Page contents

Test Bank Of Financial Markets and Institutions 11th Edition Jeff Madura

Instant delivery only

  • ISBN-10 ‏ : ‎ 1133947875
  • ISBN-13 ‏ : ‎ 978-1133947875

In Stock

Original price was: $100.00.Current price is: $28.00.

Add to Wishlist
Add to Wishlist
Compare
SKU:tb1002158

Test Bank Of Financial Markets and Institutions 11th Edition Jeff Madura

Chapter 6—Money Markets

1. Securities with maturities of one year or less are classified as
a. capital market instruments.
b. money market instruments.
c. preferred stock.
d. none of the above

ANS: B PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

2. Which of the following is not a money market security?
a. Treasury bill
b. negotiable certificate of deposit
c. common stock
d. federal funds

ANS: C PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

3. ____ are sold at an auction at a discount from par value.
a. Treasury bills
b. Repurchase agreements
c. Banker’s acceptances
d. Commercial paper

ANS: A PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

4. Jarrod King, a private investor, purchases a Treasury bill with a $10,000 par value for $9,645. One hundred days later, Jarrod sells the T-bill for $9,719. What is Jarrod’s expected annualized yield from this transaction?
a. 13.43 percent
b. 2.78 percent
c. 10.55 percent
d. 2.80 percent
e. none of the above

ANS: D PTS: 1 DIF: Moderate OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Application

5. If an investor buys a T-bill with a 90-day maturity and $50,000 par value for $48,500 and holds it to maturity, what is the annualized yield?
a. about 13.4 percent
b. about 12.5 percent
c. about 11.3 percent
d. about 11.6 percent
e. about 10.7 percent

ANS: B PTS: 1 DIF: Moderate OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Application

6. An investor buys a T-bill with 180 days to maturity and $250,000 par value for $242,000. He plans to sell it after 60 days, and forecasts a selling price of $247,000 at that time. What is the annualized yield based on this expectation?
a. about 10.1 percent
b. about 12.6 percent
c. about 11.4 percent
d. about 13.5 percent
e. about 14.3 percent

ANS: B PTS: 1 DIF: Challenging OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Application

7. Assume investors require a 5 percent annualized return on a six-month T-bill with a par value of $10,000. The price investors would be willing to pay is $____.
a. 10,000
b. 9,524
c. 9,756
d. none of the above

ANS: C PTS: 1 DIF: Moderate OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Application

8. A newly issued T-bill with a $10,000 par value sells for $9,750, and has a 90-day maturity. What is the discount?
a. 10.26 percent
b. 0.26 percent
c. $2,500
d. 10.00 percent
e. 11.00 percent

ANS: D PTS: 1 DIF: Moderate OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Application

9. Large corporations typically make ____ bids for T-bills so they can purchase larger amounts.
a. competitive
b. noncompetitive
c. very small
d. none of the above

ANS: A PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

10. At any given time, the yield on commercial paper is ____ the yield on a T-bill with the same maturity.
a. slightly less than
b. slightly higher than
c. equal to
d. A and B both occur with about equal frequency

ANS: B PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

11. T-bills and commercial paper are sold
a. with a stated coupon rate.
b. at a discount from par value.
c. at a premium about par value.
d. A and C
e. none of the above

ANS: B PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

12. ____ is a short-term debt instrument issued only be well-known, creditworthy firms and is normally issued to provide liquidity or finance a firm’s investment in inventory and accounts receivable.
a. A banker’s acceptance
b. A repurchase agreement
c. Commercial paper
d. A Treasury bill

ANS: C PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

13. Commercial paper has a maximum maturity of ____ days.
a. 45
b. 270
c. 360
d. none of the above

ANS: B PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

14. An investor buys commercial paper with a 60-day maturity for $985,000. Par value is $1,000,000, and the investor holds it to maturity. What is the annualized yield?
a. 8.62 percent
b. 8.78 percent
c. 8.90 percent
d. 9.14 percent
e. 9.00 percent

ANS: D PTS: 1 DIF: Moderate OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Application

15. A firm plans to issue 30-day commercial paper for $9,900,000. Par value is $10,000,000. What is the firm’s cost of borrowing?
a. 12.12 percent
b. 11.11 percent
c. 13.00 percent
d. 14.08 percent
e. 15.25 percent

