Debt - Money Market Debt : Review Questions

All of the following statements are true about overnight repurchase agreementsEXCEPT there is virtually no: A. liquidity risk B. interest rate risk C. risk of "principal" D. credit risk

B. interest rate risk

Which statement is TRUE regarding overnight repurchase agreements? A. A dealer who needs cash will "sell" some of its inventory overnight to another dealer and is subject to interest rate risk B. A dealer who needs cash will "sell" some of its inventory overnight to another dealer and is not subject to interest rate risk C. A dealer who needs cash will "buy" some of its inventory overnight to another dealer and is subject to interest rate risk D. A dealer who needs cash will "buy" some of its inventory overnight to another dealer and is not subject to interest rate risk

A. A dealer who needs cash will "sell" some of its inventory overnight to another dealer and is subject to interest rate risk

Which statement is FALSE regarding Brokered CDs? A. Call features are not permitted on these instruments B. How the instrument is titled can determine whether FDIC insurance covers the investment C. There is no penalty for early withdrawal of principal D. These instruments can have maturities of up to 5 years

A. Call features are not permitted on these instruments

Which of the following money market instruments is rated on a "P" scale? A. Commercial Paper B. Municipal Short Term Notes C. Treasury Bills D. Federal Funds

A. Commercial Paper

If the Federal Reserve enters into reverse repurchase agreements with member banks, the: A. Federal Funds rate is likely to go up B. Federal Reserve is loosening credit availability C. Federal Reserve member banks are gaining reserves D. Federal Reserve is pursuing an accommodative monetary policy

A. Federal Funds rate is likely to go up

All of the following may initiate repurchase agreements with government and agency securities as collateral EXCEPT: A. Federal Home Loan Banks B. Commercial banks C. Federal Reserve Banks D. Government securities dealers

A. Federal Home Loan Banks

Which securities will trade with accrued interest? A. Negotiable Certificates of Deposit B. Treasury Bills C. Banker's Acceptances D. Treasury Receipts

A. Negotiable Certificates of Deposit

Which statement is TRUE regarding repurchase agreements? A. Repurchase agreements are used by dealers to reduce the carrying cost of Government securities held in their inventory B. Repurchase agreements are initiated by the Federal Reserve to tighten the money supply C. Reverse repurchase agreements enhance the liquidity of the dealer D. If a repurchase agreement extends for longer than overnight, the agreement is known as a "Due Bill" repurchase agreement

A. Repurchase agreements are used by dealers to reduce the carrying cost of Government securities held in their inventory

A customer buys a Brokered CD for $100,000. Upon receipt of his next account statement, the customer sees that the market value of the CD is shown as $99,800. This would occur because: A. interest rates have risen B. interest rates have fallen C. the broker's commission for selling the CD has been subtracted out D. the bank that issued the CD has charged an up-front handling fee

A. interest rates have risen

A Prime Banker's Acceptance is: A. negotiable and eligible for trading with the Federal Reserve B. negotiable but ineligible for trading with the Federal Reserve C. non-negotiable but eligible for trading with the Federal Reserve D. non-negotiable and ineligible for trading with the Federal Reserve

A. negotiable and eligible for trading with the Federal Reserve

The Federal Funds rate is: A. the rate charged from one Federal Reserve member bank to another member bank that wishes to borrow reserves and is lower than the discount rate B. the rate charged by the Federal Reserve to member banks who wish to borrow reserves directly from the Fed and is lower than the discount rate C. the rate charged from one Federal Reserve member bank to another member bank that wishes to borrow reserves and is higher than the discount rate D. the rate charged by the Federal Reserve to member banks who wish to borrow reserves directly from the Fed and is higher than the discount rate

A. the rate charged from one Federal Reserve member bank to another member bank that wishes to borrow reserves and is lower than the discount rate

What is the minimum amount of a negotiable CD? A. $10,000 B. $100,000 C. $250,000 D. There is no minimum amount

B. $100,000

Which money market instrument trades "and interest"? A. Commercial Paper B. Certificates of Deposit C. Banker's Acceptance D. Treasury Bills

B. Certificates of Deposit

A certificate of deposit that changes the rate of interest based on the prevailing market interest rate is known as a: A. Market rate CD B. Step-up / Step-down CD C. Negotiable CD D. Renewable CD

