Question 1

Which of the following securities is most likely to be used in a repo transaction?

Accepted Answer

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.F) C) and D)
G) B) and D)

Question 2

T-bills do not offer coupon payments but are sold at a discount from par value.

Accepted Answer

A) True 
 B)False

Question 3

A repurchase agreement calls for an investor to buy securities for $4,925,000 and sell them back in 60 days for $5,000,000. What is the yield?

Accepted Answer

A)   9.43 percent
B)   9.28 percent
C)   9.14 percent
D)   9.00 percentE) B) and C)
F) C) and D)

Question 4

When a bank guarantees a future payment to a firm, the financial instrument used is called

Accepted Answer

A)   a repurchase agreement.
B)   a negotiable CD.
C)   a banker's acceptance.
D)   commercial paper.E) None of the above
F) A) and B)

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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 7

Ignoring transaction costs, the cost of borrowing with commercial paper is equal to:

Accepted Answer

A)   the yield on T-bills of the same maturity
B)   the yield earned by investors holding the paper until maturity.
C)   the federal funds rate.
D)   the par value of the paper.E) None of the above
F) C) and D)

Question 8

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 yieldon this investment is

Accepted Answer

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

Question 9

A major drawback to investing in Treasury bills is that they cannot easily be liquidated.

Accepted Answer

A) True 
 B)False

Question 10

Treasury bills are sold through ____ when initially issued.

Accepted Answer

A)   insurance companies
B)   commercial paper dealers
C)   auction
D)   finance companiesE) B) and C)
F) None of the above

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 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?

Accepted Answer

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

Question 13

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)   3.1
B)   0.77
C)   1
D)   none of the aboveE) All of the above
F) B) and C)

Question 14

Which of the following is not a money market instrument?

Accepted Answer

A)   banker's acceptance
B)   commercial paper
C)   negotiable CDs
D)   repurchase agreements
E)   All of the above are money market instruments.F) D) and E)
G) None of the above

Question 15

The so-called "flight to quality" causes the risk differential between risky and risk-free securities to be

Accepted Answer

A)   eliminated.
B)   reduced.
C)   increased.
D)   unchanged (there is no effect) .E) None of the above
F) All of the above

Question 16

Most repo transactions use government securities.

Accepted Answer

A) True 
 B)False

Question 17

Credit guarantees for commercial paper:

Accepted Answer

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 CE) A) and B)
F) A) and C)

Question 18

Which of the following is not a money market security?

Accepted Answer

A)   Treasury bill
B)   negotiable certificate of deposit
C)   common stock
D)   federal fundsE) B) and C)
F) A) and D)

Question 19

Commercial paper has a maximum maturity of ____ days.

Accepted Answer

A)   45
B)   270
C)   360
D)   none of the aboveE) A) and D)
F) A) and C)

Question 20

Which of the following is true of money market instruments?

Accepted Answer

A)   Their yields are highly correlated over time.
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 BF) A) and B)
G) A) and C)

Exam 6: Money Markets

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?

Correct AnswerverifiedShow Answer

When a bank guarantees a future payment to a firm, the financial instrument used is called

Correct AnswerverifiedShow Answer

Which of the following securities is most likely to be used in a repo transaction?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

T-bills do not offer coupon payments but are sold at a discount from par value.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Most repo transactions use government securities.

Correct AnswerverifiedShow Answer

Which of the following is not a money market security?

Correct AnswerverifiedShow Answer

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

Treasury bills are sold through ____ when initially issued.

Correct AnswerverifiedShow Answer

A major drawback to investing in Treasury bills is that they cannot easily be liquidated.

Correct AnswerverifiedShow Answer

A repurchase agreement calls for an investor to buy securities for $4,925,000 and sell them back in 60 days for $5,000,000. What is the yield?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Credit guarantees for commercial paper:

Correct AnswerverifiedShow Answer

Which of the following is true of money market instruments?

Correct AnswerverifiedShow Answer

Commercial paper has a maximum maturity of ____ days.

Correct AnswerverifiedShow Answer

The so-called "flight to quality" causes the risk differential between risky and risk-free securities to be

Correct AnswerverifiedShow Answer

Ignoring transaction costs, the cost of borrowing with commercial paper is equal to:

Correct AnswerverifiedShow Answer

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 yieldon this investment is

Correct AnswerverifiedShow Answer

Which of the following is not a money market instrument?

Correct AnswerverifiedShow Answer

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