Question 1

Recent U.S. budget deficits have arguably been financed by foreigners; if it were not for foreign __________ of Treasury securities, U.S. interest rate would be much __________.

Accepted Answer

Foreign purchases of Treasury securities help finance the U.S. budget deficit, keeping interest rates lower than they would be if the U.S. had to rely solely on domestic financing.

Question 2

A Treasury security with an original maturity of twenty years is called a

Accepted Answer

A Treasury security with an original maturity of twenty years is classified as a bond. Bonds are long-term debt securities with a maturity date of more than ten years. Notes have a maturity date of between one and ten years, while bills have a maturity date of less than one year. Debentures are a type of unsecured debt instrument.

Question 3

__________ are issued with an original maturity of between one and ten years.

Accepted Answer

Treasury notes are issued with an original maturity of between one and ten years. Treasury bills have an original maturity of one year or less, while Treasury bonds have an original maturity of ten years or more.

Question 4

Virtually all Federal Reserve open-market purchases and sales are conducted with government securities, mostly

Accepted Answer

Treasury bills are one of the most commonly used government securities for open-market operations by the Federal Reserve. Treasury bills are short-term securities that mature in less than a year, making them a convenient tool for managing the money supply. The Fed uses open-market purchases of Treasury bills to inject money into the financial system, while sales of Treasury bills have the opposite effect of draining money from the system. While the Fed can purchase and sell other government securities such as Treasury notes and bonds, Treasury bills are the most commonly used due to their short-term maturity and ease of use in managing the money supply.

Question 5

The original maturity on U.S. Treasury notes is between

Accepted Answer

The original maturity on U.S. Treasury notes is typically between one and ten years.

Question 6

Which of the following statements is incorrect?

Accepted Answer

5-year Treasury securities are available as TIPS. TIPS are inflation-protected securities issued by the U.S. Treasury, and they are available in 5-year, 10-year, and 30-year maturities.

Question 7

Which type of U.S. government security is a kind of zero-coupon security?

Accepted Answer

U.S. Treasury bills are a type of zero-coupon security, meaning they do not pay any interest but are sold at a discount from their face value and then redeemed at their face value at maturity.

Question 8

Most government securities transactions take place in the

Accepted Answer

Government securities are typically bought and sold in the over-the-counter dealer market. This market allows for direct negotiations between market participants, bypassing a centralized exchange. While there may be some government securities traded in futures or commodities markets, the vast majority of transactions occur in the dealer market. The New York securities market, while significant for equity securities, is not typically the primary market for government bonds.

Question 9

Which of the following U.S. government securities are nonmarketable?

Accepted Answer

Savings bonds are nonmarketable securities, meaning they cannot be traded on a secondary market. Treasury bills, notes, and bonds are all marketable securities, meaning they can be bought and sold on the secondary market.

Question 10

An investor wishing to minimize the risk of capital losses as a result of changing interest rates should avoid

Accepted Answer

U.S. Treasury bonds have the longest maturity dates among the options listed, typically ranging from 20 to 30 years. This long duration makes them more sensitive to interest rate changes compared to savings bonds, Treasury notes, and Treasury bills, which have shorter maturities. When interest rates rise, the value of existing bonds with fixed interest rates (like Treasury bonds) tends to decrease, posing a higher risk of capital losses for investors holding them until maturity.

Question 11

A good purchase for an investor seeking a high degree of liquidity with minimal market risk would be a U.S.

Accepted Answer

U.S. Treasury bills are short-term debt securities issued by the United States government with a maturity of less than one year. They are considered to be low-risk investments as they are backed by the full faith and credit of the U.S. government. They also offer a high degree of liquidity as they can be easily bought and sold on the secondary market. Therefore, for an investor seeking a high degree of liquidity with minimal market risk, Treasury bills are the best choice.

