FIN 350 Week 4 Quiz 3 Chapter 5 and 6 – Strayer

FIN 350 Week 4 Quiz – Strayer (All Possible Questions With Answers)

Click on the Link Below to Purchase A+ Graded Course Material

http://budapp.net/FIN-350-Week-4-Quiz-Strayer-403.htm

 

Chapter 5—Monetary Policy

1. The Fed can affect the interaction between the demand for money and the supply of money to influence interest rates, the aggregate level of spending, and therefore economic growth.
a. True
b. False

2. The Fed can ____ the level of spending as a means of stimulating the economy by ____ the money supply.
a. increase; decreasing
b. decrease; increasing
c. decrease; decreasing
d. increase; increasing

3. A credit crunch occurs when:
a. interest rates decline.
b. interest rates rise.
c. creditors restrict the amount of loans they are willing to provide.
d. the economy is strong.

4. According to the theory of rational expectations, higher inflationary expectations encourage businesses and households to reduce their demand for loanable funds.
a. True
b. False

5. A passive monetary policy adjusts money supply automatically in response to economic conditions.
a. True
b. False

6. If the Fed implemented a policy of inflation targeting, and if the U.S. inflation rate deviated substantially from the Fed’s target inflation rate, the Fed could lose credibility.
a. True
b. False

7. In general, there is:
a. a positive relationship between unemployment and inflation.
b. an inverse relationship between unemployment and inflation.
c. an inverse relationship between GNP and inflation.
d. a positive relationship between GNP and unemployment.

8. A ____-money policy can reduce unemployment, and a ____-money policy can reduce inflation.
a. tight; loose
b. loose; tight
c. tight; tight
d. loose; loose

9. A loose money policy tends to ____ economic growth and ____ the inflation rate.
a. stimulate; place downward pressure on
b. stimulate; place upward pressure on
c. dampen; place upward pressure on
d. dampen; place downward pressure on

10. When both inflation and unemployment are relatively high, there is more disagreement among FOMC members about the proper monetary policy to implement.
a. True
b. False

11. ____ serves as the most direct indicator of economic growth in the United States.
a. Gross domestic product (GDP)
b. National income
c. The unemployment rate
d. The industrial production index

12. Which of the following is not an indicator of inflation?
a. housing price indexes
b. wage rates
c. oil prices
d. consumer confidence surveys

13. The ____ indicators tend to occur before a business cycle.
a. leading
b. lagging
c. coincident
d. none of the above

14. The ____ indicators tend to occur after a business cycle.
a. leading
b. lagging
c. coincident
d. none of the above

15. The ____ indicators tend to occur before a business cycle.
a. leading
b. lagging
c. coincident
d. none of the above

16. The time lag between when an economic problem arises and when it is reported in economic statistics is the
a. recognition lag.
b. implementation lag.
c. impact lag.
d. open-market lag.

17. The time between when an economic problem is realized and when the Fed tries to correct it with its policies is the
a. recognition lag.
b. implementation lag.
c. impact lag.
d. open-market lag.

18. The time between when the Fed adjusts the money supply and when interest rates change reflects the
a. recognition lag.
b. implementation lag.
c. impact lag.
d. open-market lag.

19. If the Fed attempts to reduce inflation, it would likely increase money supply growth.
a. True
b. False

20. Which of the following best describes the relationship between the Fed and the Administration?
a. The Fed must receive approval by the Administration before conducting monetary policy.
b. The Fed must implement a monetary policy specifically to the support the Administration’s policy.
c. The Administration must receive approval from the Fed before implementing fiscal policy.
d. A and C
e. none of the above

21. A high budget deficit tends to place ____ pressure on interest rates; the Fed’s tightening of the money supply tends to place ____ pressure on interest rates.
a. upward; upward
b. upward; downward
c. downward; downward
d. downward; upward

22. The Fed is usually more willing to monetize the debt when inflation is relatively high.
a. True
b. False

23. International flows of funds can affect the Fed’s monetary policy. For example, if there is downward pressure on U.S. interest rates that can be offset by foreign ____ of funds, the Fed may not feel compelled to use a ____ monetary policy.
a. inflows; loose
b. inflows; tight
c. outflows; loose
d. outflows; tight
e. none of the above

24. Costner National, a commercial bank, obtains short-term deposits and makes long-term fixed-rate loans. It should be adversely affected when the Fed:
a. monetizes the debt.
b. maintains a stable money supply.
c. uses a tight-money policy.
d. uses a loose-money policy.

