Financial Institutions and Markets – Exam 2, 2026 – Study Material
and Practice Questions
_____________________ are debt securities with a maturity of one year or less - ANS✔✔
money market securities
__________________________ are commonly purchased by households, corporations, and
governments that have funds available for a short time period - ANS✔✔ money market
securities
_____________________________ can be sold in a secondary market and are liquid - ANS✔✔
money market securities
what are the more popular money market securities - ANS✔✔ 1. treasury bills
2. commercial paper
3. negotiable certificates of deposit
4. repurchase agreements
5. federal funds
6. banker's acceptances
___________ are issued when the U.S. government needs to borrow funds - ANS✔✔ treasury
bills
the treasury issues t-bills with ___________, ___________, and _________ maturities on a
weekly basis - ANS✔✔ 4-week
13-week
26-week
,treasury bills periodically issue t-bill with terms shorter than 4 weeks, which are
called____________ - ANS✔✔ cash management bills
treasury bills also issue t-bills with a 1-year maturity on a __________ basis - ANS✔✔ monthly
other financial institutions invest in t-bills in case ________________ exceed ____________ -
ANS✔✔ cash outflows
cash inflows
individuals with substantial saving invest indirectly through _______________ - ANS✔✔ money
market funds
_____________ invest in t-bills to cover unanticipated expenses - ANS✔✔ corporations
____________ are backed by federal government, virtually free of credit (default) risk - ANS✔✔
credit risk of treasury bills
_____________ are high liquidity due to short maturity and strong secondary market - ANS✔✔
liquidity of treasury bills
____________ are priced at a discount from their par value - ANS✔✔ treasury bills
the price of a treasury bill depends on the investor's required ______________- - ANS✔✔ rate
of return
value of a t-bill is the present value of the ___________ - ANS✔✔ par value
, Example: If investors require a 4% annualized return on a 1-year t-bill with a $10,000 par value,
the price that they are willing to pay is - ANS✔✔ P = $10,000 / (1.04)
P = $9,615.38
investors have the option of building ____________ or ____________ - ANS✔✔ competitively
non competitively
____________ is a short-term debt instrument issued by well-known. creditworthy firs, typically
unsecured - ANS✔✔ commercial paper
commercial paper is normally issued to provide _________ or to finance a firm's investment in
inventory and ____________________ - ANS✔✔ liquidity
accounts receivable
the issuance of commercial paper is an alternative to short-term __________ - ANS✔✔ bank
loans
____________ is a cheaper source of funds than commercial banks - ANS✔✔ commercial paper
firms place commercial paper directly with _________ or rely on commercial paper dealers to
sell their commercial paper - ANS✔✔ investors
the minimum denomination of commercial paper is usually - ANS✔✔ $100,000
maturities for commercial paper are normally between _____ and ______ days but can be as
short as _______ or as long as _______ days - ANS✔✔ 20
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and Practice Questions
_____________________ are debt securities with a maturity of one year or less - ANS✔✔
money market securities
__________________________ are commonly purchased by households, corporations, and
governments that have funds available for a short time period - ANS✔✔ money market
securities
_____________________________ can be sold in a secondary market and are liquid - ANS✔✔
money market securities
what are the more popular money market securities - ANS✔✔ 1. treasury bills
2. commercial paper
3. negotiable certificates of deposit
4. repurchase agreements
5. federal funds
6. banker's acceptances
___________ are issued when the U.S. government needs to borrow funds - ANS✔✔ treasury
bills
the treasury issues t-bills with ___________, ___________, and _________ maturities on a
weekly basis - ANS✔✔ 4-week
13-week
26-week
,treasury bills periodically issue t-bill with terms shorter than 4 weeks, which are
called____________ - ANS✔✔ cash management bills
treasury bills also issue t-bills with a 1-year maturity on a __________ basis - ANS✔✔ monthly
other financial institutions invest in t-bills in case ________________ exceed ____________ -
ANS✔✔ cash outflows
cash inflows
individuals with substantial saving invest indirectly through _______________ - ANS✔✔ money
market funds
_____________ invest in t-bills to cover unanticipated expenses - ANS✔✔ corporations
____________ are backed by federal government, virtually free of credit (default) risk - ANS✔✔
credit risk of treasury bills
_____________ are high liquidity due to short maturity and strong secondary market - ANS✔✔
liquidity of treasury bills
____________ are priced at a discount from their par value - ANS✔✔ treasury bills
the price of a treasury bill depends on the investor's required ______________- - ANS✔✔ rate
of return
value of a t-bill is the present value of the ___________ - ANS✔✔ par value
, Example: If investors require a 4% annualized return on a 1-year t-bill with a $10,000 par value,
the price that they are willing to pay is - ANS✔✔ P = $10,000 / (1.04)
P = $9,615.38
investors have the option of building ____________ or ____________ - ANS✔✔ competitively
non competitively
____________ is a short-term debt instrument issued by well-known. creditworthy firs, typically
unsecured - ANS✔✔ commercial paper
commercial paper is normally issued to provide _________ or to finance a firm's investment in
inventory and ____________________ - ANS✔✔ liquidity
accounts receivable
the issuance of commercial paper is an alternative to short-term __________ - ANS✔✔ bank
loans
____________ is a cheaper source of funds than commercial banks - ANS✔✔ commercial paper
firms place commercial paper directly with _________ or rely on commercial paper dealers to
sell their commercial paper - ANS✔✔ investors
the minimum denomination of commercial paper is usually - ANS✔✔ $100,000
maturities for commercial paper are normally between _____ and ______ days but can be as
short as _______ or as long as _______ days - ANS✔✔ 20
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