Question 12

Marketable government securities consists of Treasury bills,

Accepted Answer

Marketable government securities are debt instruments issued by the U.S. government to meet its financing needs. They can be easily bought or sold in the secondary market. Treasury bills, Treasury notes, and Treasury bonds are examples of marketable government securities. U.S. savings bonds are non-marketable government securities. Federal funds are not government securities, but instead are overnight loans between banks to meet reserve requirements. Therefore, the best choice is B, as it includes only marketable government securities.

Question 13

The original maturity on U.S. Treasury bills is between

Accepted Answer

U.S. Treasury bills have original maturities between three months and one year.

Question 14

A newly-issued eighteen-year Treasury security can be stripped into __________ separate zero coupon securities.

Accepted Answer

A newly-issued eighteen-year Treasury security can be stripped into thirty-seven separate zero coupon securities, each with a maturity of one year. This is because stripping a bond means separating its interest and principal payments into individual securities, and as the original bond has 18 years to maturity, it can be stripped into 18 principal payments and 18 interest payments, resulting in a total of 36 separate securities. However, each of these securities has a duration of one year, so there are actually 37 separate zero coupon securities that can be created.

Question 15

Among marketable government securities, the largest dollar volume is in the form of

Accepted Answer

The answer of Among marketable government securities, the largest dollar...

Question 16

Which of the following statements is incorrect?

Accepted Answer

Marketable government securities can be issued through public auctions held by the Federal Reserve or through the U.S. Treasury Department's Bureau of the Public Debt.

Question 17

A one-year Treasury bill with a face value of $1,000 and an annual yield of 5 percent sells for approximately

Accepted Answer

The price of a one-year Treasury bill can be calculated as the face value divided by (1 + yield), so $1,000 / (1 + 0.05) = $952.38, which is approximately $952.

Question 18

The __________ serves as a practical reference point for all other securities markets.

Accepted Answer

The U.S. government securities market serves as a benchmark for other securities markets due to its size, liquidity, and the perceived safety of U.S. government securities. It provides a reference point for the pricing and risk assessment of other securities.

Question 19

Dealers get much of their government securities inventories

Accepted Answer

Dealers typically obtain their government securities inventories by bidding at competitive auctions held by the Treasury. This process ensures that the securities are distributed among a wide variety of buyers and helps to maintain a fair market value for these securities. While dealers may also purchase securities from commercial banks or receive transfers from the Federal Reserve, these methods are less common than participating in competitive auctions. Direct transfers from the Treasury are also relatively rare and typically only occur in unusual circumstances.

Question 20

About what percentage of marketable national debt is held by foreigners?

Accepted Answer

As of my last update in 2023, approximately 50 percent of the U.S. marketable national debt is held by foreign investors. This reflects the global confidence in U.S. debt securities as a safe investment, but also highlights the significant foreign stake in U.S. financial health.

Quiz 8: Money and Capital Markets

Recent U.S. budget deficits have arguably been financed by foreigners; if it were not for foreign of Treasury securities, U.S. interest rate would be much .

A Treasury security with an original maturity of twenty years is called a

__________ are issued with an original maturity of between one and ten years.

Virtually all Federal Reserve open-market purchases and sales are conducted with government securities, mostly

The original maturity on U.S. Treasury notes is between

Which of the following statements is incorrect?

Which type of U.S. government security is a kind of zero-coupon security?

Most government securities transactions take place in the

Which of the following U.S. government securities are nonmarketable?

An investor wishing to minimize the risk of capital losses as a result of changing interest rates should avoid

A good purchase for an investor seeking a high degree of liquidity with minimal market risk would be a U.S.

Marketable government securities consists of Treasury bills,

The original maturity on U.S. Treasury bills is between

A newly-issued eighteen-year Treasury security can be stripped into __________ separate zero coupon securities.

Among marketable government securities, the largest dollar volume is in the form of

Which of the following statements is incorrect?

A one-year Treasury bill with a face value of $1,000 and an annual yield of 5 percent sells for approximately

The __________ serves as a practical reference point for all other securities markets.

Dealers get much of their government securities inventories

About what percentage of marketable national debt is held by foreigners?