Deck 8: Money Markets

Question 1

The most important economic function of the money markets is to provide an efficient means for economic units to adjust their liquidity positions.

Answer 1

True

Question 2

The money markets are wholesale markets.

Answer 2

True

Question 3

Unlike other money market securities,commercial paper pays interest in addition to the face value at maturity date.

Answer 3

False

Question 4

Brokers buy money market securities for their own positions and sell from their security inventories.

Question 5

Reverse Repos are contracts that require a firm to sell securities with the agreement to buy them back after a short period at a higher price.

Question 6

ABCP needs to roll over if its underlying assets have long term maturity.

Question 7

The money markets are markets of short term securities that operate as organised security exchanges.

Question 8

Treasury notes are sold on a discount basis,with interest paid separately at maturity.

Question 9

The cash rate is the interest rate paid by the Reserve bank of Australia (RBA)on the ESA balances.

Question 10

A negotiable CD is a bank deposit that can be traded in the secondary market before its maturity date.

Question 11

Money market securities have a higher price risk than long term securities.

Question 12

Commercial paper is not backed by any specific asset of the issuer.

Question 13

Commercial banks are major issuers of money market securities and major investors in these securities.

Question 14

For large well rated corporations,commercial paper is a more expensive source of funding than bank loans.

Question 15

Bank Accepted Bills (BAB)are financial instruments used by banks for funding their activities.

Question 16

Treasury notes are considered as free of default risk because they are guaranteed by the Commonwealth government.

Question 17

Which of the following statements is correct?

A)The money market is a dealer market linked by efficient communications systems.
B)Money market transactions are seldom over $1 million.
C)Market transactions in money market securities include more primary market trades than secondary market trades.
D)Most money market transactions involve retail investors.

Question 18

Treasury notes are sold to investors on a discount basis because they are backed by the Commonwealth government.

Question 19

Austraclear deals with the transfers of liquidity among traders in the money markets while the RITS manages the transfers of ownership of the traded securities.

Question 20

An example of a one-name paper in the money market is the bank-accepted bill.

Question 21

Which of the following is NOT a characteristic of money market instruments?

A)Short term to maturity
B)Small denomination
C)Low default risk
D)High marketability

Question 22

Which of the following statements is NOT correct? In a repo:

A)the seller of the security is the borrower of funds.
B)the difference between the repurchase price and the selling price is the interest on the loan.
C)if the borrower defaults on the repayment of the loan he/she then has to deliver the underlying securities to the lender.
D)the price of repurchase is known from the beginning of the financial arrangement.

Question 23

Which of the following money market securities is usually NOT found in a commercial bank's balance sheet?

A)Low rated commercial paper
B)Treasury notes
C)Certificates of deposit
D)RMBS

Question 24

An institutional investor agrees to buy Treasury notes from a securities dealer for $997,250,and promises to sell the securities back to the dealer in 4 days for $997,575.The yield on this reverse repo for the investor is:

A)2.97%
B)2.91%
C)2.86%
D)2.93%

Question 25

In a bank-accepted bill,the bank is:

A)the issuer of the bill.
B)the borrower of funds.
C)the lender of funds.
D)the payer of the face value to the investors if the issuer defaults.

Question 26

Cash-market transactions are made up of

A)unsecured interbank borrowing and lending.
B)secured interbank borrowing and lending.
C)borrowing and lending with the RBA.
D)Repos among commercial banks.

Question 27

Money market securities are:

A)an alternative to bank borrowing for corporations' funding.
B)long-term securities.
C)not traded before maturity date.
D)risk free assets.

Question 28

Which of the following statements is NOT correct? Reverse repurchase agreements made by the Reserve Bank of Australia (RBA)with the commercial banks:

A)are a form of secured borrowing by a bank.
B)are settled in ES funds.
C)are seldom used by the RBA for making temporary reserve injections in the banking system.
D)often use Treasury securities but some specific bank issued private securities can be accepted as well.

