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Economics > Money Market > Flashcards

Money Market Flashcards

1
Q

What is the primary purpose of the money market?

A

To provide short-term borrowing and lending for businesses and governments.

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2
Q

True or False: Money market instruments are generally low-risk investments.

A

True

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3
Q

Fill in the blank: The money market typically involves securities with maturities of _____ or less.

A

one year

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4
Q

What is a Treasury bill?

A

A short-term government security with a maturity of one year or less.

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5
Q

Which of the following is NOT a money market instrument? A) Commercial Paper B) Corporate Bonds C) Treasury Bills

A

B) Corporate Bonds

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6
Q

What is the role of a money market fund?

A

To invest in short-term, low-risk securities and provide liquidity to investors.

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7
Q

True or False: Certificates of deposit (CDs) are issued by banks and are considered money market instruments.

A

True

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8
Q

What does the term ‘liquidity’ refer to in the money market?

A

The ease with which an asset can be converted into cash.

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9
Q

Fill in the blank: The _____ rate is the interest rate at which banks lend to one another in the money market.

A

interbank

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10
Q

What is commercial paper?

A

An unsecured, short-term debt instrument issued by corporations.

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11
Q

What is the typical maturity range for commercial paper?

A

From a few days to up to 270 days.

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12
Q

True or False: The money market is a part of the capital market.

A

False

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13
Q

What is a repurchase agreement (repo)?

A

A short-term borrowing mechanism where one party sells securities to another with an agreement to repurchase them at a later date.

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14
Q

Fill in the blank: The _____ is the rate of interest charged on repurchase agreements.

A

repo rate

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15
Q

What are the advantages of investing in money market funds?

A

Higher liquidity, low risk, and relatively stable returns.

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16
Q

What is the difference between a money market and a capital market?

A

Money markets deal with short-term securities, while capital markets deal with long-term securities.

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17
Q

True or False: Money market securities are typically issued in large denominations.

A

True

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18
Q

What is the primary risk associated with money market investments?

A

Credit risk, though it is generally low.

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19
Q

Fill in the blank: The _____ is the government agency that issues Treasury bills.

A

U.S. Department of the Treasury

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20
Q

What is the main function of the Federal Reserve in relation to the money market?

A

To regulate the money supply and interest rates.

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21
Q

True or False: Money market instruments are not traded on a secondary market.

A

False

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22
Q

What does the term ‘discount’ mean in the context of Treasury bills?

A

Treasury bills are sold at a price lower than their face value.

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23
Q

Fill in the blank: The _____ is the yield on a money market investment expressed as an annual percentage.

A

annualized yield

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24
Q

What is the primary regulatory body overseeing the money market?

A

The Securities and Exchange Commission (SEC).

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25
Q

True or False: The money market is only accessible to institutional investors.

A

False

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26
Q

What is the purpose of the London Interbank Offered Rate (LIBOR)?

A

To serve as a benchmark interest rate for short-term loans between banks.

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27
Q

Fill in the blank: The _____ market is where short-term financial instruments are bought and sold.

A

money

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28
Q

What is the main characteristic of a money market instrument?

A

Short maturity and high liquidity.

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29
Q

True or False: All money market instruments are backed by the government.

A

False

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30
Q

What type of investor typically uses money market accounts?

A

Conservative investors looking for liquidity and safety.

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31
Q

Fill in the blank: Money market accounts typically offer _____ interest rates compared to savings accounts.

A

higher

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32
Q

What is a key feature of money market securities?

A

They are usually low-risk and provide quick access to cash.

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33
Q

What is the primary reason companies issue commercial paper?

A

To meet short-term financial obligations.

34
Q

True or False: Money market securities can be used as collateral for loans.

A

True

35
Q

What does it mean when a money market fund is ‘no-load’?

A

It does not charge a sales fee when you buy or sell shares.

36
Q

Fill in the blank: The _____ is often considered a safe haven during market volatility.

A

money market

37
Q

What is the primary difference between a money market fund and a savings account?

A

Money market funds typically invest in short-term securities, while savings accounts are bank deposits.

38
Q

True or False: The interest earned on money market accounts is typically taxable.

A

True

39
Q

What is the typical investment horizon for money market instruments?

A

Short-term, usually less than one year.

