Section 103 Unit 1

Question 1

Liquidity

Answer 1

Is the ability to sell or redeem an investment quickly and at a known price, without a significant loss of principal.

Question 2

Marketability

Answer 2

Is the ability to sell an investment quickly in a readily identifiable market (i.e., there is no consideration of whether there is a corresponding loss of principal at the time of sale)

Question 3

Marketable Vs Liquidity

Answer 3

Liquidity refers more to time an item can be sold and marketable is the number of buyers interested. Money market deposit accounts are liquid that you’ll receive your money quickly, but there are no buyers, so it is not marketable.

Question 4

Negotiable CDs

Answer 4

Deposits of $100,000 or more.
FDIC-insured amount of a depositor is $250,000
Bought and sold on the secondary market at a market-determined price.

Question 5

Passbook Savings Account

Answer 5

A savings account and rarely includes a check-writing privilege and pays a relatively low rate of interest.

Question 6

Money Market Deposit Accounts (MMDAs)

Answer 6

Offered by banks and savings and loans. Federally insured up to $250,000. Limited withdrawal privileges. (Not to be confused with Money Market Mutual Funds)

Question 7

The National Credit Union Share Insurance Fund (NCUSIF)

Answer 7

An agency of the federal government, which regulates credit unions and insures up to $250,000 per qualifying account.

Question 8

Money Market Mutual Funds

Answer 8

Mutual funds that typically invest in high-quality, short-term investments, such as U.S. Treasury Bills, Commercial Paper, and Negotiable CDs. Funds usually mature within one year and have an average maturity of 30 to 90 days. $1,000 minimum. Checks can be written directly from the account without penalty.

Question 9

U.S. Treasury Bills (T-Bills)

Answer 9

Short-Term Government security. Purchase at $100 increments. Maturities range from 4 to 52 weeks. Not subject to original issue discount rules (OID). At maturity, interest income from the bill is taxed at ordinary federal income tax rates, but it is not subject to state income tax.

Question 10

Commercial Paper

Answer 10

Is a negotiable, short-term, unsecured promissory note issued by a large corporation to finance accounts receivable and seasonal inventory gluts. In denominations of $100,000. Sold at a discount and is rated by a rating service (such as standard & poor’s) as to quality. Maturity is no more than 270 days. Backed by lines of credit from banks.

Question 11

Repurchase Agreements or Repos

Answer 11

To satisfy short-term liquidity needs, dealers will sell some of those securities to another dealer with an agreement to buy them back at a later date at an agreed-upon price.

Question 12

Reverse Repurchase Agreement or Reverse Repo

Answer 12

The dealer buys government securities from another dealer then sells them back later a higher price.

Question 13

Banker’s Acceptances

Answer 13

Short-term drafts drawn by a private company on a major bank used to finance imports and exports. The bank, after financing the trade, can sell the obligation at a discount to obtain immediate cash.

Question 14

Eurodollars

Answer 14

Are U.S. Dollar-denominated deposits at banks outside the United States used to settle international transactions. Average deposit is $1. Million and matures less than 6 months

Question 15

Eurodollar CD

Answer 15

Same Characteristics as its domestic counterpart except that the obligation is the liability of a non-U.S. Bank. Less liquid and, therefore, offer a slightly higher yield than domestic CDs.