25. The ____ lag represents the time from when an economic problem exists until it is recognized.
a. recognition
b. adjustment
c. implementation
d. none of the above

26. A ____ dollar tends to exert inflationary pressure in the U.S.
a. stable
b. strong
c. weak
d. both A and B

27. According to the theory of rational expectations, ____ inflationary expectations encourage businesses and households to ____ their demand for loanable funds in order to borrow and make planned expenditures increase.
a. higher; reduce
b. higher; increase
c. lower; reduce
d. lower; increase

28. Historical evidence has shown that, when the Fed significantly increases money supply, U.S. inflation tends to ____ shortly thereafter which in turn places ____ pressure on U.S. interest rates.
a. increase; upward
b. increase; downward
c. decrease; downward
d. decrease; upward

29. If the Fed uses a passive monetary policy during weak economic conditions,
a. it increases money supply substantially.
b. it reduces money supply substantially.
c. it allows the economy to fix itself.
d. it focuses on monetizing the debt.

30. Which of the following is true?
a. Federal deficits require that the Fed purchase government securities.
b. Federal deficits will always result in an increase in money supply.
c. The Federal Reserve monetizes debt by selling securities which ultimately increases money supply.
d. An agreement between the Fed and the Treasury exists whereby the Fed is directly responsible for monetizing the debt whenever the deficit increases.
e. None of the above.

31. Inflation is commonly the result of a
a. large budget deficit.
b. high level of interest rates.
c. high level of unemployment.
d. high level of aggregate demand.

32. According to the theory of rational expectations, if the Fed uses open market operations in order to increase the supply of loanable funds, the ultimate effect on interest rates is definitely
a. a reduction in interest rates.
b. an increase in interest rates.
c. no effect on the interest rates.
d. the impact on interest rates cannot be determined.

33. The Federal Reserve would be most inclined to use a stimulative monetary policy to cure a recession if oil prices are
a. low and steady.
b. low, but rising.
c. very high, but declining slightly.
d. very high and rising.

34. Global crowding out is described in the text to mean the impact of
a. excessive U.S. population growth on interest rates.
b. excessive global population growth on interest rates.
c. an excessive budget deficit in one country on interest rates of another country.
d. an excessive budget deficit in one country on exchange rates.

35. If the federal government is willing to pay whatever is necessary to borrow loanable funds, but the private sector is not, this reflects
a. the crowding-out effect.
b. dynamic open market operations.
c. defensive open market operations.
d. monetizing the debt.

36. When the Fed uses open market operations by purchasing Treasury securities from various financial institutions in the U.S., there will be
a. an outward shift in the supply schedule of loanable funds.
b. an inward shift in the supply schedule of loanable funds.
c. no shift in the supply schedule of loanable funds.
d. an inward shift in the demand schedule for loanable funds.

37. When the Fed uses open market operations by selling some of its Treasury securities to investors in the U.S., there will be
a. an outward shift in the supply schedule of loanable funds.
b. an inward shift in the supply schedule of loanable funds.
c. no shift in the supply schedule of loanable funds.
d. an outward shift in the demand schedule for loanable funds.

38. Which of the following is not a disadvantage of inflation targeting?
a. If the U.S. inflation rate deviates substantially from the Fed’s target inflation rate, the Fed could lose credibility.
b. The Fed’s complete focus on inflation could result in a much higher unemployment level.
c. The Fed’s complete focus on inflation could result in much higher interest rates, which would discourage economic growth.
d. All of the above are disadvantages of inflation targeting.

39. Financial institutions such as commercial banks, bond mutual funds, insurance companies, and pension funds maintain large portfolios of bonds, so their portfolio is ____ affected when the Fed ____ interest rates.
a. unfavorably; decreases
b. unfavorably; increases
c. favorably; increases
d. Answer A and C are correct.

40. According to the theory of rational expectations, higher inflationary expectations encourage businesses and households to reduce their demand for loanable funds.
a. True
b. False

41. A passive monetary policy adjusts money supply automatically in response to economic conditions.
a. True
b. False

42. If the Fed implemented a policy of inflation targeting, and if the U.S. inflation rate deviated substantially from the Fed’s target inflation rate, the Fed could lose credibility.
a. True
b. False

43. If the Fed attempts to reduce inflation, it would likely increase money supply growth.
a. True
b. False

44. The relationship between the interest rate on loanable funds and the level of business investment is positive.
a. True
b. False

45. The supply schedule of loanable funds indicates the quantity of funds that would be demanded at various possible interest rates.
a. True
b. False

46. To correct excessive inflation, the Fed could use open market operations by buying Treasury securities in the secondary market.
a. True
b. False

47. One of the disadvantages of inflation targeting is that the Fed could lose credibility is the U.S. inflation rate deviates substantially from the Fed’s target inflation rate.
a. True
b. False

48. Economists who work at the Fed recognize that a stimulative monetary policy will not always cure a high unemployment rate and could even ignite inflation.
a. True
b. False

49. An attempt by the Fed to stimulate the economy by reducing short-term interest rates may have a limited effect if long-term interest rates remain unaffected.
a. True
b. False