ANS: A PTS: 1 DIF: Moderate OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Application

16. When firms sell commercial paper at a ____ price than they projected, their cost of raising funds is ____ than projected.
a. higher; higher
b. lower; lower
c. A and B
d. none of the above

ANS: D PTS: 1 DIF: Moderate OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Comprehension

17. Which of the following is not a money market instrument?
a. banker’s acceptance
b. commercial paper
c. negotiable CDs
d. repurchase agreements
e. all of the above are money market instruments

ANS: E PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.02
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

18. A repurchase agreement calls for an investor to buy securities for $4,925,000 and sell them back in 60 days for $5,000,000. What is the yield?
a. 9.43 percent
b. 9.28 percent
c. 9.14 percent
d. 9.00 percent

ANS: C PTS: 1 DIF: Moderate OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Application

19. The federal funds market allows depository institutions to borrow
a. short-term funds from each other.
b. short-term funds from the Treasury.
c. long-term funds from each other.
d. long-term funds from the Federal Reserve.
e. B and D

ANS: A PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Comprehension

20. When a bank guarantees a future payment to a firm, the financial instrument used is called
a. a repurchase agreement.
b. a negotiable CD.
c. a banker’s acceptance.
d. commercial paper.

ANS: C PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

21. Which of the following instruments has a highly active secondary market?
a. banker’s acceptances
b. commercial paper
c. federal funds
d. repurchase agreements

ANS: A PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

22. Which of the following is true of money market instruments?
a. Their yields are highly correlated over time.
b. They typically sell for par value when they are initially issued (especially T-bills and commercial paper).
c. Treasury bills have the highest yield.
d. They all make periodic coupon (interest) payments.
e. A and B

ANS: A PTS: 1 DIF: Moderate OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Comprehension

23. An investor purchased an NCD a year ago in the secondary market for $980,000. He redeems it today and receives $1,000,000. He also receives interest of $30,000. The investor’s annualized yield on this investment is
a. 2.0 percent.
b. 5.10 percent.
c. 5.00 percent.
d. 2.04 percent.

ANS: B PTS: 1 DIF: Moderate OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Application

24. An investor initially purchased securities at a price of $9,923,418, with an agreement to sell them back at a price of $10,000,000 at the end of a 90-day period. The repo rate is ____ percent.
a. 3.10
b. 0.77
c. 1.00
d. none of the above

ANS: A PTS: 1 DIF: Moderate OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Application

25. The rate at which depository institutions effectively lend or borrow funds from each other is the ____.
a. federal funds rate
b. discount rate
c. prime rate
d. repo rate

ANS: A PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

26. ____ are the most active participants in the federal funds market.
a. Savings and loan associations
b. Securities firms
c. Credit unions
d. Commercial banks

ANS: D PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

27. Eurodollar deposits
a. are U.S. dollars deposited in the U.S. by European investors.
b. are subject to interest rate ceilings.
c. have a relatively large spread between deposit and loan rates (compared to the spread between deposits and loans in the United States).
d. are not subject to reserve requirements.

ANS: D PTS: 1 DIF: Moderate OBJ: FMAI.MADU.15.06.04
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Comprehension

28. Which money market transaction is most likely to represent a loan from one commercial bank to another?
a. banker’s acceptance
b. negotiable CD
c. federal funds
d. commercial paper

ANS: C PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.04
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

29. The rate on Eurodollar floating rate CDs is based on
a. a weighted average of European prime rates.
b. the London Interbank Offer Rate.
c. the U.S. prime rate.
d. a weighted average of European discount rates.

ANS: B PTS: 1 DIF: Moderate OBJ: FMAI.MADU.15.06.04
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

30. Treasury bills
a. have a maturity of up to five years.
b. have an active secondary market.
c. are commonly sold at par value.
d. commonly offer coupon payments.

