FI 301 Chapter 6

D) Are not subject to reserve requirements

Eurodollar deposits: A) are U.S. dollars deposited in the U.S. by European investors. B) are subject to interest rate ceilings. C) have a relatively large spread between deposit and loan rates (compared to the spread between deposits and loans in the United States). D) are not subject to reserve requirements

B) About 12.5 Percent

If an investor buys a T‑bill with a 90‑day maturity and $50,000 par value for $48,500 and holds it to maturity, what is the annualized yield? A) about 13.4 percent B) about 12.5 percent C) about 11.3 percent D) about 11.6 percent E) about 10.7 percent

D) None of these

If economic conditions cause investors to sell stocks because they want to invest in safer securities with much liquidity, this should cause a _______ demand for money market securities, which placed _______ pressure on the yields of money market securities. A) weak; downward B) weak; upward C) strong; upward D) none of these

2.80 Percent

Jarrod King, a private investor, purchases a Treasury bill with a $10,000 par value for $9,645. One hundred days later, Jarrod sells the T-bill for $9,719. What is Jarrod's expected annualized yield from this transaction? 13.43 percent 2.78 percent 10.55 percent 2.80 percent none of these

A) Competitive

Large corporations typically make _______ bids for T-bills so they can purchase larger amounts. A) competitive B) noncompetitive C) very small D) none of these

14.59 percent

Robbins Corp. frequently invests excess funds in the Mexican money market. One year ago, Robbins invested in a one-year Mexican money market security that provided a yield of 25 percent. At the end of the year, when Robbins converted the Mexican pesos to dollars, the peso had depreciated from $.12 to $.11. What is the effective yield earned by Robbins? 25.00 percent 35.41 percent 14.59 percent none of these

A) Increased

The effective yield of a foreign money market security is _______ when the foreign currency strengthens against the dollar. A) increased B) reduced C) always negative D) unaffected

B) Reduced

The effective yield of a foreign money market security is _______ when the foreign currency weakens against the dollar. A) increased B) reduced C) always negative D) unaffected

A) Short-term funds from each other

The federal funds market allows depository institutions to borrow: A) short‑term funds from each other. B) short‑term funds from the Treasury. C) long‑term funds from each other. D) long‑term funds from the Federal Reserve. E) short-term funds for the Treasury and long-term funds from the Federal Reserve.

B) 100,000

The minimum denomination of commercial paper is $_______. A) 25,000 B) 100,000 C) 150,000 D) 200,000

Federal Funds

The rate at which depository institutions effectively lend or borrow funds from each other is the _______ rate. A) federal funds B) discount C) prime D) repo

B) The London Interbank Offer Rate

The rate on Eurodollar floating rate CDs is based on: A) a weighted average of European prime rates. B) the London Interbank Offer Rate. C) the U.S. prime rate. D) a weighted average of European discount rates

C) Increased

The so-called "flight to quality" causes the risk differential between risky and risk-free securities to be: A) eliminated. B) reduced. C) increased. D) unchanged (there is no effect)

A) Greater than; recessionary

The yield on NCDs is _______ the yield of Treasury bills of the same maturity. The difference between their yields would be especially large during a _______ period. A) greater than; recessionary B) greater than; boom economy C) less than; boom economy D) less than; recessionary

A) Greater than; recessionary

The yield on commercial paper is _______ the yield of Treasury bills of the same maturity. The difference between their yields would be especially large during a _______ period. A) greater than; recessionary B) greater than; boom economy C) less than; boom economy D) less than; recessionary

B) Have an active secondary market

Treasury bills: A) have a maturity of up to five years. B) have an active secondary market. C) are commonly sold at par value. D) commonly offer coupon payments.

B) At a discount from par value

T‑bills and commercial paper are sold: A) with a stated coupon rate. B) at a discount from par value. C) at a premium about par value. D) none of these.

C) A bankers acceptance

When a bank guarantees a future payment to a firm, the financial instrument used is called: A) a repurchase agreement. B) a negotiable CD. C) a banker's acceptance. D) commercial paper.

D) None of these

When firms sell commercial paper at a _______ price than they projected, their cost of raising funds is _______ than projected. A) higher; higher B) lower; lower C) both of these D) none of these

C) Federal Funds

Which money market transaction is most likely to represent a loan from one commercial bank to another? A) banker's acceptance B) negotiable CD C) federal funds D) commercial paper

A) Banker's Acceptances

Which of the following instruments has a highly active secondary market? A) banker's acceptances B) commercial paper C) federal funds D) repurchase agreements

C) Common Stock

Which of the following is not a money market security? A) Treasury bill B) negotiable certificate of deposit C) common stock D) federal funds

C) Commercial Paper

Which of the following is sometimes issued in the primary market by nonfinancial firms to borrow funds? A) NCDs B) retail CDs C) commercial paper D) federal funds

A) Their yields are highly correlated over time

Which of the following is true of money market instruments? A) Their yields are highly correlated over time. B) They typically sell for par value when they are initially issued (especially T‑bills and commercial paper). C) Treasury bills have the highest yield. D) They all make periodic coupon (interest) payments.

