ch 6

Which of the following affords you access to a "sweep account"? A) Asset management account B) NOW account C) MMDA account D) MMF

A) Asset management account

________ risk is the risk that a borrower may not repay on a timely basis. A) Credit B) Interest rate C) Liquidity D) Asset

A) Credit

Which of the following items will give you the highest return? A) One year CD B) Savings account C) NOW account D) Checking account

A) One year CD

Which of the following is not a money market investment? A) Shares of corporate stock B) NOW account C) Savings account D) Treasury bills

A) Shares of corporate stock

Checking accounts may offer all of the following except A) account balance insurance in excess of $250,000. B) stop payment services. C) overdraft protection. D) ATM privileges.

A) account balance insurance in excess of $250,000.

Because of the active bond market in Chicago, one risk that a corporate bond is less likely to expose you to is the A) liquidity risk. B) credit risk. C) default risk. D) interest rate risk

A) liquidity risk.

In general, the more liquid an investment is, the ________ the return you will receive. A) lower B) higher C) less predictable D) There is no relationship between liquidity and return

A) lower

Generally, savings account yields are ________ than certificates of deposit that are exposed to ________ liquidity risk. A) lower; more B) higher; less C) higher; more D) lower; less

A) lower; more

An asset management account that moves any unused balance in the brokerage account into a money market investment at the end of each business day is called a(n) A) sweep account. B) asset management account. C) money market fund. D) secondary market

A) sweep account.

If a bank provides overdraft protection at a rate of 12% for each $100 (or portion of $100) borrowed when an overdraft occurs, what amount of interest would a customer pay for a $188 overdraft? A) $24.00 B) $22.56 C) $10.56 D) $12.00

B) $22.56

Kelly deposits $1,000 in her savings account earning 4% per year. How much interest would she earn in a year? A) $4 B) $40 C) $44 D) $400

B) $40

Which of the following does money management not involve? A) A series of decisions B) A long-term time period C) Cash inflows D) Cash outflows

B) A long-term time period

Which of the following is not true about a certificate of deposit (CD)? A) It pays higher interest than a saving account. B) Are only offered in denominations of $100,000 or more. C) It is not as liquid as a savings account. D) Funds are locked in for specific periods of time

B) Are only offered in denominations of $100,000 or more.

________ risk is the risk that an investment could decline as a result of a change in interest rates. A) Credit B) Interest rate C) Liquidity D) Asset

B) Interest rate

Which of the following is not true regarding a money market deposit account (MMDA)? A) A minimum balance is required. B) It has a maturity date. C) The account pays interest. D) A limited number of checks may be written monthly

B) It has a maturity date.

Which of the following accounts would tend to give you the higher interest combined with ease of access to your funds on a limited basis? A) Checking account B) MMDA C) NOW account D) CD

B) MMDA

In comparing an MMDA to a NOW account, the MMDA does all of the following except A) it pays a higher interest rate. B) MMDA accounts are less liquid. C) it provides more limited checking services. D) MMDA accounts must maintain a larger balance

B) MMDA accounts are less liquid.

________ management is a series of decisions made over a short-term period regarding cash inflows and outflows. A) Cash B) Money C) Liabilities D) Asset

B) Money

Which of the following is true about a NOW account? A) Pays no interest B) Not as liquid as a traditional checking account C) No minimum balance is required D) Is not an insured account

B) Not as liquid as a traditional checking account

You have $3,000 that you may need to use to replace the furnace in your home. If you need the funds, it would be on no less than a week's notice. Into which type of account would it be best for you to deposit the $3,000? A) Checking account B) Savings account C) NOW account D) All of the above would be equally acceptable

B) Savings account

You have a choice between investing $10,000 in a CD that in six months will pay you $10,190 or investing $9,800 in a T-bill that in 182 days will return $10,000. Ignoring any opportunity cost between the two investments, which will give you the higher annualized return and what will the annualized return be? A) T-bill; 2 percent B) T-bill; 4.01 percent C) CD; 3.8 percent D) CD; 1.9 percent

B) T-bill; 4.01 percent

Which of the following is not true about a certificate of deposit (CD)? A) They pay higher interest than T-bills. B) They are long-term investments of two years or more. C) Funds are locked in for specific periods of time. D) A penalty is imposed for early withdrawal

B) They are long-term investments of two years or more.

The secondary market for T-bills means that A) they cannot be sold before their maturity date with the help of a brokerage firm. B) an individual may purchase T-bills that were owned by some other investor rather than from the government. C) T-bills are less liquid than CDs. D) All of the above.

B) an individual may purchase T-bills that were owned by some other investor rather than from the government.

Stopping payment on a check A) is possible after the check clears in cases of disputes. B) can only be used if the check has not cleared. C) is free if your checkbook is lost or stolen. D) is encouraged by most banks as a customer service

B) can only be used if the check has not cleared.

An asset management account combines A) assets and expenses. B) deposit accounts with a brokerage account. C) a savings account with a brokerage account. D) a savings account with long-term investments.

B) deposit accounts with a brokerage account.