50. The Fed needs the approval of the presidential administration to make decisions.
a. True
b. False

51. The Fed is more likely to use a stimulative policy during a strong-dollar period.
a. True
b. False

52. A purchase of Treasury securities by the Fed leads to a(n) ____ in interest rates and a(n) ____ in the level of business investment.
a. increase; decrease
b. decrease; decrease
c. increase; increase
d. decrease; increase

53. Which of the following is probably not a goal the Fed is trying to achieve consistently?
a. low inflation
b. high interest rates
c. steady GNP growth
d. low unemployment

54. The ____ is not an indicator of economic growth.
a. producer price index
b. gross domestic product
c. national income
d. unemployment rate
e. All of the above are indicators of economic growth.

55. Which of the following is not true with respect to inflation targeting?
a. The Fed could lose credibility is the inflation rate deviates substantially from the Fed’s target inflation rate.
b. A complete focus on inflation could result in a much higher unemployment rate.
c. Inflation targeting may not only satisfy the inflation goal, but could also achieve the employment stabilization goal in the long run.
d. If unemployment is slightly higher than normal, while inflation is at the peak of the target range, and inflation targeting approach would like advocate a loose monetary policy.

56. A ____ economic indicator tends to rise or fall a few months after business-cycle expansions and contractions.
a. leading
b. coincident
c. lagging
d. none of the above

57. A weak dollar would stimulate ____, discourage ____, and ____ the U.S. economy.
a. U.S. exports; U.S. imports; weaken
b. U.S. exports; U.S. imports; stimulate
c. U.S. imports; U.S. exports; stimulate
d. none of the above

58. The interest rate that the Fed targets for its monetary policy is the:
a. commercial paper rate.
b. federal funds rate.
c. Treasury bond coupon rate.
d. 1-year certificate of deposit rate.

59. When the Fed purchases Treasury securities, the account balances of the investors who sell their securities to the Fed _________, and there are _________ in the account balances of other financial institutions.
a. increase; offsetting decreases
b. increase; no offsetting decreases
c. decrease; offsetting increases
d. decrease; no offsetting increases

60. The Fed’s monetary policy is commonly intended to alter the supply of funds in the banking system in order to achieve a specific targeted:
a. discount rate.
b. required reserve requirement.
c. federal funds rate.
d. prime rate.

61. If a firm has a credit risk premium of 3 percent and the Treasury security rate is 4 percent, the firm will be able to borrow at ________. If the Fed implements a monetary policy that raises the Treasury security rate to 6 percent, the cost of borrowing for the firm will be ________.
a. 7 percent; 10 percent
b. 4 percent; 6 percent
c. 7 percent; 9 percent
d. 1 percent; 3 percent

62. In the “operation twist” strategy used in 2011 and 2012, the Fed sold _______ Treasury securities and used the proceeds to purchase ________ Treasury securities.
a. long-term; short-term
b. short-term; long-term
c. short-term; long-term
d. long-term; short-term

63. The intent of the Fed’s operation twist strategy in 2011 and 2012 was to:.
a. increase long-term interest rates.
b. require corporations to issue more commercial paper.
c. require bond rating agencies to impose higher standards on their ratings.
d. reduce long-term interest rates.

64. Which of the following is not a reason that a stimulative monetary policy may be ineffective?
a. The effects of a stimulative policy may be disrupted by expectations of inflation.
b. Retirees who rely on interest income may restrict their spending
c. Lending institutions may increase their standards for borrowers, so some potential borrowers may not qualify for loans.
d. Higher interest rates encourage individuals to increase their savings.

65. In 2012, the Fed stated that it would continue to purchase Treasury bonds in the financial markets until GDP growth increased to a target level.
a. True
b. False

66. Which of the following was not true of the eurozone during the Greek crisis?
a. Fear of a financial crisis throughout Europe discouraged investors and firms from moving funds into Europe.
b. By using a more stimulative monetary policy than it desired, the European Central Bank aroused concerns about potential inflation in the eurozone.
c. There was concern that the austerity conditions could weaken the country’s economy further.
d. Greece, Spain, and Portugal focused their efforts on reducing tax rates in order to stimulate their economies.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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

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.

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

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

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

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.

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

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.

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.

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

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

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

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).

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

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

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

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

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

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.

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

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

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

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

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.

