Inv - Type/Char Cash Equivalents (1)

Money market instruments are: A)long-term equity. B)long-term debt. C)intermediate debt. D)short-term debt.

D)short-term debt. Money market instruments are high-quality debt securities with maturities that do not exceed 1 year.

All the following securities are bought at a discount EXCEPT A)Treasury bills B)zero coupon bonds C)CDs D)commercial paper

C)CDs CDs are interest-bearing debt instruments issued by banks at their face value. All of the others are issued at a discount. In truth, only about 85% of commercial paper is, but that's good enough for NASAA.

All of the following are true of negotiable, jumbo certificates of deposit EXCEPT: A)they are secured obligations of the issuing bank. B)they are usually issued in denominations of $100,000 to $1 million. C)they usually have maturities of less than 1 year. D)they are readily marketable.

A)they are secured obligations of the issuing bank. Negotiable CDs are general obligations of the issuing bank; they are not secured by any specific asset.

Which of the following would you NOT expect to see issued at a discount? A)Commercial paper B)Bank jumbo CD C)Treasury Bill D)Zero-coupon bond

B)Bank jumbo CD Of these securities, only the bank jumbo (negotiable) CDs are always interest bearing and issued at par or face value.

Which of the following are characteristics of commercial paper? Backed by money market deposits. Negotiated maturities and yields. Issued by insurance companies. Not registered with the SEC. A)I and II. B)II and IV. C)III and IV. D)I and III.

B)II and IV. Commercial paper represents the unsecured debt obligations of corporations needing short-term financing. Both yield and maturity are open to negotiation. Because commercial paper is issued with maturities of less than 270 days, it is exempt from registration under the Securities Act of 1933.

A client with a demand deposit account would expect the funds to be A)long-term with a high return B)short-term with a low return C)long-term with a low return D)short-term with a high return

B)short-term with a low return In deposit terminology, the term demand deposit account, (sometimes referred to as DDA), refers to a type of account held at banks and financial institutions that may be withdrawn at any time by the customer. The majority of such demand deposit accounts are checking and savings accounts. With the immediate availability of funds, it is appropriate to look at these as short-term money and, as is usually the case, the shorter the length, the lower the return.

Which of the following are NOT considered money market instruments? American depositary receipts. Commercial paper. Corporate bonds. Jumbo (negotiable) certificates of deposit. A)II and IV. B)I and II. C)III and IV. D)I and III.

D)I and III. A money market instrument is a high-quality, short-term debt security with maturity of less than 1 year. American Depositary Receipts (ADRs) are equity, and corporate bonds are long-term debt instruments.

The minimum face amount of a negotiable CD is: A)$100,000.00 B)$10,000.00 C)$25,000.00 D)$50,000.00

A)$100,000.00 Negotiable CDs are issued in the minimum face amount of $100,000. These are called jumbo CDs and are traded in blocks of $1 million.

Which of the following is NOT a benefit of investing in cash equivalents? A)High liquidity. B)Minimal risk. C)High rates of returns. D)Short-term maturities.

C)High rates of returns. Cash equivalents offer high liquidity, minimal risk, and short-term maturities. The downside of cash equivalents, however, is that they generally offer relatively low rates of return that may be eroded by inflation.

Which of the following are characteristics of commercial paper? It represents a loan by the holder to the issuer. It is a certificate of ownership in the corporation. It is commonly issued to raise working capital for a corporation. It is junior in preference to convertible preferred stock. A)I and IV. B)II and III. C)II and IV. D)I and III.

D)I and III. Commercial paper instruments are debt securities; they represent loans to the issuing corporation by the holder. They are commonly issued to raise working capital and, as debt obligation, are senior in preference to preferred stock in claims against an issuer.

Which of the following are characteristics of negotiable certificates of deposit? Minimum face value of $100,000. Maturities rarely extend beyond 360 days. May be sold on the secondary market. A)II and III. B)I and II. C)I and III. D)I, II and III.

D)I, II and III. Negotiable certificates of deposit usually have a minimum face value of $100,000. It is rare to find one with a maturity that exceeds 360 days. Unlike nonnegotiable certificates of deposit, they may be bought and sold on the secondary market.

Which of the following is NOT a money market instrument? A)Commercial paper. B)Banker's acceptances. C)Treasury bills. D)Newly issued Treasury notes.

D)Newly issued Treasury notes. Commercial paper, Treasury bills, and banker's acceptances are debt instruments with maturities of 1 year or less and are therefore money market instruments. A newly issued Treasury note would have a maturity of 2 to 10 years and therefore would not be a money market instrument.