Question 1

The yield on commercial paper is ____ the yield of Treasury bills of the same maturity.The difference between their yields would be especially large during a ____ period.

Accepted Answer

A)  greater than; recessionary
B)  greater than; boom economy
C)  less than; boom economy
D)  less than; recessionaryE) A) and C)
F) B) and C)

Question 2

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?

Accepted Answer

A)  10.26 percent
B)  0.26 percent
C)  $2,500
D)  10.00 percent
E)  11.00 percentF) B) and D)
G) C) and D)

Question 3

Exporters can hold a banker's acceptance until the date at which payment is to be made, yet they frequently sell the acceptance before then at a discount to obtain cash immediately.

Accepted Answer

A) True 
 B)False

Question 4

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.

Accepted Answer

A)  3.10
B)  0.77
C)  1.00
D)  none of the aboveE) A) and C)
F) B) and C)

Question 5

The minimum denomination of commercial paper is

Accepted Answer

A)  $25,000.
B)  $100,000.
C)  $150,000.
D)  $200,000.E) A) and B)
F) C) and D)

Question 6

An international interbank market facilitates the transfer of funds from banks with excess funds to those with deficient funds.

Accepted Answer

A) True 
 B)False

Question 7

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?

Accepted Answer

A)  12.12 percent
B)  11.11 percent
C)  13.00 percent
D)  14.08 percent
E)  15.25 percentF) D) and E)
G) A) and E)

Question 8

A line of credit provided by a commercial bank allows a company the right (but not the obligation) to borrow a specified maximum amount of funds over a specified period of time.

Accepted Answer

A) True 
 B)False

Question 9

At any given time, the yield on commercial paper is ____ the yield on a T-bill with the same maturity.

Accepted Answer

A)  slightly less than
B)  slightly higher than
C)  equal to
D)  A and B both occur with about equal frequencyE) A) and B)
F) A) and C)

Question 10

Securities with maturities of one year or less are classified as

Accepted Answer

A)  capital market instruments.
B)  money market instruments.
C)  preferred stock.
D)  none of the aboveE) A) and C)
F) A) and B)

Question 11

An investor purchased an NCD a year ago in the secondary market for $980,000.He redeems it today and receives $1,000,000.He also receives interest of $30,000.The investor's annualized yield on this investment is

Accepted Answer

A)  2.0 percent.
B)  5.10 percent.
C)  5.00 percent.
D)  2.04 percent.E) C) and D)
F) A) and D)

Question 12

Treasury bills

Accepted Answer

A)  have a maturity of up to five years.
B)  have an active secondary market.
C)  are commonly sold at par value.
D)  commonly offer coupon payments.E) B) and C)
F) A) and D)

Question 13

Money market security values are less sensitive to interest rate movements than bonds.

Accepted Answer

A) True 
 B)False

Question 14

At a given point in time, the actual price paid for a three-month Treasury bill is

Accepted Answer

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 aboveE) B) and C)
F) A) and B)

Question 15

____ are the most active participants in the federal funds market.

Accepted Answer

A)  Savings and loan associations
B)  Securities firms
C)  Credit unions
D)  Commercial banksE) B) and C)
F) C) and D)

Question 16

In general the money markets are widely perceived to be efficient in the sense that the prices reflect all available public information.

Accepted Answer

A) True 
 B)False

Question 17

Junk commercial paper is commercial paper that is not rated or rated low.

Accepted Answer

A) True 
 B)False

Question 18

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.

Accepted Answer

A)  14.39
B)  14.13
C)  14.59
D)  14.33
E)  none of the aboveF) A) and B)
G) None of the above

Question 19

T-bills must offer a premium above the negotiable certificate of deposit (NCD) to compensate for less liquidity and safety.

Accepted Answer

A) True 
 B)False

Question 20

Money market securities are must have a maturity of three months or less.

Accepted Answer

A) True 
 B)False

Exam 6: Money Markets

Money market securities are must have a maturity of three months or less.

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____ are the most active participants in the federal funds market.

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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.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

In general the money markets are widely perceived to be efficient in the sense that the prices reflect all available public information.

Correct AnswerverifiedShow Answer

At a given point in time, the actual price paid for a three-month Treasury bill is

Correct AnswerverifiedShow Answer

The yield on commercial paper is ____ the yield of Treasury bills of the same maturity.The difference between their yields would be especially large during a ____ period.

Correct AnswerverifiedShow Answer

Exporters can hold a banker's acceptance until the date at which payment is to be made, yet they frequently sell the acceptance before then at a discount to obtain cash immediately.

Correct AnswerverifiedShow Answer

A line of credit provided by a commercial bank allows a company the right (but not the obligation) to borrow a specified maximum amount of funds over a specified period of time.

Correct AnswerverifiedShow Answer

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.

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T-bills must offer a premium above the negotiable certificate of deposit (NCD) to compensate for less liquidity and safety.

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Money market security values are less sensitive to interest rate movements than bonds.

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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?

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Securities with maturities of one year or less are classified as

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The minimum denomination of commercial paper is

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Junk commercial paper is commercial paper that is not rated or rated low.

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An investor purchased an NCD a year ago in the secondary market for $980,000.He redeems it today and receives $1,000,000.He also receives interest of $30,000.The investor's annualized yield on this investment is

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At any given time, the yield on commercial paper is ____ the yield on a T-bill with the same maturity.

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Treasury bills

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An international interbank market facilitates the transfer of funds from banks with excess funds to those with deficient funds.

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The yield on commercial paper is the yield of Treasury bills of the same maturity.The difference between their yields would be especially large during a period.

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