46. Buser Corp. purchases certain securities for $4,921,349, with an agreement to sell them back at a price of $4,950,000 at the end of a 30-day period. The repo rate is ____ percent.
a. 7.08
b. 6.95
c. 6.99
d. 7.04
e. none of the above

47. Commercial paper is subject to:
a. interest rate risk.
b. default risk.
c. A and B.
d. none of the above.

48. If economic conditions cause investors to sell stocks because they want to invest in safer securities with much liquidity, this should cause a ____ demand for money market securities, which placed ____ pressure on the yields of money market securities.
a. weak; downward
b. weak; upward
c. strong; upward
d. none of the above

49. In general the money markets are widely perceived to be efficient in the sense that the prices reflect all available public information.
a. True
b. False

50. Money market securities are must have a maturity of three months or less.
a. True
b. False

51. Money market securities are issued in the primary market through a telecommunications network by the Treasury, corporations, and financial intermediaries that wish to obtain short-term financing.
a. True
b. False

52. An international interbank market facilitates the transfer of funds from banks with excess funds to those with deficient funds.
a. True
b. False

53. The interest rate charged for a short-term loan from a bank to a corporation is referred to as the London interbank offer rate (LIBOR).
a. True
b. False

54. Money markets are used to facilitate the transfer of short-term funds from individuals, corporations, or governments with excess funds to those with deficient funds.
a. True
b. False

55. Because money market securities have a short-term maturity and typically cannot be sold easily, they provide investors with a low degree of liquidity.
a. True
b. False

56. There is no limit to the amount of T-bills that can be purchased by noncompetitive bidders in a T-bill auction.
a. True
b. False

57. T-bills do not offer coupon payments but are sold at a discount from par value.
a. True
b. False

58. Junk commercial paper is commercial paper that is not rated or rated low.
a. True
b. False

59. A line of credit provided by a commercial bank allows a company the right (but not the obligation) to borrow a specified maximum amount of funds over a specified period of time.
a. True
b. False

60. T-bills must offer a premium above the negotiable certificate of deposit (NCD) to compensate for less liquidity and safety.
a. True
b. False

61. Most repo transactions use government securities.
a. True
b. False

62. Exporters can hold a banker’s acceptance until the date at which payment is to be made, yet they frequently sell the acceptance before then at a discount to obtain cash immediately.
a. True
b. False

63. Money market security values are less sensitive to interest rate movements than bonds.
a. True
b. False

64. During periods of uncertainty about the economy, there is a shift from risky money market securities to Treasury securities.
a. True
b. False

65. The price O bidders will pay at a Treasury bill auction is the
a. highest price entered by a competitive bidder.
b. highest price entered by a noncompetitive bidder.
c. weighted average price paid by all competitive bidders whose bids were accepted.
d. equally weighted average price paid by all competitive bidders whose bids were accepted.
e. none of the above

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

67. You purchase 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

68. A ____ is not a money market security.
a. Treasury bill
b. negotiable certificate of deposit
c. bond
d. banker’s acceptance
e. All of the above are money market securities.

69. Freeman Corp., a large corporation, plans to issue 45-day commercial paper with a par value of $3,000,000. Freeman expects to sell the commercial paper for $2,947,000. Freeman’s annualized cost of borrowing is estimated to be ____ percent.
a. 14.39
b. 14.13
c. 14.59
d. 14.33
e. none of the above

70. When a firm sells its commercial paper at a ____ price than projected, their cost of raising funds will be ____ than what they initially anticipated.
a. higher; higher
b. lower; lower
c. higher; lower
d. lower; higher
e. Answers C and D are correct.

71. Which of the following securities is most likely to be used in a repo transaction?
a. commercial paper
b. certificate of deposit
c. Treasury bill
d. common stock
e. All of the above are equally likely to be used in a repo transaction.

72. A major drawback to investing in Treasury bills is that they cannot easily be liquidated.
a. True
b. False

73. At each T-bill auction, the prices paid for three-month T-bills are significantly lower than the prices paid for six-month bills.
a. True
b. False

74. Ignoring transaction costs, the cost of borrowing with commercial paper is equal to:
a. the yield on T-bills of the same maturity.
b. the yield earned by investors holding the paper until maturity.
c. the federal funds rate.
d. the par value of the paper.

75. LIBOR is:
a. the interest rate charged on international interbank loans.
b. the average rate charged on commercial loans in Europe.
c. the rate charged by the Federal Reserve for loans to banks.
d. the rate charged by the European Central Bank for loans to banks.

76. The LIBOR scandal in 2012 involved:
a. banks reporting inflated earnings from their loans.
b. hackers breaking into the loan documentation files.
c. banks falsely reporting the interest rates they offered in the interbank market.
d. collusion among the banks when setting the commercial paper.

77. Credit guarantees for commercial paper:
a. ensures that the issuer of commercial paper will use the funds obtained to provide credit.
b. are issued by the Federal Reserve Bank of New York.
c. are only as good as the credit of the guarantor.
d. A and C

78. The money market interest rate paid by corporations that borrow short-term funds in a particular country is typically:
a. equal to the rate paid by that country’s government.
b. slightly higher than the rate paid by that country’s government.
c. mostly influenced by the demand for and supply of long-term funds in that country.
d. set by the country’s central bank.