Deck 14: The Money Market

Question 1

Resiliency in a secondary market refers to

A)The existence of many large buyers of the instrument
B)the entrance of many new orders when the price is in temporary imbalance
C)the ability of the market to absorb a large quantity of a security without a major change in the instrument's price
D)none of the above

Answer 1

B

Question 2

An instrument will normally be quite liquid if it has high degrees of _______ market ____________.

A)Primary,breadth
B)Secondary,depth
C)Primary,resiliency
D)Offshore,depth

Answer 2

B

Question 3

The _______ is the rate charged depository institutions when they borrow reserves from the Fed; the _______ is the rate charged on reserve borrowings transacted between banks.

A)Discount rate,Fed funds rate
B)Fed funds rate,Discount rate
C)LIBOR,Fed funds rate
D)Fed funds rate,LIBOR

Answer 3

A

Question 4

The differences between interest rates on US domestic Certificates of Deposit,Treasury bills,Commercial Paper,Eurodollar Certificates of Deposit,and Fed funds

A)tend to persist when rates are rising,but not when rates are falling
B)tend to persist when rates are falling,but not when rates are rising
C)are not persistent when rate are rising or falling- hence,these instruments are not close substitutes for the short-term investments manager
D)are persistent when rates are rising or falling - hence,these instruments are close substitutes for the short-term investments manager

Question 5

Auction preferred stock (APS)protects against interest rate risk because

A)the price of the stock adjusts constantly to reflect changes in market interest rates
B)APS is sold at a discount which locks in the return
C)dealers that sell the issues fund their inventories using overnight funds
D)APS is purchased and sold at par
E)dividends are adjusted quarterly

Question 6

An investor trying to gain an understanding of what determines commercial paper rates should focus on:

A)only the commercial paper market
B)the T-bill market
C)the CD rates
D)all of the above
E)'b' and 'c'

Question 7

The money market is mainly a (an)___________ market.

A)Wholesale
B)retail
C)brokered
D)offshore

Question 8

Mortgage backed government agency securities are NOT suited to the short-term investor because they

A)have high interest rate risk
B)have uneven cash flows
C)do not permit prepayment of the mortgages backing them
D)all the above are correct
E)'a' and 'b'

Question 9

Security A is a fully taxable security that earns 5% annually.Security B is a tax-exempt municipal security.If a short-term investment manager uses a tax rate of 33%,what yield must security B earn such that the investment manager would be indifferent between securities A and B?

A)2.5%
B)3.35%
C)4.67%
D)7.46%

Question 10

Which of the following is not one of the advantages of money market mutual funds?

A)enhanced liquidity
B)greater flexibility
C)higher yields
D)exemption from state and local income taxes

Question 11

The coupon-equivalent yield is _______ than the discount yield of a 91-day Treasury bill with the gap ______ at higher interest rates.

A)Lower,widening
B)Greater,narrowing
C)Greater,widening
D)Lower,narrowing

Question 12

Relative to treasury securities,agency securities have __________ liquidity and ___________ default risk.

A)less,less
B)less,more
C)more,more
D)more,less

Question 13

Which of the following will enhance the return associated with a dividend capture short-term investment strategy?

A)invest in stocks with high dividend yields
B)after purchasing the stock,hold it at least 46 days
C)invest large dollar amounts
D)all the above are correct
E)none of the above is correct

Question 14

The most liquid security,and the one that has the least default risk in the world,is the:

A)91-day Treasury bill
B)3-month CD
C)loan participations
D)commercial paper

Question 15

Money market securities are issued:

A)The primary market
B)The secondary market
C)The private placement market
D)all of the above
E)'a' and 'c'