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Exam 5: Money Markets

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Question 21

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The discount yield on a T-Bill differs from the T-bill's bond equivalent yield (BEY) because I. The discount yield is the return per dollar of face value and the BEY is a return per dollar originally invested. II. A 360-day year is used on the discount yield and the BEY uses 365 days. III. The discount yield is calculated without compounding, the BEY is calculated with compounding.

A) I only
B) II only
C) I and II only
D) II and III only
E) I, II, and III

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Question 22

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The bond equivalent yield times 365/360 is equal to the single payment yield.

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Question 23

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In dollars outstanding in 2010 the largest money market security was

The largest secondary money market in the United States is the secondary market for T-Bills.

A short-term unsecured promissory note issued by a company is

The following formula is used to calculate the _____________ of a money market investment.

A time draft payable to a seller of goods, with payment guaranteed by a bank is a

A 90-day T-Bill is selling for $9,900. The par is $10,000. The effective annual return on the T-Bill is (watch your rounding)

A banker's acceptance is

A negotiable CD

Everything else equal, an effective annual rate will be greater than the bond equivalent yield on the same security.

A government securities dealer needs to make a 7% pre-tax annual return on $10 million of capital employed to make it worthwhile to make a market in T-Bills. If the bid discount on $10,000 face value, ninety day T-Bills is 3.50%, and the dealer can expect to do 5200 round trip deals today what must the ask discount be? Hint: A round trip is a buy and a sell transaction.

Rates on federal funds and repurchase agreements are stated

360/h times the difference between the face value and the current value divided by the face value gives you the discount yield on an instrument.

Euro commercial paper is a short-term obligation of the European Central Bank.

You are a corporate treasurer for Esso Oil. The quoted rate on dollar denominated euro commercial paper has just blipped down recently. Your firm can issue $10 million of 180-day euro commercial paper in the London markets at 3.45%. You can also invest the proceeds in the United States in comparable maturity negotiable dollar-denominated CDs, which are quoting 3.95%. Ignoring any transactions costs, how much money, if any, can Esso make by borrowing in the euro markets and investing in the United States? Is this a good deal or not? Should you expect it to last? Explain.

A dealer is quoting a $10,000 face 180-day T-Bill quoted at 2.75 bid, 2.65 ask. You could buy this bill at ______________ or sell it at _______________.

From 1990 to 2010, which one of the following money market securities actually declined in terms of dollar amount outstanding?

How does a banker's acceptance help create more international trade?

Why do most money market securities have large denominations?