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Money Market Securities Overview

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Questions and Answers

Which of the following statements about money market securities is incorrect?

They have a maturity of one year or less.

They are commonly purchased by households, corporations, and governments with short-term funds.

They are issued in the primary market through a telecommunications network.

They are not liquid and cannot be sold in the secondary market. (correct)

Which of the following statements about T-bills (Treasury bills) is true?

They are issued by corporations to obtain short-term financing.

They have a par value of $10,000 or multiples of $10,000.

They are sold at a premium to their par value.

They are backed by the federal government and are virtually free of credit risk. (correct)

If an investor purchases a $10,000 T-bill at a discount of $9,800, what is the investor's gain at maturity?

$180

$200 (correct)

$220

$210

Which of the following statements about the issuance of T-bills is correct?

They are issued with maturities of 4 weeks, 13 weeks, and 26 weeks on a weekly basis. (B) Signup and view all the answers

Which of the following is NOT a characteristic of money market securities mentioned in the text?

They are traded on the stock exchange. (C) Signup and view all the answers

Based on the information provided, which of the following statements is true?

Money market securities are issued by the Treasury, corporations, and financial intermediaries. (A) Signup and view all the answers

What is the minimum par value for T-bills now?

$1,000 (C) Signup and view all the answers

Why do depository institutions retain a portion of their funds in assets that can be easily liquidated?

To cover unanticipated expenses (A) Signup and view all the answers

What backs Treasury bills, making them virtually free of credit risk?

Federal government (B) Signup and view all the answers

Why do individuals with substantial savings invest indirectly through money market funds?

To have easy access to liquid assets (D) Signup and view all the answers

In what circumstance do corporations invest in T-bills?

To cover unanticipated expenses (A) Signup and view all the answers

What is the primary reason why commercial paper typically offers a higher yield than T-bills with the same maturity?

Commercial paper is subject to credit risk and has less liquidity (A) Signup and view all the answers

If an investor purchases a $100,000 commercial paper at a discount of $99,000, and holds it until maturity, what is the investor's approximate yield?

1% (C) Signup and view all the answers

Which of the following statements about negotiable certificates of deposit (NCDs) is correct?

NCDs offer a premium above T-bill yields to compensate for less liquidity and safety (D) Signup and view all the answers

What is the primary purpose of a repurchase agreement (repo) in the money market?

To provide short-term funding for the party selling securities (A) Signup and view all the answers

Which of the following statements about the pricing of Treasury bills (T-bills) is correct?

T-bills are priced at a discount from their par value (B) Signup and view all the answers