FI 301 Ch. 6

b) money market securities

Securities with maturities of one year or less are class�ified as:
A) capital market instruments.
B) money market instruments.
C) preferred stock.
D) none of these.

c) common stock

Which of the following is not a money market security?
A) Treasury bill
B) negotiable certificate of deposit
C) common stock
D) federal funds

a) treasury bills

_______ are sold at an auction at a discount from par value.
A) Treasury bills
B) Repurchase agreements
C) Banker's acceptances
D) Commercial paper

d) 2.80 percent

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

b) about 12.5 percent

If an investor buys a T bill with a 90 day maturity and $50,000 par value for $48,500 and holds it to maturity, what is the annualized yield?
A) about 13.4 percent
B) about 12.5 percent
C) about 11.3 percent
D) about 11.6 percent
E) about 10.7 percent

b) about 12.6 percent

An investor buys a T bill with 180 days to maturity and $250,000 par value for $242,000. He plans to sell it after 60 days, and forecasts a selling price of $247,000 at that time. What is the annualized yield based on this expecta�tion?
A) about 10.1 perc

c) 9,756

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 these

d) 10.00 percent

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

a) competitive

Large corporations typically make _______ bids for T-bills so they can purchase larger amounts.
A) competitive
B) noncompetitive
C) very small
D) none of these

b) slightly higher than

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) either slightly less than or slightly higher than

at a discount from par value

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) none of these.

c) commercial paper

_______ is a short-term debt instrument issued only be well-known, creditworthy firms and is normally issued to provide liquidity or finance a firm's investment in inventory and accounts receivable.
A) A banker's acceptance
B) A repurchase agreement
C) Co

b) 270 days

Commercial paper with a maturity exceeding _______ must be registered with the SEC.
A) 45 days
B) 270 days
C) 1 year
D) none of these

d) 9.14 percent

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

a) 12.12 percent

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

d) none of these

When firms sell commercial paper at a _______ price than they projected, their cost of raising funds is _______ than projected.
A) higher; higher
B) lower; lower
C) both of these
D) none of these

e) all of these are money market instruments

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 these are money market instruments.

c) 9.14

A repurchase agreement calls for an investor to buy secur�ities for $4,925,000 and sell them back in 60 days for $5,000,000. What is the yield?
A) 9.43 percent
B) 9.28 percent
C) 9.14 percent
D) 9.00 percent

a) short-term funds from each other

The federal funds market allows depository institutions to borrow:
A) short term funds from each other.
B) short term funds from the Treasury.
C) long term funds from each other.
D) long term funds from the Federal Reserve.
E) short-term funds for the Tre

c) banker's acceptance

When a bank guarantees a future payment to a firm, the financial instrument used is called:
A) a repurchase agreement.
B) a negotiable CD.
C) a banker's acceptance.
D) commercial paper.

a) repurchase agreement

Which of the following instruments has a highly active secondary market?
A) banker's acceptances
B) commercial paper
C) federal funds
D) repurchase agreements

a) their yields are highly correlated over time

Which of the following is true of money market instruments?
A) Their yields are highly correlated over time.
B) They typically sell for par value when they are initi�ally issued (especially T bills and commercial paper).
C) Treasury bills have the highest

b) 5.10

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 _______ percent.
A) 2.0
B) 5.10
C) 5.00

a) 3.10

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 these

a) federal funds

The rate at which depository institutions effectively lend or borrow funds from each other is the _______ rate.
A) federal funds
B) discount
C) prime
D) repo

d) commercial banks

_______ are the most active participants in the federal funds market.
A) Savings and loan associations
B) Securities firms
C) Credit unions
D) Commercial banks

d) are not subject to reserve requirements

Eurodollar deposits:
A) are U.S. dollars deposited in the U.S. 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 Unit

c) federal funds

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

b) the London Interbank Offer Rate

The rate on Eurodollar floating rate CDs is based on:
A) a weighted average of European prime rates.
B) the London Interbank Offer Rate.
C) the U.S. prime rate.
D) a weighted average of European discount rates.

b) have an active secondary market

Treasury bills:
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.

a) greater than; recessionary

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.
A) greater than; recessionary
B) greater than; boom economy
C) less than; boo

c) greater than; recessionary

The yield on NCDs is _______ the yield of Treasury bills of the same maturity. The difference between their yields would be especially large during a _______ period.
A) greater than; recessionary
B) greater than; boom economy
C) less than; boom economy
D)

c) increased

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).

c) commercial paper

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

a) increased

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
D) unaffected

b) reduced

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

auctions

Treasury bills are sold through _______ when initially issued.
A) insurance companies
B) commercial paper dealers
C) auctions
D) finance companies

b) more than the price paid for a six-month treasury bill

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 these

b) 100,000

The minimum denomination of commercial paper is $_______.
A) 25,000
B) 100,000
C) 150,000
D) 200,000

c) placed either directly or with the help of commercial paper dealers

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.

d) 6.20

Bill Yates, a private investor, purchases a six-month (182-day) T-bill with a $10,000 par value for $9,700.
If Bill Yates holds the Treasury bill to maturity, his annualized yield is _______ percent.
A) 6.02
B) 1.54
C) 1.50
D) 6.20
E) none of these

a) 5.93

The Treasury bill discount is _______ percent.
A) 5.93
B) 6.12
C) 6.20
D) 6.02
E) none of these

c) 14.59 percent

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

d) downward; upward

An aggregate purchase by investors of low-yield instruments in favor of high-yield instruments places _______ pressure on the yields of low-yield securities and _______ on the yields of high-yield securities.
A) upward; upward
B) downward; downward
C) upw

b) It is not influenced by the supply and demand for funds in the federal funds market

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 and demand for funds in the federal funds

c) 6.99

Bullock Corp. purchases certain securities for $4,921,349, with an agreement to sell them back at a price of $4,950,000 at the end of a 30-day period. The repo rate is _______ percent.
A) 7.08
B) 6.95
C) 6.99
D) 7.04
E) none of these

d) none of these

At a given point in time, the yield on a T-bill is slightly higher than the yield on commercial paper with the same maturity, because commercial paper has higher:
A) interest rate risk.
B) maturity risk.
C) default risk.
D) none of these.

d) none of these

If economic conditions cause investors to sell stocks because they want to invest in safer securities with much liquidity, this should cause a _______ demand for money market securities, which placed _______ pressure on the yields of money market securiti

a) true

In general, the money markets are widely perceived to be efficient in the sense that the prices reflect all available public information.
A) true
B) false

false

Money market securities must have a maturity of three months or less.
A) true
B) false

true

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

true

An international interbank market facilitates the transfer of funds from banks with excess funds to those with deficient funds.
A) true
B) false

false

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