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1. (TCO 6) Investors in the money markets are generally willing to take which of the following risks? (Points : 3)

Default risk

Interest rate risk

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Liquidity risk

None of the above

 

Question 2.2. (TCO 6) Which of the following statements about the money market is true? (Points : 3)

The money market is a dealer market linked by efficient communications systems.

Money market transactions are seldom over $1 million.

Money market transactions include more “primary market” trades for a security than secondary market trades.

Most money market transactions are conducted by mail.

 

Question 3.3. (TCO 6) Which statement about Treasury bills is not true? (Points : 3)

They have maturities less than one year.

Most are sold by “book-entry” method.

They are sold at a discount.

Interest on T-bills is tax-deductible for federal income tax purposes.

 

Question 4.4. (TCO 6) Banks can satisfy their short-term borrowing needs by (Points : 3)

Federal Funds purchased.

Federal Funds sold.

issuing negotiable CDs.

both Federal Funds purchased and issuing negotiable CDs.

 

Question 5.5. (TCO 6) When a firm issuing commercial paper uses a backup line of credit, it _____. (Points : 3)

increases the credit risk for investors

decreases the credit risk for investors

has no impact on investors

decreases the marketability of commercial paper

 

Question 6.6. (TCO 6) Banks invest in government securities for a variety of reasons except (Points : 3)

income.

safety.

acceptable for collateral.

high relative yield.

 

Question 7.7. (TCO 6) Which of the following money market instruments would typically be used in international transactions? (Points : 3)

A Treasury bill

A banker’s acceptance

Commercial paper

A negotiable CD

 

Question 8.8. (TCO 6) Large industrial U.S. corporations are involved in the money market by (Points : 3)

investing excess cash balances.

purchasing bonds.

issuing commercial paper.

investing excess cash balances and issuing commercial paper.

 

Question 9.9. (TCO 6) Which of the following money market instruments is not sold on a discount basis? (Points : 3)

Commercial paper

Negotiable certificates of deposit

Treasury bills

Banker’s acceptances

 

Question 10.10. (TCO 6) Which of the following yield calculations on a Treasury bill provides the best comparison yield for competing coupon-bearing securities of the same maturity? (Points : 3)

Bank discount rate

CD equivalent rate

Bond equivalent rate

The prime rate

 

Question 11.11. (TCO 6) Purchasing T-bill via a computerized account without actually receiving the securities is achieved through a _____ Account. (Points : 2)

Direct Purchase

Treasury Direct

Fed Purchase

Federal Benefit

 

Question 12.12. (TCO 6) A reverse repurchase agreement calls for (Points : 2)

a firm to sell securities with the agreement to buy them back later at a higher price.

a firm to buy securities with the agreement to sell them back later at a higher price.

a firm to sell securities with the agreement to buy them back later at a lower price.

a firm to buy securities with the agreement to sell them back later at a lower price.

 

Question 13.13. (TCO 6) Treasury bills are typically sold to investors at a (Points : 2)

premium.

base price.

discount.

None of the above

 

Question 14.14. (TCO 6) A firm buys $1,000,000 of a 60-day commercial paper issue for $995,450. The bond equivalent yield on this commercial paper is _____. (Points : 2)

4.75

4.57%

2.87%

2.78%

 

Question 15.15. (TCO 6) Calculate the bond equivalent yield on a 42-day $1,000,000 T-bill issue for 98.555% of its face value. (Points : 2)

12.47%

9.85%

12.74%

12.00%

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