Chapter 6
Money Markets
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1. Which of the following is not a money market security?
a. Treasury bill
b. commercial paper
c. bond
d. repurchase agreement
2. Treasury bills
a. offer coupon payments.
b. are sold at a discount from par value.
c. have a yield equal to the coupon rate.
d. are not sold in the secondary market.
3. An investor purchases a six-month (182-day) T-bill with a $10,000 par value for $9,850. If the investor holds the Treasury bill to maturity, his annualized yield is ____ percent.
a. 1.52
b. 1.50
c. 3.05
d. 3.01
4. An investor purchases a six-month (182-day) T-bill with a $10,000 par value for $9,850. If the investor holds the Treasury bill to maturity, the Treasury bill discount yield is ______ percent.
a. 3.05
b. 2.97
c. 3.01
d. none of the above
5. An investor purchases a six-month (182-day) T-bill with a $10,000 par value for $9,850. If the investor had sold the T-bill after 100 days for $9,940, her annualized yield would be _______ percent.
a. 3.34
b. 3.29
c. 1.83
d. 1.80
6. At a given point in time, the yield on commercial paper is __________ the yield on a T-bill with the same maturity.
a. slightly lower than
b. slightly higher than
c. about equal to
d. none of the above
7. An investor purchases 270-day commercial paper with a par value of $2,000,000 for a price of $1,960,000. The yield is ______ percent.
a. 2.76
b. 2.67
c. 2.72
d. none of the above
8. Which of the following financial institutions does not frequently participate in repurchase agreements?
a. banks
b. savings and loan associations
c. money market funds
d. All of the above frequently participate in repos.
9. __________ are the most active participants in the federal funds market.
a. Savings banks
b. Investment banks
c. Large corporations
d. Commercial banks
10. If short-term interest rates decline, the required rate of return on money market securities will ________, and the values of money market securities will _________.
a. increase; decline
b. decline; increase
c. decline; decline
d. increase; increase
11. Which of the following securities probably has the lowest degree of default risk?
a. Treasury bill
b. negotiable certificate of deposit
c. banker's acceptance
d. all of the above have the same degree of default risk
12. _________ have the highest degree of interest rate risk.
a. Fixed-rate eurodollar CDs
b. Eurodollar floating-rate CDs (FRCDs)
c. Floating-rate eurodollar loans
d. All of the above are affected equally by an increase in interest rates.
13. The yield of a newly issued Treasury bill that is held to maturity will always be lower than the Treasury bill discount.
a. True
b. False
14. Commercial paper is a short-term debt instrument issued only by well-known, credit-worthy firms and is typically unsecured.
a. True
b. False
15. When firms sell their commercial paper at a lower price than projected, their cost of raising funds will be higher than they initially anticipated.
a. True
b. False
16. There is an active secondary market for repos.
a. True
b. False
17. During periods of heightened uncertainty about the economy, investors tend to shift from risky money market securities to Treasury securities.
a. True
b. False
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