FIN384 Exam 3 Missouri State | Questions and Answers
The Fed Funds Rate does not:
a. relate closely to the conduct of monetary policy
b. affect other interest rates
c. measure the return on the most liquid of all financial assets
d. measure the availability of excess reserves ** Answ** b. affect other interest rates
Which of the following do not participate in the money markets?
A. commercial banks
B. the Federal Reserve
C. U.S. Treasury dealers
D. corporations
E. All of the above participate in the money markets. ** Answ** E. All of the above
participate in the money markets.
Which of the following may be issued in the primary market by well-known creditworthy firms
to borrow funds?
a. banker's acceptances
b. commercial paper
c. retail CDs
d. federal funds ** Answ** b. commercial paper
Short-term Agency securities consistently share all the following characteristics with Treasury
bills except
a. low default risk
b. U.S. Government backing, explicit or implicit
c. ready marketability
d. maturities not exceeding 1 year ** Answ** c. ready marketability
Which of the following money market securities is backed by specified collateral?
,A. commercial paper
B. negotiable CDs
C. repurchase agreements
D. banker's acceptances ** Answ** C. repurchase agreements
An important economic function of the U.S. government security dealer is to
A. underwrite Treasury securities.
B. "make a market" for Treasury securities.
C. support open market operations of the Federal Reserve.
D. all of the above ** Answ** D. all of the above
Issuers of commercial paper tend to be
A. large financial and nonfinancial firms
B. firms with high credit risk
C. small banks
D. wealthy individuals
E. both a and b ** Answ** A. large financial and nonfinancial firms
A repurchase agreement calls for
A. a firm to buy securities with the agreement to sell them back later at a higher price.
B. a firm to sell securities with the agreement to buy them back later at a higher price.
C. a firm to buy securities with the agreement to sell them back later at a lower price.
D. a firm to sell securities with the agreement to buy them back later at a lower price. **
Answ** A. a firm to buy securities with the agreement to sell them back later at a higher price.
A private investor purchases a six-month (182-day) T-bill with a $10,000 par value for $9,800. If
she holds the Treasury bill to maturity, her annualized yield is ____ percent.
a. 4.09
b. 3.96
c. 1.50
d. None of these are correct.
,e. 4.54 ** Answ** a. 4.09
A T-bill is trading at a 0.10% discount from par and maturing in 36 days. The discount yield is
a. 1.00%
b. 1.39%
c. 1.19%
d. need more information ** Answ** a. 1.00%
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. 6.20
b. None of these are correct.
c. 5.93
d. 6.02
e. 6.12 ** Answ** c. 5.93
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 ** Answ** c. 9.14 percent
Which of the following securities is most likely to be used in a repo transaction?
a. common stock
b. commercial paper
c. All of these are equally likely to be used in a repo transaction.
d. certificate of deposit
e. Treasury bill ** Answ** e. Treasury bill
Large corporations typically make ____ bids for T-bills so they can purchase larger amounts.
, a. none of the above
b. noncompetitive
c. very small
d. competitive ** Answ** d. competitive
Federal Reserve open market operations, reserve requirement changes, and discount rate policy
first impact the economy in the money market.
True
False ** Answ** True
Which of the following is NOT a money market security?
a. negotiable certificate of deposit
b. common stock
c. federal funds
d. Treasury bill ** Answ** b. common stock
The yields offered on asset-backed commercial paper are often ______ the yields offered on
unsecured commercial paper.
a. equal to
b. more variable
c. lower than
d. higher than ** Answ** d. higher than
Which of the following is true of money market instruments?
a. Their yields are highly correlated over time.
b. Treasury bills have the highest yield.
c. They all make periodic coupon (interest) payments.
d. They typically sell for par value when they are initially issued (especially T-bills and
commercial paper).
The Fed Funds Rate does not:
a. relate closely to the conduct of monetary policy
b. affect other interest rates
c. measure the return on the most liquid of all financial assets
d. measure the availability of excess reserves ** Answ** b. affect other interest rates
Which of the following do not participate in the money markets?
A. commercial banks
B. the Federal Reserve
C. U.S. Treasury dealers
D. corporations
E. All of the above participate in the money markets. ** Answ** E. All of the above
participate in the money markets.
Which of the following may be issued in the primary market by well-known creditworthy firms
to borrow funds?
a. banker's acceptances
b. commercial paper
c. retail CDs
d. federal funds ** Answ** b. commercial paper
Short-term Agency securities consistently share all the following characteristics with Treasury
bills except
a. low default risk
b. U.S. Government backing, explicit or implicit
c. ready marketability
d. maturities not exceeding 1 year ** Answ** c. ready marketability
Which of the following money market securities is backed by specified collateral?
,A. commercial paper
B. negotiable CDs
C. repurchase agreements
D. banker's acceptances ** Answ** C. repurchase agreements
An important economic function of the U.S. government security dealer is to
A. underwrite Treasury securities.
B. "make a market" for Treasury securities.
C. support open market operations of the Federal Reserve.
D. all of the above ** Answ** D. all of the above
Issuers of commercial paper tend to be
A. large financial and nonfinancial firms
B. firms with high credit risk
C. small banks
D. wealthy individuals
E. both a and b ** Answ** A. large financial and nonfinancial firms
A repurchase agreement calls for
A. a firm to buy securities with the agreement to sell them back later at a higher price.
B. a firm to sell securities with the agreement to buy them back later at a higher price.
C. a firm to buy securities with the agreement to sell them back later at a lower price.
D. a firm to sell securities with the agreement to buy them back later at a lower price. **
Answ** A. a firm to buy securities with the agreement to sell them back later at a higher price.
A private investor purchases a six-month (182-day) T-bill with a $10,000 par value for $9,800. If
she holds the Treasury bill to maturity, her annualized yield is ____ percent.
a. 4.09
b. 3.96
c. 1.50
d. None of these are correct.
,e. 4.54 ** Answ** a. 4.09
A T-bill is trading at a 0.10% discount from par and maturing in 36 days. The discount yield is
a. 1.00%
b. 1.39%
c. 1.19%
d. need more information ** Answ** a. 1.00%
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. 6.20
b. None of these are correct.
c. 5.93
d. 6.02
e. 6.12 ** Answ** c. 5.93
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 ** Answ** c. 9.14 percent
Which of the following securities is most likely to be used in a repo transaction?
a. common stock
b. commercial paper
c. All of these are equally likely to be used in a repo transaction.
d. certificate of deposit
e. Treasury bill ** Answ** e. Treasury bill
Large corporations typically make ____ bids for T-bills so they can purchase larger amounts.
, a. none of the above
b. noncompetitive
c. very small
d. competitive ** Answ** d. competitive
Federal Reserve open market operations, reserve requirement changes, and discount rate policy
first impact the economy in the money market.
True
False ** Answ** True
Which of the following is NOT a money market security?
a. negotiable certificate of deposit
b. common stock
c. federal funds
d. Treasury bill ** Answ** b. common stock
The yields offered on asset-backed commercial paper are often ______ the yields offered on
unsecured commercial paper.
a. equal to
b. more variable
c. lower than
d. higher than ** Answ** d. higher than
Which of the following is true of money market instruments?
a. Their yields are highly correlated over time.
b. Treasury bills have the highest yield.
c. They all make periodic coupon (interest) payments.
d. They typically sell for par value when they are initially issued (especially T-bills and
commercial paper).