B. Step-up / Step-down CD

All of the following securities can be purchased on margin EXCEPT: A. Treasury bills B. Structured products C. Bankers' acceptances D. Commercial paper

B. Structured products

Which of the following characteristics of brokered CDs should be disclosed to customers? A. CDs are actively traded instruments, so the customer should experience minimal marketability risk if the CD is sold prior to maturity B. The CD may have an initial interest rate that is higher than the market rate of interest, but that rate will be lowered after the CD is held for a stated time period C. CDs can be redeemed at any time with the issuer, but the issuer can impose a penalty for early withdrawal of funds D. CDs can be callable, and if interest rates rise during the life of the instrument, the issuer may call the CD, forcing the holder to reinvest at lower current rates

B. The CD may have an initial interest rate that is higher than the market rate of interest, but that rate will be lowered after the CD is held for a stated time period

All of the following are money market instruments EXCEPT: A. Tax Anticipation Notes B. Treasury Notes C. Certificates of Deposit D. Commercial Paper

B. Treasury Notes

To loosen credit the Federal Reserve will: A. sell U.S. Government securities to bank dealers with an agreement to buy them back at a later date B. buy U.S. Government securities from bank dealers with an agreement to sell them back at a later date C. sell Foreign Government securities to bank dealers with an agreement to buy them back at a later date D. buy Foreign Government securities from bank dealers with an agreement to sell them back at a later date

B. buy U.S. Government securities from bank dealers with an agreement to sell them back at a later date

All of the following statements are true regarding overnight repurchase agreementsEXCEPT: A. the investment has no liquidity risk B. the investment has no interest rate risk C. interest rates charged are most similar to the Federal Funds rate D. the issuer loses control of the underlying securities for the duration of the agreement

B. the investment has no interest rate risk

Which of the following are risks that should be disclosed to customers when recommending the purchase of a CD sold through a brokerage firm? A. There is a substantial penalty for early withdrawal of funds B. If interest rates have fallen after issuance and the CD is sold prior to maturity, the investor may experience a loss of principal C The secondary market is limited, so that sale prior to maturity can incur higher than normal transaction costs D. Brokered CDs do not qualify for FDIC insurance coverage if the issuing bank should fail

C The secondary market is limited, so that sale prior to maturity can incur higher than normal transaction costs

Which money market instrument is issued by corporations? A. Treasury Bill B. Repurchase Agreement C. Commercial Paper D. Prime Banker's Acceptances

C. Commercial Paper

What are Eurodollars? A. Deposits of Euros held in banks in the United States B. Deposits of Euros held in banks outside the United States C. Deposits of U.S. dollars held in banks outside the United States D. Deposits of U.S. dollars held in banks in the United States

C. Deposits of U.S. dollars held in banks outside the United States

Which statement is FALSE regarding repurchase agreements? A. Repurchase agreements typically mature in 1 to 90 days B. Repurchase agreements are used by the Federal Reserve to influence money supply levels C. Investors in repurchase agreements have no interest rate risk D. Investors in repurchase agreements have no price risk

C. Investors in repurchase agreements have no interest rate risk

Trades of all of the following securities will settle in Fed Funds EXCEPT: A. Treasury Bills B. Treasury Notes C. Municipal Bonds D. Agency Bonds

C. Municipal Bonds

Which statement is FALSE regarding a $200,000 short term negotiable certificate of deposit? A. The CD is issued by a bank B. The CD has a secondary trading market C. The CD is callable D. The CD is fully FDIC insured if it is titled in the customer's name

C. The CD is callable

Which statement is TRUE regarding repurchase agreements effected between the public and government securities dealers? A. The public customer is the seller of the government securities B. The dealer is losing liquidity C. The public customer is the lender of monies D. The dealer is obligated to sell the securities back at a later date

C. The public customer is the lender of monies

All of the following statements are true regarding the Federal Funds rate EXCEPT: A. The rate is computed every business day B. The rate is lower than the discount rate C. The rate is set by the Federal Reserve D. The rate is charged from one Federal Reserve member bank to another member bank

