Thẻ ghi nhớ: Chapter 4: Money Market | Quizlet

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

B

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

C

3. ______ are sold at an auction at a discount from par value.

A) Treasury bills

B) Repurchase agreements

C) Banker's acceptances

D) Commercial paper

A

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

D) 2.80 percent

E) none of the above

D

5. 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

6. 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 expectation?

A) about 10.1 percent

B) about 12.6 percent

C) about 11.4 percent

D) about 13.5 percent

E) about 14.3 percent

B

7. 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

C

8. 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

D

9. 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

A

10. 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

B

11. 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

B

12. ______ 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) Commercial paper

D) A Treasury bill

C

13. Commercial paper has a maximum maturity of ______ days.

A) 45

B) 270

C) 360

D) none of the above

B

14. 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

D

15. 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

A

16. 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) A and B

D) none of the above

D

17. 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

E

18. 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?

A) 9.43 percent

B) 9.28 percent

C) 9.14 percent

D) 9.00 percent

C

19. 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.

A

20. 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.

C

21. 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

22. 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 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

A

23. 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

A) 2.0 percent.

B) 5.10 percent.

C) 5.00 percent.

D) 2.04 percent.

B

24. 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

A

25. 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

D) repo rate

A

26. ______ 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

27. 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 United States).

D) are not subject to reserve requirements.

D

28. 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

C

29. 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

30. 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.

B

31. 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; boom economy

D) less than; recessionary

A

32. 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) less than; recessionary

A

33. 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

C

34. 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

35. 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

A

36. 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

B

37. Treasury bills are sold through ______ when initially issued.

A) insurance companies

B) commercial paper dealers

C) auction

D) finance companies

C

38. 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

B

39. The minimum denomination of commercial paper is

A) $25,000

B) $100,000

C) $150,000

D) $200,000

B

40. 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.

C

41. 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

D

42. 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

A

43. 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 $0.12 to $0.11. 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

C

44. 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 ______ pressure on the yields of high-yield securities.

A) upward; upward

B) downward; downward

C) upward; downward

D) downward; upward

C

45. 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 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 to be 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.

B

46. 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 the above

A

47. Commercial paper is subject to:

A) interest rate risk.

B) default risk.

C) A and B.

D) none of the above.

C

48. 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 securities.

A) weak; downward

B) weak; upward

C) strong; upward

D) none of the above

D

49. 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

A

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

A) True

B) False

B

51. 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

A

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

A) True

B) False

A

53. 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

B

54. Money markets are used to facilitate the transfer of short-term funds from individuals, corporations, or governments with excess funds to those with deficient funds.

A) True

B) False

A

55. 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

B

56. 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

B

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

A) True

B) False

A

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

A) True

B) False

A

59. 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.

A) True

B) False

A

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

A) True

B) False

B

61. Most repo transactions use government securities.

A) True

B) False

A

62. 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.

A) True

B) False

A

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

A) True

B) False

A

64. During periods of uncertainty about the economy, there is a shift from risky money market securities to Treasury securities.

A) True

B) False

A

65. The price 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) the weighted average price paid by all competitive bidders whose bids were accepted.

D) the equally weighted average price paid by all competitive bidders whose bids were accepted.

E) none of the above

C

66. Bill Yates, a private investor, purchases a six-month (182-day) T-bill with a $10,000 par value for $9,700. If Bill 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 the above

D

67. You purchase 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

A

68. 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.

C

69. 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

C

70. When a firm sells its commercial paper at a ______ price than projected, their cost of raising funds will be ______ than what they initially anticipated.

A) higher; higher

B) lower; lower

C) higher; lower

D) lower; higher

E) Answers c and d are correct.

A

71. 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.

C