Chapter 02 - Asset Classes and Financial Instruments
Chapter 02
Asset Classes and Financial Instruments
Multiple Choice Questions
1. Which of the following is not a characteristic of a money market instrument?
A. liquidity
B. marketability
C. long maturity
D. liquidity premium
E. C and D
Money market instruments are short-term instruments with high liquidity and marketability;
they do not have long maturities nor pay liquidity premiums.
Difficulty: Easy
3. Treasury Inflation-Protected Securities (TIPS)
A. pay a fixed interest rate for life.
B. pay a variable interest rate that is indexed to inflation.
C. provide a constant stream of income in real (inflation-adjusted) dollars.
D. have their principal adjusted in proportion to the Consumer Price Index.
E. C and D
TIPS provide a constant stream of income in real (inflation-adjusted) dollars because their
principal is adjusted in proportion to the Consumer Price Index.
Difficulty: Easy
4. Which one of the following is not a money market instrument?
A. a Treasury bill
B. a negotiable certificate of deposit
C. commercial paper
D. a Treasury bond
E. a Eurodollar account
Money market instruments are instruments with maturities of one year or less, which applies
to all of the above except Treasury bonds.
Difficulty: Easy
2-1
,5. T-bills are financial instruments initially sold by ________ to raise funds.
A. commercial banks
B. the U.S. government
C. state and local governments
D. agencies of the federal government
E. B and D
Only the U.S. government sells T-bills in the primary market.
Difficulty: Easy
6. The bid price of a T-bill in the secondary market is
A. the price at which the dealer in T-bills is willing to sell the bill.
B. the price at which the dealer in T-bills is willing to buy the bill.
C. greater than the asked price of the T-bill.
D. the price at which the investor can buy the T-bill.
E. never quoted in the financial press.
T-bills are sold in the secondary market via dealers; the bid price quoted in the financial press
is the price at which the dealer is willing to buy the bill.
Difficulty: Easy
10. Which of the following is not a component of the money market is
A. repurchase agreements
B. Eurodollars
C. real estate investment trusts
D. money market mutual funds
E. commercial paper
, Chapter 02 - Asset Classes and Financial Instruments
Real estate investment trusts are not short-term investments.
Difficulty: Easy
11. Commercial paper is a short-term security issued by ________ to raise funds.
A. the Federal Reserve Bank
B. commercial banks
C. large, well-known companies
D. the New York Stock Exchange
E. state and local governments
Commercial paper is short-term unsecured financing issued directly by large, presumably safe
corporations.
Difficulty: Easy
2-3
Chapter 02
Asset Classes and Financial Instruments
Multiple Choice Questions
1. Which of the following is not a characteristic of a money market instrument?
A. liquidity
B. marketability
C. long maturity
D. liquidity premium
E. C and D
Money market instruments are short-term instruments with high liquidity and marketability;
they do not have long maturities nor pay liquidity premiums.
Difficulty: Easy
3. Treasury Inflation-Protected Securities (TIPS)
A. pay a fixed interest rate for life.
B. pay a variable interest rate that is indexed to inflation.
C. provide a constant stream of income in real (inflation-adjusted) dollars.
D. have their principal adjusted in proportion to the Consumer Price Index.
E. C and D
TIPS provide a constant stream of income in real (inflation-adjusted) dollars because their
principal is adjusted in proportion to the Consumer Price Index.
Difficulty: Easy
4. Which one of the following is not a money market instrument?
A. a Treasury bill
B. a negotiable certificate of deposit
C. commercial paper
D. a Treasury bond
E. a Eurodollar account
Money market instruments are instruments with maturities of one year or less, which applies
to all of the above except Treasury bonds.
Difficulty: Easy
2-1
,5. T-bills are financial instruments initially sold by ________ to raise funds.
A. commercial banks
B. the U.S. government
C. state and local governments
D. agencies of the federal government
E. B and D
Only the U.S. government sells T-bills in the primary market.
Difficulty: Easy
6. The bid price of a T-bill in the secondary market is
A. the price at which the dealer in T-bills is willing to sell the bill.
B. the price at which the dealer in T-bills is willing to buy the bill.
C. greater than the asked price of the T-bill.
D. the price at which the investor can buy the T-bill.
E. never quoted in the financial press.
T-bills are sold in the secondary market via dealers; the bid price quoted in the financial press
is the price at which the dealer is willing to buy the bill.
Difficulty: Easy
10. Which of the following is not a component of the money market is
A. repurchase agreements
B. Eurodollars
C. real estate investment trusts
D. money market mutual funds
E. commercial paper
, Chapter 02 - Asset Classes and Financial Instruments
Real estate investment trusts are not short-term investments.
Difficulty: Easy
11. Commercial paper is a short-term security issued by ________ to raise funds.
A. the Federal Reserve Bank
B. commercial banks
C. large, well-known companies
D. the New York Stock Exchange
E. state and local governments
Commercial paper is short-term unsecured financing issued directly by large, presumably safe
corporations.
Difficulty: Easy
2-3
