Chapter 06: Money Markets
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37. When an investor purchases a six-month (182-day) T-bill with a $10,000 par value for $9,700, the Treasury bill
discount is ____ percent.
a.
5.93
b.
6.12
c.
6.20
d.
6.02
e.
none of the above
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: Application
38. Robbins Corp. frequently invests excess funds in the Mexican money market. One year ago, Robbins invested in a
one-year Mexican money market security that provided a yield of 25 percent. At the end of the year, when Robbins
converted the Mexican pesos to dollars, the peso had depreciated from $.12 to $.11. What is the effective yield earned by
Robbins?
a.
25.00 percent
b.
35.41 percent
c.
14.59 percent
d.
none of the above
ANSWER:
c
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: Application
39. Which of the following statements is incorrect with respect to the federal funds rate?
a.
It is the rate charged by financial institutions on loans they extend to each other.
b.
It is not influenced by the supply of 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 as 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.
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
Chapter 06: Money Markets
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Page 14
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
44. 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.
a.
True
b.
False
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
45. An international interbank market facilitates the transfer of funds from banks with excess funds to those with deficient
funds.
a.
True
b.
False
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
46. The interest rate charged for a short-term loan from a bank to a corporation is referred to as the London Interbank
Offer Rate (LIBOR).
a.
True
b.
False
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
47. Money markets are used to facilitate the transfer of short-term funds from individuals, corporations, or governments
Chapter 06: Money Markets
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Page 15
with excess funds to those with deficient funds.
a.
True
b.
False
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: Comprehension
48. Because money market securities have a short-term maturity and typically cannot be sold easily, they provide
investors with a low degree of liquidity.
a.
True
b.
False
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: Comprehension
49. There is no limit to the amount of T-bills that can be purchased by noncompetitive bidders in a T-bill auction.
a.
True
b.
False
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: Comprehension
50. T-bills do not offer coupon payments but are sold at a discount from par value.
a.
True
b.
False
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
Chapter 06: Money Markets
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Page 16
51. Junk commercial paper is commercial paper that is not rated or is rated low.
a.
True
b.
False
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
52. A line of credit provided by a commercial bank gives a company the right (but not the obligation) to borrow a
specified maximum amount of funds over a specified period of time.
a.
True
b.
False
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: Comprehension
53. T-bills must offer a premium above the negotiable certificate of deposit (NCD) to compensate for less liquidity and
safety.
a.
True
b.
False
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
54. Most repo transactions use government securities.
a.
True
b.
False
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
Chapter 06: Money Markets
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Page 17
55. Exporters can hold a banker’s acceptance until the date at which payment is to be made, but they frequently sell the
acceptance before then at a discount to obtain cash immediately.
a.
True
b.
False
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: Comprehension
56. Money market security values are less sensitive to interest rate movements than bonds.
a.
True
b.
False
ANSWER:
a
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
57. During periods of uncertainty about the economy, there is a shift from risky money market securities to Treasury
securities.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
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: Comprehension
58. The price that competitive and noncompetitive bidders will pay at a Treasury bill auction is the
a.
highest price entered by a competitive bidder.
b.
highest price entered by a noncompetitive bidder.
c.
lowest price entered by a competitive bidder
d.
equally weighted average price paid by all competitive bidders whose bids were accepted.
e.
none of the above
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
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Page 18
59. A private investor purchases a six-month (182-day) T-bill with a $10,000 par value for $9,800. If she holds the
Treasury bill to maturity, her annualized yield is ____ percent.
a.
3.96
b.
4.54
c.
1.50
d.
4.09
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
60. You purchase a six-month (182-day) T-bill with a $10,000 par value for $9,800. The Treasury bill discount is ____
percent.
a.
3.96
b.
4.09
c.
6.20
d.
3.56
e.
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
61. A ____ is not a money market security.
a.
Treasury bill
b.
negotiable certificate of deposit
c.
Bond
d.
banker‘s acceptance
e.
All of the above are money market securities.
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: Comprehension
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Page 19
62. Freeman Corp., a large corporation, plans to issue 45-day commercial paper with a par value of $3,000,000. Freeman
expects to sell the commercial paper for $2,947,000. Freeman’s annualized cost of borrowing is estimated to be ____
percent.
a.
14.39
b.
14.13
c.
14.59
d.
14.33
e.
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
63. When a firm sells its commercial paper at a ____ price than projected, its cost of raising funds will be ____ than what
it initially anticipated.
a.
higher; higher
b.
lower; lower
c.
higher; lower
d.
lower; higher
e.
Answers C and D are correct.
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
64. Which of the following securities is most likely to be used in a repo transaction?
a.
commercial paper
b.
certificate of deposit
c.
Treasury bill
d.
common stock
e.
All of the above are equally likely to be used in a repo transaction.
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: Knowledge
Chapter 06: Money Markets
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Page 21
d.
the rate charged by the European Central Bank for loans to banks.
ANSWER:
a
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: Knowledge
69. The LIBOR scandal in 2012 involved:
a.
banks reporting inflated earnings from their loans.
b.
hackers breaking into the loan documentation files.
c.
banks falsely reporting the interest rates they offered in the interbank market.
d.
collusion among the banks when setting the commercial paper rate.
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
70. Credit guarantees for commercial paper:
a.
ensure that the issuer of commercial paper will use the funds obtained to provide credit.
b.
are issued by the Federal Reserve Bank of New York.
c.
are only as good as the credit of the guarantor.
d.
A and C
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
71. The money market interest rate paid by corporations that borrow short-term funds in a particular country is typically:
a.
equal to the rate paid by that country’s government.
b.
slightly higher than the rate paid by that country’s government.
c.
mostly influenced by the demand for and supply of long-term funds in that country.
d.
set by the country’s central bank.
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.06.04
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Page 22