ANS: B PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

31. The yield on commercial paper is ____ the yield of Treasury bills of the same maturity. The difference between their yields would be especially large during a ____ period.
a. greater than; recessionary
b. greater than; boom economy
c. less than; boom economy
d. less than; recessionary

ANS: A PTS: 1 DIF: Moderate OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Comprehension

32. The yield on NCDs is ____ the yield of Treasury bills of the same maturity. The difference between their yields would be especially large during a ____ period.
a. greater than; recessionary
b. greater than; boom economy
c. less than; boom economy
d. less than; recessionary

ANS: A PTS: 1 DIF: Moderate OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Comprehension

33. Which of the following is sometimes issued in the primary market by nonfinancial firms to borrow funds?
a. NCDs
b. retail CDs
c. commercial paper
d. federal funds

ANS: C PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

34. The so-called “flight to quality” causes the risk differential between risky and risk-free securities to be
a. eliminated.
b. reduced.
c. increased.
d. unchanged (there is no effect).

ANS: C PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.03
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

35. The effective yield of a foreign money market security is ____ when the foreign currency strengthens against the dollar.
a. increased
b. reduced
c. always negative
d. unaffected

ANS: A PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.04
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

36. The effective yield of a foreign money market security is ____ when the foreign currency weakens against the dollar.
a. increased
b. reduced
c. always negative
d. unaffected

ANS: B PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.04
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

37. Treasury bills are sold through ____ when initially issued.
a. insurance companies
b. commercial paper dealers
c. auction
d. finance companies

ANS: C PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

38. At a given point in time, the actual price paid for a three-month Treasury bill is
a. usually equal to the par value.
b. more than the price paid for a six-month Treasury bill.
c. equal to the price paid for a six-month Treasury bill.
d. none of the above

ANS: B PTS: 1 DIF: Moderate OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Comprehension

39. The minimum denomination of commercial paper is
a. $25,000.
b. $100,000.
c. $150,000.
d. $200,000.

ANS: B PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

40. Commercial paper is
a. always directly placed with investors.
b. always placed with the help of commercial paper dealers.
c. placed either directly or with the help of commercial paper dealers.
d. always placed by bank holding companies.

ANS: C PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Knowledge

41. An investor, purchases a six-month (182-day) T-bill with a $10,000 par value for $9,700. If the Treasury bill is held to maturity, the annualized yield is ____ percent.
a. 6.02
b. 1.54
c. 1.50
d. 6.20
e. none of the above

ANS: D PTS: 1 DIF: Moderate OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Application

42. When an investor purchases a six-month (182-day) T-bill with a $10,000 par value for $9,700, the Treasury bill discount is ____ percent.
a. 5.93
b. 6.12
c. 6.20
d. 6.02
e. none of the above

ANS: A PTS: 1 DIF: Easy OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Application

43. Robbins Corp. frequently invests excess funds in the Mexican money market. One year ago, Robbins invested in a one-year Mexican money market security that provided a yield of 25 percent. At the end of the year, when Robbins converted the Mexican pesos to dollars, the peso had depreciated from $.12 to $.11. What is the effective yield earned by Robbins?
a. 25.00 percent
b. 35.41 percent
c. 14.59 percent
d. none of the above

ANS: C PTS: 1 DIF: Moderate OBJ: FMAI.MADU.15.06.04
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Application

44. An aggregate purchase by investors of low-yield instruments in favor of high-yield instruments places ____ pressure on the yields of low-yield securities and ____ on the yields of high-yield securities.
a. upward; upward
b. downward; downward
c. upward; downward
d. downward; upward

ANS: D PTS: 1 DIF: Moderate OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Comprehension

45. Which of the following statements is incorrect with respect to the federal funds rate?
a. It is the rate charged by financial institutions on loans they extend to each other.
b. It is not influenced by the supply and demand for funds in the federal funds market.
c. The federal funds rate is closely monitored by all types of firms.
d. Many market participants view changes in the federal funds rate to be an indicator of potential changes in other money market rates.
e. The Federal Reserve adjusts the amount of funds in depository institutions in order to influence the federal funds rate.

ANS: B PTS: 1 DIF: Moderate OBJ: FMAI.MADU.15.06.01
NAT: BUSPROG.FMAI.MADU.15.03 STA: DISC.FMAI.MADU.15.02
KEY: Bloom’s: Comprehension

 

Reviews

There are no reviews yet.

Write a review

Your email address will not be published. Required fields are marked *

Product has been added to your cart