Exam 3 Flashcards
Which one of the following is the interest rate that the largest commercial banks charge their most creditworthy corporate customers for short-term loans?
Prime
Which one of the following terms applies to a rate that serves as an indicator of future trends?
Bellwether
Which one of the following rates is the rate that banks charge each other for overnight loans of $1 million or more?
Federal Funds
Which one of the following rates is the rate a commercial bank must pay the Federal Reserve to borrow reserves overnight?
Discount
Which one of the following rates is used by brokerage firms as the basis for determining margin loan rates
Call Money
Which one of the following is unsecured debt issued by corporations on a short-term basis?
Commercial paper
$100,000 or more term deposit at a bank is called which one of the following?
Certificate of deposit
Which one of the following is defined as U.S. dollar-denominated deposits held in a foreign bank?
Eurodollars
Which one of the following abbreviations is the interest rate that international banks charge one another for overnight Eurodollar loans?
LIBOR
Which one of the following is a short-term debt instrument issued by the U.S. Treasury?
T-Bill
Which one of the following is a method used to quote interest rates on money market instruments?
Bank discount basis
Which one of the following is defined as the relationship between the interest rate on default-free, pure discount bonds and the time to maturity?
Term structure of interest rates
Pure discount bonds, which are created by separating the interest and principal payments from U.S. Treasury bonds, are called U.S. Treasury:
STRIPS
Which one of the following rates is typically quoted?
Nominal
Which one of the following best describes a real interest rate?
Nominal - Inflation
Which one of the following best fits the Fisher hypothesis?
Interest rates tend to be higher than inflation rates
Which one of the following theories states that the term structure of interest rates reveals the financial market’s projections of future interest rates?
Expectations theory
Which one of the following is defined as a forward rate?
expected future interest rate implied by current interest rates
Which one of the following proposes that lenders must be financially rewarded for loaning funds on a long-term versus a short-term basis?
Maturity preference theory
The market segmentation theory states that interest rates on debt vary dependent upon market segments which are segmented based upon which one of the following?
Time to maturity
Banks are most apt to quote short-term loan rates as:
Prime plus a spread
Which one of the following rates is generally considered the bellwether rate for bank loans to business firms?
Prime
Southern Bank needs to borrow money overnight from the Federal Reserve in order to meet its reserve requirements. Which one of the following interest rates will be charged on this loan?
Discount
Capital Bank needs a one-day reserve loan of $3.6 million from Countryside Bank. Which one of the following interest rates will be charged on this loan?
Federal Funds
Which one of the following actions is the Federal Reserve most likely to take if it is concerned about a slowing economy?
Lower the discount rate
Assume that a large corporation, such as General Electric, needs money in the short term. Which one of the following securities is that corporation most likely to issue to meet this need?
Commercial papaer
Facilitates international trade
Bankers acceptance
Which one of the following is the largest market in the world for new debt securities with maturities of one year or less?
US Treasury Bill
Treasury STRIPS are:
created by separating principal payments and coupons of Treasury notes and bonds.
The approximate nominal interest rate is computed as the real rate:
Plus the inflation rate
Which one of the following debt instruments guarantees investors a positive real rate of return?
TIPS
Based solely on the maturity preference theory, long-term interest rates:
should be higher than short-term rates.
Modern term structure theory supports the contention that the term structure of interest rates will:
Change over time
Which one of the following is the correct definition of a coupon rate?
annual interest or par value
A premium bond is defined as a bond that:
has a market price that exceeds par value.
A discount bond
has a face value that exceeds the market value.
The price of a bond, net of accrued interest, is referred to as the bond’s:
Clean price
The dirty price of a bond
Invoice price