Chapter 5 Pre Work

Commercial paper is usually sold in denominations between ______ and _______. Multiple choice question. $100,000 and $250,000 $50,000 and $100,000 $10,000 and $100,000 $100,000 and $1,000,000

$100,000 and $1,000,000

The market makers in U.S. Treasury bills (and other Treasury securities) are the Multiple choice question. organized exchanges. 24 primary dealers. commercial banks. U.S. Treasury.

24 primary dealers.

To convert a single payment yield to a bond equivalent yield, you must multiply the single payment yield by _____. Multiple choice question. 365/360 Po/Pf Pf/Po 360/365

365/360

Money market securities have a number of characteristics in common, including that they have ___ (large/small) denominations, ___ (high/low) default risk, and ___ (long/short) maturities.

Blank 1: large Blank 2: low Blank 3: short

To convert a discount yield to a bond equivalent yield, you must multiply the discount yield by ______ and ______. Multiple choice question. Po/Pf; 365/360 Po/Pf; 360/365 Pf/Po; 365/360 Pf/Po; 360/365

Pf/Po; 365/360

The U.S. Treasury raises significant amounts of funds in the money market when it issues ______. Multiple choice question. T-bills T-notes savings bonds T-bonds

T-bills

Select all that apply A negotiable certificate of deposit (CD) has which of the following characteristics? Multiple select question. The most common denomination is $1 million. It is a bank-issued time deposit. Investor ownership is registered with the issuer. It is a bearer instrument: whoever holds it, owns it. It generally has a maturity of 30 days or less. It can be traded in secondary markets.

The most common denomination is $1 million. It is a bank-issued time deposit. It is a bearer instrument: whoever holds it, owns it. It can be traded in secondary markets.

Select all that apply Which of the following are characteristics of commercial paper? Multiple select question. They are short-term promissory notes. They are unsecured. They are long-term promissory notes. They are one of the least important of the money market instruments. They are secured. They are issued primarily by companies with strong credit ratings.

They are short-term promissory notes. They are unsecured. They are issued primarily by companies with strong credit ratings.

True or false: Investors moving funds across borders seeking money markets that offer the most attractive yields is one result of the growth of global money markets. True false question.TrueFalse

True

True or false: T-bills are the most actively traded of the money market securities. True false question. True False

True

True or false: The bond equivalent yield for a security is the rate that is used to calculate the present value of the security in time value of money equations. True false question. True False

True

Select all that apply Two forms of growth in the global money markets include Multiple select question. growth in the use of banker's acceptances for trade finance. U.S. securities bought and sold by foreign investors. foreign money market securities. U.S. securities bought and sold by U.S. investors.

U.S. securities bought and sold by foreign investors. foreign money market securities.

A correct measure of annual return on a discount security is the Multiple choice question. discount yield. coupon rate. yield to call. bond equivalent yield.

bond equivalent yield.

A correct measure of annual return on a discount security is the Multiple choice question. yield to call. bond equivalent yield. discount yield. coupon rate.

bond equivalent yield.

Money market mutual funds compete with interest-bearing deposits at Multiple choice question. pension funds. commercial banks. insurance companies. finance companies.

commercial banks.

As of 2019, the money market securities with the smallest dollar value outstanding (excluding Banker's acceptances) were federal funds and repurchase agreements. Treasury bills. negotiable certificates of deposit. commercial paper.

commercial paper.

Finance companies are not banks and cannot issue deposits, so they raise large amounts of funds in the money markets, especially through the issuance of Multiple choice question. commercial paper. banker's acceptances. repurchase agreements. negotiable CD's.

commercial paper.

With their large face value, negotiable CD's are often too expensive for individual investors. However, ________ purchase them and sell shares to investors. Multiple choice question. corporations money market mutual funds pension funds insurance companies

money market mutual funds

With their large face value, negotiable CD's are often too expensive for individual investors. However, ________ purchase them and sell shares to investors. Multiple choice question. pension funds insurance companies corporations money market mutual funds

money market mutual funds

Individuals participate in the money markets through direct investments or through investments in money market ___ funds.

mutual

One-day maturity repos are called _______ and repos with longer maturity are called _______. Multiple choice question. overnight repos; term repos short repos; long repos overnight repos; loans term repos; long repos

overnight repos; term repos

Money markets are efficient at eliminating the opportunity cost of holding excess cash balances by allowing investors to convert cash to securities and back again _________ and _________. Multiple choice question. efficiently; at low cost quickly; efficiently quickly; at low cost effortlessly; at low cost

quickly; at low cost

Part of the motivation for the participation of commercial banks in money markets is a response to their need to meet the __________ imposed upon them by regulation. Multiple choice question. reserve requirements deposit account restrictions loan risk requirements derivatives restrictions

reserve requirements

Once issued, money market securities are actively traded in _______ markets. Multiple choice question. primary secondary capital stock

secondary

Once issued, money market securities are actively traded in _______ markets. secondary stock primary capital

secondary

The money market has ________ of brokers and dealers who link buyers and sellers of money market securities. Multiple choice question. hundreds dozens more than 10,000 thousands

thousands

A banker's acceptance is a ________ made payable to a seller of goods with payment guaranteed by a _______, Multiple choice question. time draft; bank time draft; buyer of goods sight draft; bank sight draft; buyer of goods

time draft; bank

Ignoring inflation, the rate of return earned on cash balances is

zero.

Because corporate cash inflows rarely equal their cash outflows, corporations often invest ______ in money market securities. Multiple choice question. profits excess cash retained earnings account receivable

excess cash

Money market securities are very different in terms of their Multiple choice question. maturities. default risk. liquidity. denominations.

liquidity.

