CH05-Money Markets

Question 1

Which Money Market instruments are issued at a discount?

Answer 1

CP
ABCP
Gov’t Paper

Question 2

Which Money Market instruments are interest-bearing?

Answer 2

Bank Obligations

Floating Rate Notes (FRNs)

Question 3

Who issues Commercial Paper?

Answer 3

Companies and Financial Institutions

Question 4

What is standard maturity of CP?

Answer 4

overnight to 270 days
average=30 days
most matures in under 45 days

Question 5

Is CP secured or unsecured?

Answer 5

CP=unsecured (Commercial Paper)

Question 6

Do you get a higher return on a CP or an ABCP?

Answer 6

ABCP has a higher return b/c it’s more complex

Question 7

Is ABCP secured or unsecured?

Answer 7

ABCP=secured (Asset Backed Commercial Paper)

Question 8

What is the maturity of a Bank Obligation?

Answer 8

1 day - over 1 year

Question 9

What is is called when the US Treasury issues gov’t paper for less than 1 year?

Answer 9

T-bills

Question 10

What is is called when the US Treasury issues gov’t paper for more than 1 year?

Answer 10

Treasury Notes

Question 11

Which types of Money Market instruments are secured?

Answer 11

ABCP-Asset backed Commercial Paper
REPOS-Repurchase Agreements
sometimes Floating Rate Notes are secured

Question 12

Define REPOS

Answer 12

REPOS=Repurchase Agreement

Owner sells security to investor and agrees to repurchase it at a later date for a slightly higher price

Question 13

Define Bilateral Repo

Answer 13

collateral and funds exchanged directly between the two parties

Question 14

Define Tr-party Repo

Answer 14

collateral is held by and funds are exchanged through a broker-dealer. Considered safest method for REPOS

Question 15

Define MMFs

Answer 15

Money Market Funds are commingled pools of money market securities. Established and managed by FIs

Question 16

MMF portfolio rules

Answer 16

WAM=weighted average maturity

WAL=weighted average life

Question 17

CBES

Answer 17

Commerical Book-Entry System = a delivery system that provides simultaneous transfer of securities against settlement of funds. Security owners receive interest and redemption payments wired directly

Question 18

Which Money Market instruments have Variable interest rates (not fixed)?

Answer 18

FRNs and REPOS

Floating-rate notes and Repurchase agreements

Question 19

Which money market instrument is only issued by banks?

Answer 19

bank obligations

Question 20

Which money market instrument is only issued by municipalities?

Answer 20

Gov’t paper

Question 21

maximum maturity for U.S. publicly traded commercial paper (CP)

Answer 21

270 days

Question 22

Why do most investors ensure they invest in highly rated individual issues of commercial paper (CP) and set strict counterparty limits?

Answer 22

CP cannot be secured against any particular asset.

Question 23

can CP be secured against a particular asset?

Answer 23

No, this is a disadvantage

Question 24

T / F

Short duration mutual funds invest in securities with longer maturities than money market funds.

Answer 24

True

Question 25

In contrast with money market funds (MMFs), short-duration mutual funds

Answer 25

have a higher risk of price volatility.

Question 26

Do Short-duration mutual funds typically have a fixed unit currency value, i.e., a net asset value (NAV)?

Answer 26

No, short duration mutual funds do NOT typically have a fixed unit currency value

Question 27

What is usually being sold and repurchased in a repurchase agreement (repo)?

Answer 27

Government debt, however, repos can be based on any security.

Question 28

Define Eurodollars (Eurodollar Deposits)

Answer 28

Dollar-denominated deposits held in FIs outside the US. Eurodollars may be issued as negotiable Eurodollar CDs or as Non-negotiable Eurodollar time deposits. Both of these are interest-bearing.

Question 29

Do Gov't paper, CP, and BAs bear interest?

Answer 29

No: GP, CP, BA do not pay interest. | GP, CP, BA are discounted instruments; they are issued below par value and pay par value at maturity

Question 30

The Fed implements US monetary policy through ____ and how?

Answer 30

FOMC (Federal Open Market Committee). The FOMC implements monetary policy through the purchase and sale of Treasury securities in the secondary markets.

Question 31

____ is fixed rate and unsecured, issued by governments or municipalities and not by a bank.

Answer 31

Government Paper

Question 32

__________ can be unsecured or secured and are issued by financial institutions, and carry a variable rate of return

Answer 32

FRNs

Question 33

_____ are issued by financial institutions, secured and carry a negotiable interest rate.

Answer 33

REPOs

Question 34

which ST instruments have price risk?

Answer 34

CP, ABCP AND GOV'T PAPER

Question 35

which ST instrument doesn't have liquidity risk?

Answer 35

CP