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Chap002 - Chapter 02 Asset Classes and Financial...

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Chapter 02 - Asset Classes and Financial Instruments Chapter 02 Asset Classes and Financial Instruments Multiple Choice Questions 1. Which of the following is not a characteristic of a money market instrument? A. liquidity B. marketability C. long maturity D. liquidity premium E. C and D Money market instruments are short-term instruments with high liquidity and marketability; they do not have long maturities nor pay liquidity premiums. Difficulty: Easy 2. The money market is a subsector of the Money market instruments are short-term instruments with high liquidity and marketability; they do not have long maturities nor pay liquidity premiums. Difficulty: Easy 2- 1
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Chapter 02 - Asset Classes and Financial Instruments 3. Treasury Inflation-Protected Securities (TIPS) TIPS provide a constant stream of income in real (inflation-adjusted) dollars because their principal is adjusted in proportion to the Consumer Price Index. Difficulty: Easy 4. Which one of the following is not a money market instrument? Money market instruments are instruments with maturities of one year or less, which applies to all of the above except Treasury bonds. Difficulty: Easy 5. T-bills are financial instruments initially sold by ________ to raise funds. A. commercial banks B. the U.S. government C. state and local governments D. agencies of the federal government E. B and D Only the U.S. government sells T-bills in the primary market. Difficulty: Easy 2- 2
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Chapter 02 - Asset Classes and Financial Instruments 6. The bid price of a T-bill in the secondary market is T-bills are sold in the secondary market via dealers; the bid price quoted in the financial press is the price at which the dealer is willing to buy the bill. Difficulty: Easy
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