ESSENTIALS OF INVESTMENTS
CHAPTER 2 QUESTIONS WITH
CORRECT ANSWERS 2024/25
characteristicsVofVMoneyVmarketsV-VcorrectVanswer-1.VcashVequivalentVinstruments
2.VshortVterm
3.Vmarketeable
4.Vliquid
5.Vlow-risk
characteristicsVofVcapitalVmarketsVandVexamplesV-VcorrectVanswer-1.Vlonger-termV
2.VhigherVriskVsecurities
examples:VlongVtermVdebtVmarkets,Vequity,VderivativeVmarkets
WhyVareVmoneyVmarketVinstrumentsVusuallyVoutVofVaccessVtoVsmallVinvestors?V-VcorrectVanswer-
becauseVtheyVtradeVinVlargeVdenominations
askVpriceV-VcorrectVanswer-priceVyouVwouldVpayVforVaVsecurityVifVyouVboughtVfromVaVsecuritiesVdealer.
IfVyouVwantVtoVsellV100VsharesVatV25VdollarsVperVshare,VthisVisVtheVaskVprice
bidVpriceV-VcorrectVanswer-aVslightlyVlowerVpriceVthatVsecurityVdealersVwouldVpayVtoVbuyVaVT-billVfromVyou.V
IfVyouVareVwillingVtoVpayV23VdollarsVforVaVparticularVshare,VthisVisVtheVbidVprice
BankVdiscountVformulaV-VcorrectVanswer-(askedVprice)VxV(daysVuntilVmaturity/360)=Vx
1-x=Vy
, yVxV10,000
TypesVofVMoneyVmarketVsecuritiesV-VcorrectVanswer-1.VTbills
2.VCD's
3.VCommercialVPaper
4.VBanker'sVacceptances
5.VEurodollars
6.VReposVandVReverses
7.VBrokers'Vcall
8.VFederalVFunds
9.VLibor
CertificateVofVDepositsV-VcorrectVanswer-
TimeVdepositVwithVaVbankVthatVcannotVbeVwithdrawnVuponVdemand.V
TheVdepositorVreceivesVinterestVandVprincipalVonlyVatVtheVendVofVtheVCD'sVfixedVterm.
HighlyVmarketable.
DenominationsVlargerVthanV100,000VareVusuallyVnegotiableVinVthatVtheyVcanVbeVsoldVtoVanotherVinvestorVif
VtheVownerVhasVtoVcashVinVtheVCFVbeforeVtheVmat.V
issuredVbyVtheVFDICVforVupVtoV250,000VinVcaseVofVbankVinsolvency
commercialVpaperV-VcorrectVanswer-shortVtermVunsecuredVdebtVissuedVbyVlargeVcorporations.
IssuedVbyVtheseVcompaniesVinsteadVofVborrowingVfromVbanks.
CHAPTER 2 QUESTIONS WITH
CORRECT ANSWERS 2024/25
characteristicsVofVMoneyVmarketsV-VcorrectVanswer-1.VcashVequivalentVinstruments
2.VshortVterm
3.Vmarketeable
4.Vliquid
5.Vlow-risk
characteristicsVofVcapitalVmarketsVandVexamplesV-VcorrectVanswer-1.Vlonger-termV
2.VhigherVriskVsecurities
examples:VlongVtermVdebtVmarkets,Vequity,VderivativeVmarkets
WhyVareVmoneyVmarketVinstrumentsVusuallyVoutVofVaccessVtoVsmallVinvestors?V-VcorrectVanswer-
becauseVtheyVtradeVinVlargeVdenominations
askVpriceV-VcorrectVanswer-priceVyouVwouldVpayVforVaVsecurityVifVyouVboughtVfromVaVsecuritiesVdealer.
IfVyouVwantVtoVsellV100VsharesVatV25VdollarsVperVshare,VthisVisVtheVaskVprice
bidVpriceV-VcorrectVanswer-aVslightlyVlowerVpriceVthatVsecurityVdealersVwouldVpayVtoVbuyVaVT-billVfromVyou.V
IfVyouVareVwillingVtoVpayV23VdollarsVforVaVparticularVshare,VthisVisVtheVbidVprice
BankVdiscountVformulaV-VcorrectVanswer-(askedVprice)VxV(daysVuntilVmaturity/360)=Vx
1-x=Vy
, yVxV10,000
TypesVofVMoneyVmarketVsecuritiesV-VcorrectVanswer-1.VTbills
2.VCD's
3.VCommercialVPaper
4.VBanker'sVacceptances
5.VEurodollars
6.VReposVandVReverses
7.VBrokers'Vcall
8.VFederalVFunds
9.VLibor
CertificateVofVDepositsV-VcorrectVanswer-
TimeVdepositVwithVaVbankVthatVcannotVbeVwithdrawnVuponVdemand.V
TheVdepositorVreceivesVinterestVandVprincipalVonlyVatVtheVendVofVtheVCD'sVfixedVterm.
HighlyVmarketable.
DenominationsVlargerVthanV100,000VareVusuallyVnegotiableVinVthatVtheyVcanVbeVsoldVtoVanotherVinvestorVif
VtheVownerVhasVtoVcashVinVtheVCFVbeforeVtheVmat.V
issuredVbyVtheVFDICVforVupVtoV250,000VinVcaseVofVbankVinsolvency
commercialVpaperV-VcorrectVanswer-shortVtermVunsecuredVdebtVissuedVbyVlargeVcorporations.
IssuedVbyVtheseVcompaniesVinsteadVofVborrowingVfromVbanks.