B) It is not influenced by the supply and demand for funds in the federal funds market.

Which of the following statements is incorrect with respect to the federal funds rate? A) It is the rate charged by financial institutions on loans they extend to each other. B) It is not influenced by the supply and demand for funds in the federal funds market. C) The federal funds rate is closely monitored by all types of firms. D) Many market participants view changes in the federal funds rate to be an indicator of potential changes in other money market rates. E) The Federal Reserve adjusts the amount of funds in depository institutions in order to influence the federal funds rate.

A) Treasury Bills

_______ are sold at an auction at a discount from par value. A) Treasury bills B) Repurchase agreements C) Banker's acceptances D) Commercial paper

D) Commercial Banks

_______ are the most active participants in the federal funds market. A) Savings and loan associations B) Securities firms C) Credit unions D) Commercial banks

C) Commercial Paper

_______ is a short-term debt instrument issued only be well-known, creditworthy firms and is normally issued to provide liquidity or finance a firm's investment in inventory and accounts receivable. A) A banker's acceptance B) A repurchase agreement C) Commercial paper D) A Treasury bill

B) 270 Days

Commercial paper with a maturity exceeding _______ must be registered with the SEC. A) 45 days B) 270 days C) 1 year D) none of these

B) Money Market Instruments

Securities with maturities of one year or less are classified as: A) capital market instruments. B) money market instruments. C) preferred stock. D) none of these.

C) Auctions

Treasury bills are sold through _______ when initially issued. A) insurance companies B) commercial paper dealers C) auctions D) finance companies

E) All of these are money market instruments

Which of the following is not a money market instrument? A) banker's acceptance B) commercial paper C) negotiable CDs D) repurchase agreements E) All of these are money market instruments.

A) 12.12 Percent

A firm plans to issue 30‑day commercial paper for $9,900,000. Par value is $10,000,000. What is the firm's cost of borrowing? A) 12.12 percent B) 11.11 percent C) 13.00 percent D) 14.08 percent E) 15.25 percent

D) 10.00 Percent

A newly issued T‑bill with a $10,000 par value sells for $9,750, and has a 90‑day maturity. What is the discount? A) 10.26 percent B) 0.26 percent C) $2,500 D) 10.00 percent E) 11.00 percent

C) 9.14 percent

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

Downward, Upward

An aggregate purchase by investors of low-yield instruments in favor of high-yield instruments places _______ pressure on the yields of low-yield securities and _______ on the yields of high-yield securities. upward; upward downward; downward upward; downward downward; upward

B) About 12.6 Percent

An investor buys a T‑bill with 180 days to maturity and $250,000 par value for $242,000. He plans to sell it after 60 days, and forecasts a selling price of $247,000 at that time. What is the annualized yield based on this expectation? A) about 10.1 percent B) about 12.6 percent C) about 11.4 percent D) about 13.5 percent E) about 14.3 percent

D) 9.14 percent

An investor buys commercial paper with a 60‑day maturity for $985,000. Par value is $1,000,000, and the investor holds it to maturity. What is the annualized yield? A) 8.62 percent B) 8.78 percent C) 8.90 percent D) 9.14 percent E) 9.00 percent

A) 3.10

An investor initially purchased securities at a price of $9,923,418, with an agreement to sell them back at a price of $10,000,000 at the end of a 90-day period. The repo rate is _______ percent. A) 3.10 B) 0.77 C) 1.00 D) none of these

B) 5.10

An investor purchased an NCD a year ago in the secondary market for $980,000. He redeems it today and receives $1,000,000. He also receives interest of $30,000. The investor's annualized yield on this investment is _______ percent. A) 2.0 B) 5.10 C) 5.00 D) 2.04

C) 9,756

Assume investors require a 5 percent annualized return on a six-month T-bill with a par value of $10,000. The price investors would be willing to pay is $_______. A) 10,000 B) 9,524 C) 9,756 D) none of these

B) More than the price paid for a 6-month Treasury bill

At a given point in time, the actual price paid for a three-month Treasury bill is: A) usually equal to the par value. B) more than the price paid for a six-month Treasury bill. C) equal to the price paid for a six-month Treasury bill. D) none of these

None of these

At a given point in time, the yield on a T-bill is slightly higher than the yield on commercial paper with the same maturity, because commercial paper has higher: interest rate risk. maturity risk. default risk. none of these

B) Slightly Higher than

At any given time, the yield on commercial paper is _______ the yield on a T‑bill with the same maturity. A) slightly less than B) slightly higher than C) equal to D) either slightly less than or slightly higher than

41) E 42) A

Bill Yates, a private investor, purchases a six-month (182-day) T-bill with a $10,000 par value for $9,700. 41. If Bill Yates holds the Treasury bill to maturity, his annualized yield is _______ percent. 6.02 1.54 1.50 6.20 none of these 42. The Treasury bill discount is _______ percent. 5.93 6.12 6.20 6.02 none of these

C) 6.99

Bullock Corp. purchases certain securities for $4,921,349, with an agreement to sell them back at a price of $4,950,000 at the end of a 30-day period. The repo rate is _______ percent. 7.08 6.95 6.99 7.04 none of these