Question 29

The cash rate is an interest rate prevailing on

A)the unsecured interbank market.
B)the repo market.
C)the Treasury notes market.
D)the bank-accepted bills market.

Question 30

Which of the following money market instruments would typically be used by low credit rated commercial companies to raise funds?

A)Treasury notes
B)Bank-accepted bills
C)Commercial paper
D)Negotiable CDs

Question 31

A repurchase agreement is like a secured loan because:

A)it involves a commercial bank and the Reserve Bank of Australia.
B)it involves a collateral,which is the underlying security in the repo.
C)it is backed by the real estate property of the borrower.
D)the Reserve Bank of Australia is the guarantor of the repo.

Question 32

Which of the following is the largest class of participants in the Australian money markets?

A)The Reserve Bank of Australia
B)Commercial banks
C)The Commonwealth government
D)Non-financial corporations

Question 33

Which of the following statements is NOT correct?

A)Money markets interest rates move closely together over time.
B)The spreads between money market interest rates fluctuate all the time.
C)Treasury notes and bank bill interest rates move closely together following the movements of the cash rate.
D)Sophisticated traders take advantage of any abnormality in the spread between money market interest rates.

Question 34

Which of the following statements is NOT correct?

A)The Reserve Bank of Australia undertakes reverse repos with commercial banks to provide them with ESF.
B)Commercial banks receive a higher interest rate on interbank market loans than on their balances in their ESA.
C)The RBA uses the money markets to implement its open-market operations.
D)Reverse repo undertaken by the Reserve Bank of Australia with commercial banks exclusively use government bonds.

Question 35

The cash rate is the interest rate paid by borrowing commercial banks to lending commercial banks for:

A)an intra-day Repo.
B)a secured overnight loan.
C)an unsecured overnight loan.
D)a 90- day Repo.

Question 36

A reverse repurchase agreement calls for:

A)a firm to sell securities with the agreement to buy them back after a short period at a higher price.
B)a firm to buy securities with the agreement to sell them back after a short period at a higher price.
C)a firm to sell securities with the agreement to buy them back after a short period at a lower price.
D)a firm to buy securities with the agreement to sell them back after a short period at a lower price.

Question 37

Which of the following statements is NOT correct? A reverse repo allows the lender:

A)to invest in a shorter maturity than the maturity of the underlying securities.
B)to know in advance the capital gains/loss between the purchase and the resale of the underlying security.
C)to make a secured loan.
D)to make a variable rate loan.

Question 38

A repurchase agreement calls for:

A)a firm to sell securities with the agreement to buy them back after a short period at a higher price.
B)a firm to buy securities with the agreement to sell them back after a short period at a higher price.
C)a firm to sell securities with the agreement to buy them back after a short period at a lower price.
D)a firm to buy securities with the agreement to sell them back after a short period at a lower price.

Question 39

Which of the following statements is NOT correct? Money markets instruments:

A)are close substitutes.
B)have short term maturity.
C)are highly risky investments.
D)allow an efficient management of liquidity.

Question 40

Which of the following statements is NOT correct?

A)The Reserve Bank of Australia uses reverse repos to inject ESF in the banking system.
B)Commercial banks use the money markets exclusively for raising funds.
C)The Commonwealth government short-term needs for funding are managed by AOFM.
D)The Commonwealth government resumed its issues of Treasury notes during the Global Financial Crisis.

Question 41

If a security receives a bank acceptance the instrument is a(n):

A)two-name paper.
B)one-name paper.
C)equity paper.
D)commercial paper.

Question 42

The transfer of ownership of Treasury notes in Australia is performed by:

A)Austraclear.
B)RITS.
C)the Reserve Bank of Australia.
D)AOFM.

Question 43

Certificates of deposit:

A)trade with two yields,an ask yield and a bid yield.
B)are exclusively issued by prime banks.
C)are issued by AFMA.
D)are attractive financial instruments for retail investors.