40
Q

Fill in the blank: The _____ is the minimum investment amount for many money market funds.

A

initial deposit

41
Q

What type of risks are associated with money market funds?

A

Interest rate risk and credit risk, though they are generally low.

42
Q

What is the main benefit of using Treasury bills for investors?

A

They are backed by the full faith and credit of the U.S. government.

43
Q

True or False: Money market investments are suitable for long-term growth.

A

False

44
Q

What is the typical yield on a money market fund compared to other investments?

A

It is typically lower than stocks but higher than traditional savings accounts.

45
Q

Fill in the blank: The _____ is a financial institution that provides short-term loans to banks.

A

central bank

46
Q

What is the primary use of a money market account?

A

To earn interest while maintaining liquidity.

47
Q

True or False: Money market funds are required to maintain a stable net asset value (NAV).

A

True

48
Q

What is the minimum maturity for a money market instrument?

A

One day

49
Q

Fill in the blank: The _____ is a standard measure of the performance of money market funds.

A

7-day yield

50
Q

What is the primary risk of investing in commercial paper?

A

The risk of default by the issuing corporation.

51
Q

True or False: Money market securities can be purchased directly from the issuer.

A

True

52
Q

What is the purpose of using a sweep account?

A

To automatically transfer excess funds into a higher-yielding investment like a money market fund.

53
Q

Fill in the blank: Money market investments are generally considered a _____ investment strategy.

A

conservative

54
Q

What is the impact of rising interest rates on money market funds?

A

They tend to increase the yields of money market funds.

55
Q

True or False: Money market funds are not insured by the FDIC.

A

True

56
Q

What type of institutions are major players in the money market?

A

Banks, corporations, and institutional investors.

57
Q

Fill in the blank: The _____ is often used as a benchmark for money market rates.

A

federal funds rate

58
Q

What is the primary goal of money market investors?

A

To preserve capital while earning a return.

59
Q

True or False: Money market instruments are typically issued in small denominations.

A

False

60
Q

What is a key advantage of Treasury bills over other money market instruments?

A

They are considered risk-free due to government backing.

61
Q

Fill in the blank: The _____ is the amount of interest earned on a money market investment over a year.

A

annual percentage yield (APY)

62
Q

What is the primary function of the money market in the economy?

A

To facilitate the flow of short-term funds.

63
Q

True or False: Money market funds can be a good option for emergency savings.

A

True

64
Q

What type of financial instrument is a ‘certificate of deposit’?

A

A time deposit with a fixed interest rate and maturity date.

65
Q

Fill in the blank: The _____ is the interest rate used by banks to lend to each other overnight.

A

federal funds rate

66
Q

What is the primary risk associated with investing in a money market fund?

A

The potential for loss if the fund’s investments underperform.

67
Q

True or False: Money market funds are required to maintain a stable net asset value of $1 per share.

A

True

68
Q

What is a key feature of a ‘no-load’ money market fund?

A

It does not charge any fees for transactions.

69
Q

Fill in the blank: The _____ is used to indicate the performance of a money market fund over time.

A

yield

70
Q

What is the typical liquidity of money market instruments?

A

High liquidity, allowing quick access to cash.

71
Q

True or False: All money market funds invest in the same types of securities.

A

False

72
Q

What is the primary benefit of using a money market fund for cash management?

A

Higher returns compared to traditional checking or savings accounts.

73
Q

Fill in the blank: Money market instruments are often referred to as _____ investments.

A

cash equivalent

74
Q

What is the role of the Securities and Exchange Commission (SEC) in the money market?

A

To regulate and oversee the activities of money market funds.

75
Q

True or False: Money market accounts typically have a minimum balance requirement.

A

True

76
Q

What is a key characteristic of a money market fund’s investment strategy?

A

Investing in short-term, high-quality securities.

77
Q

Fill in the blank: The _____ is the rate at which banks lend to customers, influenced by the money market.

A

prime rate

78
Q

What is a ‘government money market fund’?

A

A fund that invests primarily in government securities.

79
Q

True or False: Money market funds can have exposure to foreign currency.

A

True

80
Q

What is the primary function of a ‘sweep account’?

A

To automatically transfer excess funds into a higher-yielding investment.

81
Q

Fill in the blank: A _____ is a short-term loan secured by collateral.

A

repo

Economics (6 decks)

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