What is the primary purpose of the money market?
A) To provide long-term capital for businesses
B) To facilitate short-term borrowing and lending
C) To trade in stocks and equities
D) To offer long-term investment opportunities
Answer: B) To facilitate short-term borrowing and lending
Which of the following is a common instrument traded in the money market?
A) Corporate bonds
B) Treasury bills
C) Common stocks
D) Municipal bonds
Answer: B) Treasury bills
What is a Treasury bill (T-bill)?
A) A long-term government bond
B) A short-term government security issued at a discount
C) A type of corporate bond
D) A dividend-paying stock
Answer: B) A short-term government security issued at a discount
What is a certificate of deposit (CD)?
A) A short-term debt security issued by corporations
B) A deposit account that pays interest for a fixed term
C) A type of government bond
D) A form of equity investment
Answer: B) A deposit account that pays interest for a fixed term
Which instrument is used by corporations to manage their short-term funding needs?
A) Commercial paper
B) Treasury bonds
C) Convertible bonds
D) Equity shares
Answer: A) Commercial paper
What is commercial paper?
A) A type of long-term corporate bond
B) A short-term unsecured debt instrument issued by corporations
C) A government-issued security
D) A savings bond
Answer: B) A short-term unsecured debt instrument issued by corporations
What does “repo” stand for in the money market?
A) Repurchase agreement
B) Repayment obligation
C) Reinvestment policy
D) Redemption option
Answer: A) Repurchase agreement
What is a repurchase agreement (repo)?
A) A long-term loan between banks
B) A short-term agreement to sell and repurchase securities at a specified price
C) A bond issued by the central bank
D) An equity investment
Answer: B) A short-term agreement to sell and repurchase securities at a specified price
Which of the following is NOT a characteristic of money market instruments?
A) Short-term maturity
B) High liquidity
C) Low risk
D) High yield
Answer: D) High yield
What is the purpose of a money market mutual fund?
A) To invest in long-term government bonds
B) To provide high returns on equity investments
C) To invest in short-term money market instruments
D) To trade in real estate
Answer: C) To invest in short-term money market instruments
Which of the following instruments is typically issued at a discount and matures at face value?
A) Certificate of Deposit
B) Treasury Bill
C) Commercial Paper
D) Repurchase Agreement
Answer: B) Treasury Bill
What is the typical maturity range for Treasury bills?
A) 1 month to 1 year
B) 1 year to 10 years
C) 10 years to 30 years
D) Over 30 years
Answer: A) 1 month to 1 year
Which of the following is a short-term borrowing tool for banks?
A) Eurodollar deposits
B) Corporate bonds
C) Municipal bonds
D) Common stocks
Answer: A) Eurodollar deposits
What does “LIBOR” stand for?
A) London Interbank Offered Rate
B) London International Bond Rate
C) Long-term Interest Bearing Obligation Rate
D) Low Interest Bank Offered Rate
Answer: A) London Interbank Offered Rate
Which of the following best describes a “bearer” security in the money market?
A) A security that is registered in the name of the owner
B) A security that can be transferred by delivery
C) A security that cannot be transferred
D) A security issued by the government
Answer: B) A security that can be transferred by delivery
What is the main difference between a “repo” and a “reverse repo”?
A) A repo involves selling securities, while a reverse repo involves buying them
B) A repo is a long-term transaction, while a reverse repo is short-term
C) A repo involves unsecured lending, while a reverse repo involves secured lending
D) A repo is used for equity investments, while a reverse repo is used for debt securities
Answer: A) A repo involves selling securities, while a reverse repo involves buying them
What is the primary role of central banks in the money market?
A) To invest in long-term securities
B) To regulate and control money supply and interest rates
C) To trade in equities
D) To issue corporate bonds
Answer: B) To regulate and control money supply and interest rates
Which of the following instruments is typically used for very short-term borrowing by corporations?
A) Commercial paper
B) Treasury bond
C) Certificate of deposit
D) Municipal bond
Answer: A) Commercial paper
What is the main purpose of a “reverse repo” transaction?
A) To borrow securities and sell them
B) To lend securities and buy them back later
C) To buy securities and sell them later
D) To issue new securities
Answer: B) To lend securities and buy them back later
Which of the following is NOT typically traded in the money market?
A) Treasury bills
B) Commercial paper
C) Corporate bonds
D) Repurchase agreements
Answer: C) Corporate bonds
What is the typical term length for a commercial paper?
A) 1 day to 270 days
B) 1 month to 1 year
C) 1 year to 5 years
D) 5 years to 10 years
Answer: A) 1 day to 270 days
Which of the following is a feature of a Treasury bill?
A) Pays interest periodically
B) Issued at face value
C) Issued at a discount to face value
D) Can be converted into stocks
Answer: C) Issued at a discount to face value
What does the term “discount rate” refer to in the context of money market instruments?
A) The interest rate paid on a bond
B) The difference between the purchase price and face value of a Treasury bill
C) The rate at which commercial paper is issued
D) The fee charged for managing a money market fund
Answer: B) The difference between the purchase price and face value of a Treasury bill
What is a “banker’s acceptance”?
A) A short-term debt instrument issued by banks
B) A long-term loan issued by banks
C) A form of equity issued by banks
D) A repurchase agreement
Answer: A) A short-term debt instrument issued by banks
Which market is often referred to as the “cash market”?
A) The bond market
B) The equity market
C) The money market
D) The real estate market
Answer: C) The money market
What is the “primary market” for money market instruments?
A) Where existing money market instruments are traded
B) Where new money market instruments are issued
C) Where equities are traded
D) Where long-term bonds are issued
Answer: B) Where new money market instruments are issued
Which of the following is NOT a typical feature of a certificate of deposit (CD)?
A) Fixed interest rate
B) Insured by the FDIC
C) Fixed maturity date
D) Tradable on secondary markets
Answer: D) Tradable on secondary markets
What is the role of a “clearing house” in money markets?
A) To issue new money market instruments
B) To facilitate the settlement of transactions between buyers and sellers
C) To trade in equities
D) To provide loans to corporations
Answer: B) To facilitate the settlement of transactions between buyers and sellers
Which of the following is a money market instrument issued by a corporation?
A) Treasury bill
B) Repurchase agreement
C) Commercial paper
D) Certificate of deposit
Answer: C) Commercial paper
What does “issuer” mean in the context of money market instruments?
A) The entity that buys the securities
B) The entity that sells or issues the securities
C) The broker who facilitates the transaction
D) The regulator overseeing the market
Answer: B) The entity that sells or issues the securities
Which of the following is a feature of a money market fund?
A) High volatility
B) High returns compared to equities
C) Low risk and high liquidity
D) Long-term investment horizon
Answer: C) Low risk and high liquidity
What does “maturity” refer to in the context of money market instruments?
A) The length of time until the instrument is issued
B) The date on which the instrument matures and repayment is made
C) The date on which interest payments are made
D) The date of the initial investment
Answer: B) The date on which the instrument matures and repayment is made
Which instrument is used to manage cash balances and short-term funding needs?
A) Treasury bond
B) Common stock
C) Money market fund
D) Real estate investment trust (REIT)
Answer: C) Money market fund
What is a “short-term interest rate”?
A) The rate on loans with a maturity of more than 10 years
B) The rate on money market instruments with a maturity of less than one year
C) The rate on bonds with a maturity of more than 10 years
D) The rate on long-term corporate bonds
Answer: B) The rate on money market instruments with a maturity of less than one year
Which instrument typically offers the lowest yield?
A) Corporate bonds
B) Treasury bills
C) Commercial paper
D) Certificates of deposit
Answer: B) Treasury bills
What does “face value” mean for money market instruments?
A) The amount received at maturity
B) The amount paid for the instrument at issuance
C) The amount of interest earned
D) The amount paid for the instrument in the secondary market
Answer: A) The amount received at maturity
Which of the following is a feature of a Eurodollar deposit?
A) Deposits held in U.S. dollars outside of the U.S.
B) Deposits held in foreign currencies
C) Deposits with high interest rates and long terms
D) Deposits insured by the FDIC
Answer: A) Deposits held in U.S. dollars outside of the U.S.
What does “discounted” mean in relation to Treasury bills?
A) Sold for less than face value
B) Sold for more than face value
C) Sold at face value
D) Sold with added interest
Answer: A) Sold for less than face value
Which of the following is NOT a feature of a money market mutual fund?
A) Investment in short-term debt securities
B) High liquidity
C) Low risk
D) Investment in long-term equities
Answer: D) Investment in long-term equities
What is the main purpose of a “money market account”?
A) To provide high returns on investment
B) To offer a safe place for holding cash with interest earnings
C) To trade in stocks and bonds
D) To invest in real estate
Answer: B) To offer a safe place for holding cash with interest earnings
Which of the following is an example of a short-term funding tool for governments?
A) Treasury bonds
B) Treasury bills
C) Municipal bonds
D) Corporate bonds
Answer: B) Treasury bills
What does the term “securities lending” refer to in the money market?
A) Selling securities to investors
B) Borrowing securities for short-term use with an agreement to return them
C) Investing in long-term securities
D) Lending money to businesses
Answer: B) Borrowing securities for short-term use with an agreement to return them
Which of the following is typically used by financial institutions to manage liquidity?
A) Long-term bonds
B) Equity shares
C) Repurchase agreements
D) Municipal bonds
Answer: C) Repurchase agreements
What is “interest rate risk” in the context of money market instruments?
A) The risk of interest rates rising, causing the value of fixed-rate instruments to fall
B) The risk of default by the issuer
C) The risk of a decrease in principal value
D) The risk of interest rate fluctuations in equity investments
Answer: A) The risk of interest rates rising, causing the value of fixed-rate instruments to fall
Which of the following describes a “prime rate”?
A) The interest rate charged by banks to their most creditworthy customers
B) The interest rate on government securities
C) The rate on long-term corporate bonds
D) The rate on savings accounts
Answer: A) The interest rate charged by banks to their most creditworthy customers
What is a “short-term loan” in the money market?
A) A loan with a maturity of more than 5 years
B) A loan with a maturity of 1 year or less
C) A loan with a maturity of 10 years
D) A loan with no maturity
Answer: B) A loan with a maturity of 1 year or less
Which of the following is a money market instrument used for foreign exchange transactions?
A) Eurodollar deposit
B) Treasury bill
C) Commercial paper
D) Certificate of deposit
Answer: A) Eurodollar deposit
What is the “yield” on a money market instrument?
A) The total return earned on the instrument
B) The initial purchase price of the instrument
C) The face value of the instrument
D) The amount paid for the instrument on the secondary market
Answer: A) The total return earned on the instrument
Which institution typically issues certificates of deposit (CDs)?
A) Corporations
B) Governments
C) Banks
D) Insurance companies
Answer: C) Banks
Which of the following instruments is often used by governments to manage short-term cash flow needs?
A) Treasury bonds
B) Treasury bills
C) Corporate bonds
D) Municipal bonds
Answer: B) Treasury bills