Financial Institutions Exam 3 with all Correct & 100%
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Which of these statements best describes the type of debt instruments and the level of risk in
the money market? ✔Correct Answer-The debt instruments are short-term and the risk is low.
Trade in money markets is dominated by ✔Correct Answer-brokers, dealers, investment
banks, and commercial banks.
Miserly Bank finds itself short of reserves at the end of the day. One solution to this dilemma
would be for Miserly Bank to ✔Correct Answer-borrow in the federal funds market.
Which of the following is NOT a supplier of financial instruments in the primary market?
✔Correct Answer-federal reserve
IOUs are issued for the first time in the primary market. ✔Correct Answer-true
Suppose you buy a 120-day T-bill with a face value of $10,000 at price of $9,900. Your
investment return yield (IRY) would be ✔Correct Answer-3%
IRY= ((FxP)/P) x (365/n)
Assume that Merrill Lynch, a government securities dealer, sells T-bills to First Central Bank with
a promise to buy the T-bills back the next day. This agreement is known as a ✔Correct
Answer-repurchase agreement
Which of the following explains why both competitive bids and noncompetitive bids, no one
bidder is allowed to purchase more than 35% of any one issue? ✔Correct Answer-to avoid the
"winner's curse" due to the uncertainty over the value of the T-bills being auctioned
Which of the following is true of commercial paper? ✔Correct Answer-It is essentially
unsecured IOUs.
Which of the following statements about negotiable certificates of deposit (CDs) is true?
✔Correct Answer-To open a negotiable CD, savers must have large amounts of savings, usually
at least $100,000.
To raise the funds the federal government needs for its spending, the Treasury Department
auctions T-bills ✔Correct Answer-weekly
, The government doesn't actually pay interest on T-bills; instead, they are sold at ✔Correct
Answer-a discount
A computer manufacturer in the United States does a lot of business with customers in China.
Thus, it probably makes sense for the computer manufacturer to open which kind of account at
its local bank? ✔Correct Answer-eurodollar
Which of these is the most accurate description of the money market? ✔Correct Answer-A
market for financial assets that are a close substitute for money
Cameron is looking to buy $10,000 worth of T-bills. She can purchase them at all of the
following places EXCEPT ✔Correct Answer-directly from her bank.
Suppose you buy a 120-day T-bill with a face value of $10,000 at a price of $9,900. Your discount
rate yield (DRY) would be ✔Correct Answer-3%
DRY= ((F-P)/F) x (360/n)
XYZ Corporation is trying to decide whether it should buy money market instruments or leave
its funds on deposit at a commercial bank. Which of the following is an advantage of buying
money market instruments over leaving funds on deposit at a commercial bank that XYZ should
be aware of? ✔Correct Answer-Money market instruments offer a higher yield than leaving
funds on deposit at a commercial bank.
Ryan is planning to enter a noncompetitive bid for a large amount of T-bills next Monday. In
order to do so, what will Ryan need to include in his bid? ✔Correct Answer-Only the amount
of Treasury bills he wishes to buy
A money market is a wholesale market. In practice, and prior to 1998, this meant that
transactions were best described in which of these ways? ✔Correct Answer-Transactions were
quite large in volume; most transactions are still for $1 to $10 million or more.
In 2008, the Federal Reserve began paying interest on the bank deposits it holds. By doing this,
its goal is to ✔Correct Answer-establish a price floor on the interest rate in the federal funds
market.
A negatively sloped yield curve occurs when short-term rates exceed long-term rates.
✔Correct Answer-true
The accrued interest on a bond ✔Correct Answer-is paid by the buyer of the bond to the
seller of the bond
A firm will exercise its option to call a bond if interest rates rise. ✔Correct Answer-false
A bond's seller pays accrued interest to the buyer. ✔Correct Answer-false
Verified Answers |Actual Complete Update |Already
Graded A+
Which of these statements best describes the type of debt instruments and the level of risk in
the money market? ✔Correct Answer-The debt instruments are short-term and the risk is low.
Trade in money markets is dominated by ✔Correct Answer-brokers, dealers, investment
banks, and commercial banks.
Miserly Bank finds itself short of reserves at the end of the day. One solution to this dilemma
would be for Miserly Bank to ✔Correct Answer-borrow in the federal funds market.
Which of the following is NOT a supplier of financial instruments in the primary market?
✔Correct Answer-federal reserve
IOUs are issued for the first time in the primary market. ✔Correct Answer-true
Suppose you buy a 120-day T-bill with a face value of $10,000 at price of $9,900. Your
investment return yield (IRY) would be ✔Correct Answer-3%
IRY= ((FxP)/P) x (365/n)
Assume that Merrill Lynch, a government securities dealer, sells T-bills to First Central Bank with
a promise to buy the T-bills back the next day. This agreement is known as a ✔Correct
Answer-repurchase agreement
Which of the following explains why both competitive bids and noncompetitive bids, no one
bidder is allowed to purchase more than 35% of any one issue? ✔Correct Answer-to avoid the
"winner's curse" due to the uncertainty over the value of the T-bills being auctioned
Which of the following is true of commercial paper? ✔Correct Answer-It is essentially
unsecured IOUs.
Which of the following statements about negotiable certificates of deposit (CDs) is true?
✔Correct Answer-To open a negotiable CD, savers must have large amounts of savings, usually
at least $100,000.
To raise the funds the federal government needs for its spending, the Treasury Department
auctions T-bills ✔Correct Answer-weekly
, The government doesn't actually pay interest on T-bills; instead, they are sold at ✔Correct
Answer-a discount
A computer manufacturer in the United States does a lot of business with customers in China.
Thus, it probably makes sense for the computer manufacturer to open which kind of account at
its local bank? ✔Correct Answer-eurodollar
Which of these is the most accurate description of the money market? ✔Correct Answer-A
market for financial assets that are a close substitute for money
Cameron is looking to buy $10,000 worth of T-bills. She can purchase them at all of the
following places EXCEPT ✔Correct Answer-directly from her bank.
Suppose you buy a 120-day T-bill with a face value of $10,000 at a price of $9,900. Your discount
rate yield (DRY) would be ✔Correct Answer-3%
DRY= ((F-P)/F) x (360/n)
XYZ Corporation is trying to decide whether it should buy money market instruments or leave
its funds on deposit at a commercial bank. Which of the following is an advantage of buying
money market instruments over leaving funds on deposit at a commercial bank that XYZ should
be aware of? ✔Correct Answer-Money market instruments offer a higher yield than leaving
funds on deposit at a commercial bank.
Ryan is planning to enter a noncompetitive bid for a large amount of T-bills next Monday. In
order to do so, what will Ryan need to include in his bid? ✔Correct Answer-Only the amount
of Treasury bills he wishes to buy
A money market is a wholesale market. In practice, and prior to 1998, this meant that
transactions were best described in which of these ways? ✔Correct Answer-Transactions were
quite large in volume; most transactions are still for $1 to $10 million or more.
In 2008, the Federal Reserve began paying interest on the bank deposits it holds. By doing this,
its goal is to ✔Correct Answer-establish a price floor on the interest rate in the federal funds
market.
A negatively sloped yield curve occurs when short-term rates exceed long-term rates.
✔Correct Answer-true
The accrued interest on a bond ✔Correct Answer-is paid by the buyer of the bond to the
seller of the bond
A firm will exercise its option to call a bond if interest rates rise. ✔Correct Answer-false
A bond's seller pays accrued interest to the buyer. ✔Correct Answer-false
