Money Markets Trade - Financial Markets and Institutions | FINA 4400, Exams of Financial Market

Download Money Markets Trade - Financial Markets and Institutions | FINA 4400 and more Exams Financial Market in PDF only on Docsity! FINA 4400 Review Questions: Midterm Exam 1 Note: Review meant to be used in conjunction with assigned homework problems and additional examples. Chapter 1 1. Money markets trade securities that: I. mature in one year or less II. have little chance of loss of principle III. must be guaranteed by the federal government A. I only B. II only C. I and II only D. I and III only E. I, II and III 2. Depository institutions (DIs) play an important role in the transmission of monetary policy from the Federal Reserve to the rest of the economy because A. Loans to corporations are part of the money supply B. Bank and thrift loans are tightly regulated C. U.S. DIs compete with foreign financial institutions D. DI deposits are a major portion of the money supply E. Thrifts provide a large amount of credit to finance residential real estate 3. Financial intermediaries (FIs) can offer savers a safer, more liquid investment than a capital market security, even though the intermediary invests in risky illiquid instruments because: A. FIs can diversify away some of their risk B. FIs closely monitor the riskiness of their assets C. The federal government requires them to do so D. Both A and B E. Both A and C 4. The most diversified type of depository institutions are A. credit unions B. savings associations C. commercial banks D. finance companies E. mutual funds Chapter 2 1. According to the UET A. markets are segmented and buyers stay in their own segment B. liquidity premiums are negative and time varying C. the term structure will most often be upward sloping D. the long term spot rate is an average of the current and expected future short term interest rates E. forward rates are less than the expected future spot rates 2. Which of the following would normally be expected to result in an increase in the supply of funds, all else equal? I. The perceived riskiness of all investments decreases. II. Expected inflation increases. III. Current income and wealth levels increase. IV. Near term spending needs of households increase as energy costs rise. A. I and III only B. II and III only C. II, III and IV only D. I and IV only E. I, II, III and IV 3. Classify each of the following in terms of their effect on interest rates (increase or decrease): I. Perceived risk of financial securities increases II. Near term spending needs decrease III. Future profitability of real investments increases A. I increases, II increases, III increases B. I increases, II decreases, III decreases C. I decreases, II increases, III increases D. I decreases, II decreases, III decreases E. None of the above 4. Who are the major fund's suppliers and funds demanders in the U.S. and what is their typical position? Households; suppliers Business; demander Government; demander Foreign; supplier Chapter 4 1. The Federal Reserve does all but which one of the following? A. Conduct monetary policy B. Supervise and regulate bank activities C. Serve as the commercial bank for the U.S. Treasury D. Operate check clearing and wire transfer facilities E. Insure deposits 2. A bank has $770 million in checkable deposits. The bank has $85 million in reserves. The banks required reserves are _____________ and its excess reserves are _____________. A. $85 million ; $0 B. $770 million ; $85 million C. $89 million ; $21 million D. $685 million ; $8.5 million E. $77 million ; $8 million Required = 10%(770); Excess = 85 - 10%(770) 3. If the Federal Reserve were to buy dollars by selling yen the result would be to _____ the supply of U.S. dollars and _____ the exchange rate in terms of the number of yen per U.S. dollar. A. Increase, lower B. Increase, raise C. Decrease, lower D. Decrease; raise 4. The Fed wishes to expand the money supply. What three things can they do? Which has the most predictable effects? Be specific. Buy U.S. government securities Decrease the discount rate Decrease reserve requirements Buying U.S. government securities has the most predictable effect Chapter 5 1. Suppose that $10 million face value commercial paper with a 270 day maturity is selling for $9.55 million. What is the BEY on the paper? A. 4.71% B. 6.42% C. 6.37% D. 6.28% E. 4.50% ((10 mill / 9.55 mill) - 1)* (365 / 270) 2. If a $10,000 par T-Bill has a 3.75% discount quote and a 90 day maturity, what is the price of the T-Bill to the nearest dollar? A. $9,625 B. $9,906 C. $9,908 D. $9,627 E. None of the above 10,000*[1-(0.0375*90/360)] = 9,906 3. In dollars outstanding in 2007 the largest money market security was A. Commercial paper B. Banker's acceptances C. T-Bills D. Fed funds & repos 4. The most liquid of the money market securities are A. Commercial paper B. Banker's acceptances C. T-Bills D. Fed funds E. Repurchase agreements