Fin 308 test 1 answer key

Be to the supply of us dollars and the exchange

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Unformatted text preview: 93 the Federal Reserve targeted A) Fed funds rate B) Borrowed reserves C) Nonborrowed reserves D) M1 E) M3 Answer: B Page: 110 Level: Medium Chapter 5 True/False Questions 1. The money market is necessary because for most entities cash inflows do not occur in the same pattern as cash expenses. Answer: True Page: 121 Level: Easy 2. Money markets exist to help reduce the opportunity cost of holding cash balances. Answer: True Page: 121 Level: Easy 3. The majority of money market securities are low denomination, low risk investments designed to appeal to individual investors with excess cash. Answer: False Page: 122-123 Level: Easy 32 Saunders, Financial Markets and Institutions, 2/e Chapter 1 Introduction 4. Most money market securities are initially sold to individual investors. Answer: False Page: 122 Level: Easy 5. Commercial paper, negotiable certificates of deposit and bankers acceptance rates are all quoted as discount yields. Answer: True Page: 138-140 Level: Medium 6. Commercial paper is a short term obligation of the U.S. government. Answer: False Page: 134 Level: Easy 7. T-Bills have no default risk and virtually no liquidity risk, so their rate of return is the riskless time value of money. Answer: True Page: 124 Level: Easy Saunders, Financial Markets and Institutions, 2/e 33 8. In the T-Bill secondary market the ask yield will normally be less than the bid yield. Answer: True Page: 126-27 Level: Difficult 9. The largest secondary money market in the U.S. is the secondary market for T-Bills. Answer: True Page: 126 Level: Easy 10. The bond equivalent yield of a T-bill will be greater than its discount yield. Answer: True Page: 129-130 Level: Medium Multiple Choice Questions 11. Money market securities must have which of the following characteristics? I. Low trading costs II. Little price risk III. High rate of return IV. Life greater than one year A) I and III B) II and IV C) III and IV D) I and II E) I, II and III Answer: D Page: 122-123 Level: Easy 12. Money market securities exhibit which of the following? I. Large denomination II. Maturity greater than one year III. Low default risk IV. Contractually determined cash flows A) I, II and III B) I, III and IV C) II, III and IV D) II and IV E) I, II, III and IV Answer: B Page: 121-122 Level: Medium 34 Saunders, Financial Markets and Institutions, 2/e Chapter 1 Introduction 13. A repo is in essence a collateralized A) Banker's acceptance B) Certificate of deposit C) Fed funds loan D) Commercial paper loan E) Eurodollar deposit Answer: C Page: 132 Level: Medium 14. A short term unsecured promissory note issued by a company is A) Commercial paper B) T-Bills C) Repurchase agreement D) Negotiable CD E) Banker's acceptance Answer: A Page: 134 Level: Easy 15. A time draft payable to seller of goods, with payment guaranteed by a bank is A) Commercial paper B) T-Bills C) Repurchase agreement D) Negotiable CD E) Banker's acceptance Answer: E Page: 139 Level: Easy 16. In the T-Bill auction process th...
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