FINANCE 3325 EXAM #2 1) Money market securities have all the following character
ID: 2786580 • Letter: F
Question
FINANCE 3325 EXAM #2 1) Money market securities have all the following characteristics except they are not A) short term. B) money C) low risk D) very liquid. 2) The Fed is an active participant in money markets mainly because of its responsibility to A) lower borrowing costs to encourage capital investment. B) control the money supply C) increase the interest income of retirees holding money market instruments. D) assist the Securities and Exchange Commission in regulating the behavior of other money market participants 3) Money market instruments issued by the U.S. Treasury are called A) Treasury bills. B) Treasury notes. C) Treasury bonds. D) Treasury strips 4) Federal funds A) are short-term funds transferred between financial institutions, usually for a period of one day B) actually have nothing to do with the federal govemment. C) provide banks with an immediate infusion of reserves D) are all of the above. E) are only A and B of the above. 5) Negotiable certificates of deposit A) are bearer instruments because their holders earn the interest and perincipal at maturity B) typically have a maturity of one to four months C) are usually denominated at $100,000 D) are all of the above. E) are only A and B of the above. A) are issued only by the largest and most creditw B) carry an interest rate that varies according orthy corporations, as they are unsecurod to the firm's level of risk paper securities C) never have a term to maturity that exceeds 270 days D) all of the above E) only A and B of the above. 7) The advantage of mutual funds is that they A) require no cash up front. B) give investors with relatively small amounts of cash to invest access to large -denomination C) always yield the highest returnsExplanation / Answer
1. The answer is option “b” – money. Money market securities are highly liquid and can easily be converted into money but they themselves are not money until they are sold.
2. The answer is option “b’ – control the money supply. This is done through Fed’s monetary policies and open market operations.
3. The answer is option “a” – treasury bills. They are also known as t-bills.
4. The answer is option “d” – all of the above. Federal funds are short term funds, are not concerned with federal government and helps banks with provision of reserves.
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