A time draft issued by a bank is an order for the bank to pay a specified amount to ________ at ________. Multiple choice question. the seller; presentation the bearer; a specified date the seller; a specified date the bearer; presentation

the bearer; a specified date

The maturity of commercial paper ranges from ______ to ______, with the most common maturities being between ______ and ______. Multiple choice question. 1 day; 360 days; 30 days; 60 days 30 days; 270 days; 20 days; 75 days 1 day; 270 days; 20 days; 45 days 1 day; 360 days; 90 days; 180 days

1 day; 270 days; 20 days; 45 days

The effective annual return (EAR) assumes a ______-day year and a periodic rate calculated as ______. Multiple choice question. 365; (Pf - Po)/Pf 360; (Pf - Po)/Po 360; (Pf - Po)/Pf 365; (Pf - Po)/Po

365; (Pf - Po)/Po

The effective annual return (EAR) assumes a ______-day year and a periodic rate calculated as ______. Multiple choice question. 365; (Pf - Po)/Po 360; (Pf - Po)/Po 360; (Pf - Po)/Pf 365; (Pf - Po)/Pf

365; (Pf - Po)/Po

Eurodollar deposits (Eurodollar CD's) and the market in which they trade is called the _______ market. Multiple choice question. Frankfurt Eurodollar euro money London

Eurodollar

Unlike the bond equivalent yield, the effective annual return takes into account the effects of ________ interest during a less than one year investment horizon. Multiple choice question. taxing discounting amortizing compounding

compounding

Treasury bills are considered to be free of _________ because they are backed by the U.S. government. Multiple choice question. interest rate risk default risk liquidity risk exchange rate risk

default risk

Individual investors participate in the money markets through Multiple choice question. indirect investments. direct investments. IPOs. the SEC.

direct investments.

The Federal Reserve operates the _______ which it can use to influence the supply of bank reserves to commercial banks. Multiple choice question. FOMC Fedwire network bank monitoring system discount window

discount window

As of 2019, the money market securities with the largest dollar value outstanding were Multiple choice question. commercial paper. federal funds and repurchase agreements. Treasury bills. negotiable certificates of deposit.

federal funds and repurchase agreements.

The Federal Reserve also sets the target value for the _________, which can in turn affect other money market rates. Multiple choice question. banker's acceptance rate commercial paper rate federal funds rate T-bill discount rate

federal funds rate

The interest rate charged by banks on federal funds loans is the Multiple choice question. discount rate. federal funds rate. coupon rate. Treasury bill yield.

federal funds rate.

A repurchase agreement involves the sale of securities at a specified price with a promise to repurchase those securities at a(n) _______ price at a specified date in the future. Multiple choice question. higher lower equal similar

higher

Eurodollars are not directly subject to U.S. banking regulations, so the rates paid on Eurodollar CD's are generally ______ that paid on US CD's. Multiple choice question. higher than similar to lower than identical to

higher than

Select all that apply Because of their short maturity and active secondary market, Treasury bills are considered to have little _____ and _____. Multiple select question. exchange rate risk default risk interest rate risk liquidity risk

interest rate risk liquidity risk

Commercial banks participate in money markets as both ______ of and ______ in most types of money market securities. Multiple choice question. issuers; sellers issuers; dealers issuers; investors brokers; dealers

issuers; investors

Because their liability payments are relatively unpredictable, insurance companies maintain large balances of liquid assets such as Multiple choice question. municipal bonds. preferred stock. money market securities. Treasury notes and bonds.

money market securities.

The bond equivalent yield is the quoted ________ annual yield on a security. Multiple choice question. inflation-adjusted real total nominal

nominal

The debt instruments that are traded in money markets are characterized by original maturities of Multiple choice question. more than one year. up to 30 years. one year or less. 30 days or less.

one year or less.

Federal funds are _______ loans between a bank that has ________ reserves and one that is ________ reserves. Multiple choice question. long-term; excess; short of long-term; excess; not required to hold short-term; short of; exactly enough short-term; excess; short of

short-term; excess; short of

Select all that apply The single payment has two important characteristics that distinguishes it from other money market yields. They are that the Multiple select question. single payment yield assumes as 365-day year. single payment yield calculates the periodic return as (Pf - Po)/Pf. single payment yield assumes a 360-day year. single payment yield calculates the periodic return (Pf - Po)/Po.

single payment yield assumes a 360-day year. single payment yield calculates the periodic return (Pf - Po)/Po.

Money market mutual funds purchase large amounts of money market securities and sell shares in these pools, making it possible for _______ to invest in money market instruments. Multiple choice question. large investors small investors foreign investors corporations

small investors

Select all that apply The discount yield has two important characteristics that distinguishes it from other money market yields. They are Multiple select question. the discount yield assumes as 365-day year. the discount yield assumes a 360-day year. the discount yield calculates the periodic return (Pf - Po)/Po. the discount yield calculates the periodic return as (Pf - Po)/Pf.

the discount yield assumes a 360-day year. the discount yield calculates the periodic return as (Pf - Po)/Pf.

Select all that apply The discount yield has two important characteristics that distinguishes it from other money market yields. They are Multiple select question. the discount yield calculates the periodic return as (Pf - Po)/Pf. the discount yield assumes a 360-day year. the discount yield calculates the periodic return (Pf - Po)/Po. the discount yield assumes as 365-day year.

the discount yield calculates the periodic return as (Pf - Po)/Pf. the discount yield assumes a 360-day year.