Chap002 - Chapter 02 - Asset Classes and Financial...

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Unformatted text preview: 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 A. money market. B. capital market. C. derivatives market. D. fixed income market. E. None of the above. 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 Chapter 02 - Asset Classes and Financial Instruments 3. Treasury Inflation-Protected Securities (TIPS) A. pay a fixed interest rate for life. B. pay a variable interest rate that is indexed to inflation. C. provide a constant stream of income in real (inflation-adjusted) dollars. D. have their principal adjusted in proportion to the Consumer Price Index. E. C and D 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? A. a Treasury bill B. a negotiable certificate of deposit C. commercial paper D. a Treasury bond E. a Eurodollar account 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 Chapter 02 - Asset Classes and Financial Instruments 6. The bid price of a T-bill in the secondary market is A. the price at which the dealer in T-bills is willing to sell the bill. B. the price at which the dealer in T-bills is willing to buy the bill. C. greater than the asked price of the T-bill. D. the price at which the investor can buy the T-bill. E. never quoted in the financial press. 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 7. The smallest component of the money market is A. repurchase agreements B. Eurodollars C. savings deposits D. money market mutual funds E. commercial paper According to Table 2.1, Eurodollars are the smallest component of the money market....
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This note was uploaded on 09/28/2011 for the course FIN 3154 at Virginia Tech.

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Chap002 - Chapter 02 - Asset Classes and Financial...

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