ch_06 - Chapter 6 Money Markets Questions 1 Explain how the...

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Chapter 6 Money Markets Questions 1. Explain how the Treasury uses the primary market to obtain adequate funding. ANSWER: The Treasury issues Treasury bills through a weekly auction. Investors can submit competitive bids, where the Treasury will accept the highest bids first. Alternatively, investors can submit noncompetitive bids, which will automatically be accepted. The price to be paid by noncompetitive bidders is the weighted average price of accepted bids. 2. How can investors using the primary T-bill market be assured that their bid will be accepted? ANSWER: Noncompetitive bids in the Treasury auction ensure acceptance by the Treasury. 3. Why do large corporations typically make competitive bids rather than noncompetitive bids for T-bills? ANSWER: Because noncompetitive bidders are limited to purchasing Treasury bills with a maximum par value of $1 million per auction, large corporations desiring a larger investment typically submit competitive bids. 4. Describe the activity in the secondary T-bill market. How can this degree of activity benefit investors in T-bills? ANSWER: The secondary market for Treasury bills is very active, which makes Treasury
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This note was uploaded on 04/12/2011 for the course ECON 101 taught by Professor Buddin during the Spring '08 term at UCLA.

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ch_06 - Chapter 6 Money Markets Questions 1 Explain how the...

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