financial markets ch 6

the London Interbank Offer Rate.

The rate on Eurodollar floating rate CDs is based on:

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.

have an active secondary market.

Treasury bills:

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.

federal funds

which money market transaction is most likely to represent a loan from one commercial bank to another

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.

placed either directly or with the help of commercial paper dealers.

Commercial paper is:

are not subject to reserve requirements

Eurodollar deposits:

competitive

Large corporations typically make _______ bids for T-bills so they can purchase larger amounts.

money market instruments

Securities with maturities of one year or less are classified as:

at a discount from par value.

T-bills and commercial paper are sold

auctions

Treasury bills are sold through _______ when initially issued.

bankers acceptances

Which instruments has a highly active secondary market?

money market security

-treasury bill - negotiable certificate of deposit - federal funds

true

An international interbank market facilitates the transfer of funds from banks with excess funds to those with deficient funds. A) true B) false

more than the price paid for a six-month Treasury bill.

At a given point in time, the actual price paid for a three-month Treasury bill is:

D

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: A) interest rate risk. B) maturity risk. C) default risk. D) none of these.

slightly higher than

At any given time, the yield on commercial paper is _______ the yield on a T-bill with the same maturity.

D

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

true

In general, the money markets are widely perceived to be efficient in the sense that the prices reflect all available public information. A) true B) false

true

Money market securities are issued in the primary market through a telecommunications network by the Treasury, corporations, and financial intermediaries that wish to obtain short-term financing. A) true B) false

false

Money market securities must have a maturity of three months or less. A) true B) false

increased

The effective yield of a foreign money market security is _______ when the foreign currency strengthens against the dollar.

reduced

The effective yield of a foreign money market security is _______ when the foreign currency weakens against the dollar.

short term funds from each other

The federal funds market allows depository institutions to borrow:

false

The interest rate charged for a short-term loan from a bank to a corporation is referred to as the London interbank offer rate (LIBOR). A) true B) false

100,000

The minimum denomination of commercial paper is $_______.

federal funds

The rate at which depository institutions effectively lend or borrow funds from each other is the _______ rate.

increased

The so-called "flight to quality" causes the risk differential between risky and risk-free securities to be:

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 bankers acceptance

When a bank guarantees a future payment to a firm, the financial instrument used is called:

D

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

E

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.

commercial paper

Which of the following is sometimes issued in the primary market by nonfinancial firms to borrow funds?

A

Which of the following is true of money market instruments? paper). 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

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.

Treasury bills

are sold at an auction at a discount from par value

Commercial banks

are the most active participants in the federal funds market.

270 days

commercial paper with a maturity exceeding _______ must be registered with the SEC.