A disadvantage of using credit as a source of liquidity is the A) inconvenience of using credit. B) potential cost of finance charges. C) acceptability of credit by creditors. D) poor records available after credit use

B) potential cost of finance charges.

The market where an investor could sell T-bills that he owns is called the A) primary market. B) secondary market. C) stock market. D) T-bill market

B) secondary market.

Money market funds (MMF) have all of the following characteristics except A) pooled money provided by individuals to invest. B) unlimited check writing. C) short-term maturity. D) a minimum investment amount.

B) unlimited check writing.

) Which of the following is not a good, short-term money market investment? A) NOW account B) Savings account C) AT&T common stock D) Treasury bills

C) AT&T common stock

Which of the following items will give you the greatest liquidity? A) One year CD B) Savings account C) Checking account D) NOW account

C) Checking account

Which of the following is not a characteristic of money market funds (MMFs)? A) Pooled money provided by individuals to invest B) Short-term maturity C) High-risk investments D) A minimum investment amount

C) High-risk investments

Which of the following is not an advantage of a checking account? A) Stop payment services B) Overdraft protection C) Interest earned on balances D) Liquidity

C) Interest earned on balances

: 1 28) Which of the following is not true regarding a savings account? A) It does not provide checking services. B) It is less liquid than a checking account. C) It pays lower interest than a checking account. D) It is less convenient than a checking account.

C) It pays lower interest than a checking account.

________ risk is the potential loss of converting an investment into cash. A) Credit B) Interest rate C) Liquidity D) Asset

C) Liquidity

Which of the following is not true of a NOW account? A) Offered by depository institutions B) Pays relatively low interest C) Only three checks per month can be written D) Requires a minimum balance

C) Only three checks per month can be written

Which of the following is a feature of Treasury bills (T-bills)? A) They have a maturity of more than one year. B) They are available with a minimum value at maturity of $100. C) They are purchased at a discount from par value. D) They must be held to maturity.

C) They are purchased at a discount from par value.

The following money market securities are insulated from credit risk with the exception of A) treasury securities. B) bank deposits. C) commercial paper. D) CDs.

C) commercial paper.

All of the following are true of Treasury securities except they A) are a means by which the U.S. government lends money. B) have a maturity range from 3 months to 30 years. C) have a minimum par value of $100. D) can be bought and sold on the secondary market

C) have a minimum par value of $100.

A one-year CD has a ________ return and ________ liquidity than a checking account. A) lower; lower B) higher; higher C) higher; lower D) lower; higher

C) higher; lower

Money market funds (MMFs) offer all of the following except A) short-term maturity securities. B) safe investments with higher rates than T-bills. C) insured savings. D) check writing privileges.

C) insured savings.

If you purchase a bond that matures in 5 years but you may have to cash it in before that time, it exposes you to the A) credit risk. B) default risk. C) interest rate risk. D) liquidity risk.

C) interest rate risk.

Your ability to cover any short-term cash deficiencies is called A) solvency. B) wealth. C) liquidity. D) cash planning

C) liquidity.

To achieve both liquidity and an adequate return, you should consider investing in A) only one money market investment with a high return and low liquidity. B) only one money market investment with low return and high liquidity. C) multiple money market investments with varied returns and levels of liquidity. D) multiple money market investments with high returns and high liquidity

C) multiple money market investments with varied returns and levels of liquidity.

An arrangement that protects a customer who writes a check for an amount that exceeds the checking account balance is called A) liquid investment. B) stop payment. C) overdraft protection. D) automatic transfer

C) overdraft protection.

Risk management of money market investments involves all of the following except A) credit risk. B) interest rate risk. C) potential for default when backed by the federal government. D) liquidity risk.

C) potential for default when backed by the federal government.

An asset management account does all of the following except A) combines deposit accounts with a brokerage account that is used to buy or sell stocks. B) provides a single consolidated statement showing the ending balance and activity of all accounts. C) requires a small initial investment to start. D) sweeps any unused balance in the checking account into a money market account at the end of the day.

C) requires a small initial investment to start.

Kayla deposits $1,500 into a NOW account that requires a minimum balance of $500 and offers an interest rate of 2.4%. How much interest will she earn in one year in the NOW account? A) $360 B) $24 C) $12 D) $36

D) $36

Generally, yields are ________ for securities that are exposed to ________ liquidity risk. A) higher; more B) higher; less C) lower; less D) Both A and C are correct

D) Both A and C are correct

Which of the following should not be considered when evaluating a checking account? A) The overdraft protection available B) The stop payment feature and the cost of it C) The fees charged monthly D) The type of account insurance carried by the bank

D) The type of account insurance carried by the bank

When purchasing a certificate of deposit (CD) A) you are always better off to buy the longer-term CDs. B) you will earn more interest percentage-wise on the lower dollar CDs. C) the amount you invest is at risk, so choose carefully. D) it is wise to shop around as rates vary among financial institutions

D) it is wise to shop around as rates vary among financial institutions

All of the following are true of money market deposit accounts (MMDA) except A) a minimum balance is required. B) the account pays higher interest. C) a limited number of checks may be written monthly. D) they are the same regardless of the depository institution offering them

D) they are the same regardless of the depository institution offering them