased
b.
reduced
c.
always negative
Chapter 06: Money Markets
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d.
unaffected
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.06.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
31. The effective yield of a foreign money market security is ____ when the foreign currency weakens against the dollar.
a.
increased
b.
reduced
c.
always negative
d.
unaffected
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.06.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
32. Treasury bills are sold through ____ when initially issued.
a.
insurance companies
b.
commercial paper dealers
c.
auction
d.
finance companies
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.06.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
33. At a given point in time, the actual price paid for a three-month Treasury bill is
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 above
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
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34. The minimum denomination of commercial paper is
a.
$25,000.
b.
$100,000.
c.
$150,000.
d.
$200,000.
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
35. Commercial paper is
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.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
36. An investor, purchases a six-month (182-day) T-bill with a $10,000 par value for $9,700. If the Treasury bill is held to
maturity, the annualized yield is ____ percent.
a.
6.02
b.
1.54
c.
1.50
d.
6.20
e.
none of the above
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.06.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension