Chapter 8 the Money Markets

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  • Topic: Bank, Interest rate, Money market
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Chapter 8 The Money Markets 8.1 Multiple Choice
1) Activity in money markets increased significantly in the late 1970s and early 1980s because A) of rising short-term interest rates. B) of regulations that limited what banks could pay for deposits. C) of both (A) and (B) of the above. D) of neither (A) nor (B) of the above. Answer: C 2) Money market securities are A) short-term. B) low risk. C) very liquid. D) all of the above. E) only (A) and (B) of the above. Answer: D 3) Money market instruments A) are usually sold in large denominations. B) have low default risk. C) mature in one year or less. D) are characterized by all of the above. E) are characterized by only (A) and (B) of the above. Answer: D 4) The banking industry A) should have an efficiency advantage in gathering information that should eliminate the need for the money markets. B) exists primarily to mediate the asymmetric information problem between saver-lenders and borrower-spenders. C) is subject to more regulations and governmental costs than are the money markets. D) all of the above are true. E) only (A) and (B) of the above are true. Answer: D

5) In situations where the asymmetric information problem is not severe, A) the money markets have a distinct cost advantage over banks in providing short-term funds. B) banks have a distinct cost advantage over the money markets in providing short-term funds. C) banks have a comparative advantage over the money markets in providing short-term funds. D) banks have an absolute advantage over the money markets in providing shortterm funds. Answer: A 6) Brokerage firms that offered money market security accounts in the 1970s had a cost advantage over banks in attracting funds because the brokerage firms A) were not subject to deposit reserve requirements. B) were not subject to the deposit interest rate ceilings. C) were not limited in how much they could borrow from depositors. D) had the advantage of all the above. E) had the advantage of only (A) and (B) of the above. Answer: E 7) Which of the following statements about the money market are true? A) Not all commercial banks deal for their customers in the secondary market. B) Money markets are used extensively by businesses both to warehouse surplus funds and to raise short-term funds. C) The single most influential participant in the U.S. money market is the U.S. Treasury Department. D) All of the above are true. E) Only (A) and (B) of the above are true. Answer: E 8) Which of the following statements about the money markets are true? A) Most money market securities do not pay interest. Instead the investor pays less for the security than it will be worth when it matures. B) Pension funds invest a portion of their assets in the money market to have sufficient liquidity to meet their obligations. C) Unlike most participants in the money market, the U.S. Treasury Department is always a demander of money market funds and never a supplier. D) All of the above are true. E) Only (A) and (B) of the above are true. Answer: D

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9) Which of the following are true statements about participants in the money markets? A) Large banks participate in the money markets by selling large negotiable CDs. B) The U.S. government and corporations borrow in the money markets because cash inflows and outflows are rarely synchronized. C) The Federal Reserve is the single most influential participant in the U.S. money market. D) All of the above are true. E) Only (A) and (B) of the above are true. Answer: D 10) The most influential participant(s) in the U.S. money market A) is the Federal Reserve. B) is the U.S. Treasury Department. C) are the largest money center banks. D) are the investment banks that underwrite securities. Answer: A 11) The primary function of large diversified brokerage firms in the money market is to A) sell money market securities to the Federal Reserve for its open market operations. B) make a market for money market securities by maintaining an...
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