Question 44

Which of the following statements is NOT correct? In the bidding process in a Treasury notes auction:

A)the bidder specifies the quantity of notes desired.
B)the bidder specifies the yield he/she is willing to get.
C)only registered bidders can participate to the auction.
D)the minimum bid is $1,000,000.

Question 45

Which of the following statements is NOT correct? Commercial paper:

A)is a very old financial instrument.
B)can get a bank acceptance to be more attractive.
C)is an unsecured promissory note.
D)trades at a discount of its face value.

Question 46

In an underwritten offer,the firm issuing commercial paper is guaranteed that

A)the entire issue will be sold.
B)the investment bank will attract enough investors to sell them the entire issue.
C)the entire issue will be taken up by the investment bank.
D)a discriminatory auction will be used to allocate the issue.

Question 47

The sponsoring banks of conduits issuing ABCP:

A)are the exclusive investors in ABCP.
B)rate the ABCP.
C)buy the assets backing the ABCP.
D)provide backup liquidity facility if the conduit cannot rollover its ABCP at maturity.

Question 48

Which of the following statements is NOT correct? ABCP is:

A)issued by conduits.
B)liability in originators' balance sheets.
C)backed by assets held in the conduit's portfolio.
D)usually rolled over at maturity.

Question 49

The yield on a $100,000 face value Treasury note priced at $97,500,maturing in 181 days is

A)4.84%.
B)4.97%.
C)5.10%.
D)5.17%.

Question 50

In a Treasury note offering:

A)the yield is fixed and announced before the tender.
B)bidders bid only quantities of securities.
C)AOFM is committed to buy the unsold Treasury notes.
D)the bidders with the lowest yield in their bid are allocated the notes first.

Question 51

Define a money market and discuss its main role.

Question 52

Which of the following statements is NOT correct? Certificates of deposit:

A)are short term financial instruments.
B)are issued exclusively by ADIs.
C)can be redeemed on demand at the issuing bank any time before maturity date.
D)can trade in a secondary market if negotiable.

Question 53

An investor buys $1,000,000 30-day commercial paper for $995,450.The yield on this commercial paper is:

A)5.56%.
B)5.46%.
C)5.49%.
D)5.54%.

Question 54

The yield on a $100,000 Treasury note maturing in 71 days is 4.86% today.The original maturity of the T-note was 181 days.What is the price of the T-note today?

A)$97,646.69
B)$97,614.79
C)$99,063.48
D)$99,050.60

Question 55

When firms issuing commercial paper (CP)use a backup line of credit offered by banks,it:

A)increases the credit risk for CP investors.
B)decreases the credit risk for CP investors.
C)has no impact on CP investors.
D)decreases the marketability of CP.

Question 56

Commercial paper is a discount security because

A)it is cheaper than other money market instruments.
B)it can get a backup line of credit from a bank.
C)its interest is not paid separately from the face value.
D)its face value is lower than its trading price.

Question 57

The yield on a 91-day Treasury note is 5.35%.What is the price of the $1000 T-note?

A)$986.66
B)$986.84
C)$823.32
D)$825.32

Question 58

Which of the following securities is NOT a one-name paper?

A)Bank-accepted bills
B)Commercial paper
C)Certificates of deposit
D)Treasury notes

Question 59

Which of the following statements is NOT correct? Commercial paper

A)is a very short term financial instrument.
B)can get a backup line of credit from a bank.
C)does not require credit rating as it is only issued by companies of very good quality.
D)has interest paid thanks to a positive difference between its face value and its trading price.

Question 60

The price paid by investors to buy Treasury notes from a dealer is:

A)the market-clearing price.
B)the bid price.
C)the ask price.
D)face value.

Question 61

Explain how banks conduct open market operations daily.

Question 62

Describe the characteristics of an 'ideal' money market instrument.

Question 63

Explain what is Bank Accepted Bill (BAB)?

Question 64

Explain the role of commercial banks in the money market.