Financial Market Institutions Exam 2 | exam review 2024
For the purposes for which they are used, money market securities should have which
of the following characteristics?
I. Low trading costs
II. Little price risk
III. High rate of return
IV. Life greater than one year ** Answ** I and II
A time draft payable to a seller of goods with payment guaranteed by a bank is a: **
Answ** Banker's Acceptance
A noncompetitive bid for a Treasury bill auction provides: ** Answ** all
noncompetitive bidders the same price
Rates on federal funds and repurchase agreements are stated: ** Answ** on a bond
equivalent basis with a 360-day year.
In a Treasury auction, preferential bidding status is granted to: ** Answ**
noncompetitive bidders.
Fed funds are ** Answ** short-term unsecured loans
Repos are ** Answ** are short-term secured loans.
The majority of money market securities are low-denomination, low-risk investments
designed to appeal to individual investors with excess cash. ** Answ** False
360/n times the difference between the face value and the current value divided by the
face value gives you ** Answ** The discount yield of an instrument
, The most significant borrower in the U.S. money markets is(are): ** Answ** The
U.S. Treasury.
A 180-day $3 million CD has a 4.25 percent annual rate quote. If you buy the CD, how
much will you collect in 180 days? ** Answ** $3,063,750
=$3 million × [1 + (0.0425 × 180/360)]
Suppose that $10 million face value commercial paper with a 270-day maturity is selling
for $9.55 million. What is the BEY on the paper? ** Answ** 6.37%
[($10 million/$9.55 million) − 1] × (365/270) = 0.0637, or 6.37%
A dealer is quoting a $10,000 face value, 180-day T-bill quoted at 2.75 bid, 2.65 ask.
You could buy this bill at ______________ or sell it at _______________. ** Answ**
$9,867.50; $9,862.50.
A short-term unsecured promissory note issued by a company is: ** Answ**
commercial paper.
What is the price of a 182-day money market security with a face value of $7,000 if the
BEY is 3.574%? ** Answ** $6,877.44
($7,000 − P)/P × 365/182 = 0.03574($7,000 − P)/P = 0.01782P = $6,877.44
Homework four ** Answ** Question 15
"On the run" ** Answ** Treasury notes and bonds are newly issued securities
"Off the run" ** Answ** Treasuries are securities that have been previously issued.
An investor buys a $10,000 par, 4.25 percent annual coupon TIPS security with three
years to maturity. If inflation every six months over the investor's holding period is 2.50
For the purposes for which they are used, money market securities should have which
of the following characteristics?
I. Low trading costs
II. Little price risk
III. High rate of return
IV. Life greater than one year ** Answ** I and II
A time draft payable to a seller of goods with payment guaranteed by a bank is a: **
Answ** Banker's Acceptance
A noncompetitive bid for a Treasury bill auction provides: ** Answ** all
noncompetitive bidders the same price
Rates on federal funds and repurchase agreements are stated: ** Answ** on a bond
equivalent basis with a 360-day year.
In a Treasury auction, preferential bidding status is granted to: ** Answ**
noncompetitive bidders.
Fed funds are ** Answ** short-term unsecured loans
Repos are ** Answ** are short-term secured loans.
The majority of money market securities are low-denomination, low-risk investments
designed to appeal to individual investors with excess cash. ** Answ** False
360/n times the difference between the face value and the current value divided by the
face value gives you ** Answ** The discount yield of an instrument
, The most significant borrower in the U.S. money markets is(are): ** Answ** The
U.S. Treasury.
A 180-day $3 million CD has a 4.25 percent annual rate quote. If you buy the CD, how
much will you collect in 180 days? ** Answ** $3,063,750
=$3 million × [1 + (0.0425 × 180/360)]
Suppose that $10 million face value commercial paper with a 270-day maturity is selling
for $9.55 million. What is the BEY on the paper? ** Answ** 6.37%
[($10 million/$9.55 million) − 1] × (365/270) = 0.0637, or 6.37%
A dealer is quoting a $10,000 face value, 180-day T-bill quoted at 2.75 bid, 2.65 ask.
You could buy this bill at ______________ or sell it at _______________. ** Answ**
$9,867.50; $9,862.50.
A short-term unsecured promissory note issued by a company is: ** Answ**
commercial paper.
What is the price of a 182-day money market security with a face value of $7,000 if the
BEY is 3.574%? ** Answ** $6,877.44
($7,000 − P)/P × 365/182 = 0.03574($7,000 − P)/P = 0.01782P = $6,877.44
Homework four ** Answ** Question 15
"On the run" ** Answ** Treasury notes and bonds are newly issued securities
"Off the run" ** Answ** Treasuries are securities that have been previously issued.
An investor buys a $10,000 par, 4.25 percent annual coupon TIPS security with three
years to maturity. If inflation every six months over the investor's holding period is 2.50