C. The rate is set by the Federal Reserve

A customer wishes to buy a $50,000 certificate of deposit offered by your firm. The customer wishes to know if the CD is FDIC insured. As the broker handling the account, you should tell the customer that: A. the CD is insured because the amount is less than the $100,000 maximum permitted amount that qualifies for FDIC coverage B. CDs sold through brokerage firms do not qualify for FDIC insurance regardless of the amount, but they are SIPC insured C. as long as the CD is titled in the customer's name and the customer does not have accounts at the issuing bank totaling more than $200,000, then the CD is FDIC insured D. as long as the CD is held in the custody of an FDIC member bank and the amount is $100,000 or less, then FDIC insurance covers the CD

C. as long as the CD is titled in the customer's name and the customer does not have accounts at the issuing bank totaling more than $200,000, then the CD is FDIC insured

Banker's Acceptances trade at a: A. premium to par and have a active trading market B. discount to par and have a active trading market C. discount to par and have a thin trading market D. premium to par and have a thin trading market

C. discount to par and have a thin trading market

In a repurchase agreement, the initiating government securities dealer: A. buys back securities from the Treasury that were previously sold B. sells securities to the Treasury with a specified buy back provision C. sells securities to another dealer and agrees to buy back the securities at a later date D. buys securities from another dealer and agrees to sell the securities at a later date

C. sells securities to another dealer and agrees to buy back the securities at a later date

A repurchase agreement is effected between two U.S. Government securities dealers. The interest charged under the agreement is the: A. coupon rate of the underlying U.S. Government securities, paid directly from the issuer to the securities' original buyer B. coupon rate of the underlying U.S. Government securities, paid directly from the issuer to the securities' original seller C. "repo" rate, paid by the buyer of the securities to the seller D. "repo" rate, paid by the seller of the securities to the buyer

D. "repo" rate, paid by the seller of the securities to the buyer

The maximum maturity on commercial paperis: A. 14 days B. 30 days C. 90 days D. 270 days

D. 270 days

All of the following are money market instruments EXCEPT: A. BAs B. REPOs C. CDs D. ADRs

D. ADRs

Which statement is FALSE about commercial paper? A. Commercial paper has a maximum maturity of 270 days B. Commercial paper matures on a pre-set date at a pre-set price C. Commercial paper is quoted on a yield basis D. Commercial paper is a secured promissory note

D. Commercial paper is a secured promissory note

Which statement is TRUE about commercial paper? A Commercial paper has a maximum maturity of 90 days B. Commercial paper can only be issued by commercial banks C. Commercial paper is quoted on a dollar price basis D. Commercial paper is quoted on a yield basis

D. Commercial paper is quoted on a yield basis

What is the shortest term money market instrument? A. Commercial Paper B. Banker's Acceptance C. Negotiable Certificate of Deposit D. Federal Funds

D. Federal Funds

The interest rate charged on Eurodollar loans between major international banks is: A. Federal Funds rate B. PRIME rate C. Eurodollar rate D. LIBOR

D. LIBOR

Which of the following securities is NOT eligible for trading by the Federal Reserve? A. Prime Banker's Acceptances B. Treasury Bills C. Treasury Bonds D. Municipal debt

D. Municipal debt

Which risk is NOT associated with Long Term Negotiable Certificates of Deposit? A. Market risk B. Call risk C. Reinvestment risk D. Prepayment risk

D. Prepayment risk

Commercial paper with a maturity of 270 days or less: A. must be registered under the Securities Act of 1933 B. must be registered under the Securities Act of 1934 C. must have a trust indenture D. is an exempt security

D. is an exempt security

All of the following are true statements regarding short term negotiable certificates of deposit EXCEPT: A. trading occurs in the secondary market B. short term negotiable CDs are non-callable C. they are issued by banks D. the minimum denomination is $1,000

D. the minimum denomination is $1,000

All of the following disclosures must be made to customers who wish to purchase long-term negotiable certificates of depositEXCEPT: A. sale prior to maturity can result in a price that is lower than the original purchase amount B. trading in the secondary market is limited C. Step-Down CD yields may not reflect the actual market interest rate D. these CDs are unconditionally backed by the FDIC but not SIPC

D. these CDs are unconditionally backed by the FDIC but not SIPC

Non-interest bearing securities are quoted based on: A. 1/8ths B. 1/16ths C. 1/32nds D. yield basis

D. yield basis