US Government and Agency Underwritings Flashcards
All of the following statements are true regarding the conduct of the weekly treasury auctions EXCEPT:
A. Competitive bids will always be filled
B. Non-competitive bids take priority over competitive bids
C. 3 month T-Bills are auctioned weekly
D. 6 month T-Bills are auctioned weekly
The best answer is A.
Because the amount of securities represented by non-competitive bids are withheld from auction and are always filled at the average winning yield, these bids have priority. 4 week, 13 week and 26 week Treasury Bills are auctioned weekly. Competitive bids will not be filled if the yield specified is too high. The bids are always awarded on the basis of lowest discount yield.
Once auctioned on Monday or Tuesday, Treasury Bills are issued to the winning bidders and must be paid for immediately following the auction date on the following:
A. Tuesday
B. Wednesday
C. Thursday
D. Monday
The best answer is C.
The Federal Reserve conducts Treasury Bill auctions weekly on Monday and Tuesday. The Bills are issued to the winning bidders, and must be paid for, on the Thursday immediately following the auction date.
Competitive bidders at Treasury Auctions would typically include all of the following EXCEPT:
A. Primary U.S. Government Dealers
B. Individuals
C. Money Market Mutual Funds
D. Pension Funds
The best answer is B.
Individuals generally place non-competitive bids at Treasury auctions. Competitive bids are placed by large U.S. Government securities dealers and by institutions.
Which statements are TRUE regarding bids placed at the Treasury Auction?
I Competitive Bids are always filled
II Competitive Bids are not always filled
III Only the lowest interest rate bids are filled
IV Only the highest interest rate bids are filled
A. I and III
B. I and IV
C. II and III
D. II and IV
The best answer is C.
At the weekly Treasury auction, non-competitive bids are always filled at the average winning yields of the competitive bids. Only the lowest interest rate competitive bids are filled; the higher rate competitive bids that exceed the amount of securities up for auction that week are rejected.
Which statement is TRUE about non-competitive bids placed at Treasury auctions?
A. Non-competitive bids have priority over competitive bids
B. Competitive bids have priority over non-competitive bids
C. Both non-competitive and competitive bids have the same priority
D. All bids are given priority based on the size of the bid
The best answer is A.
In the weekly T-Bill auction, the amount of non-competitive bids is set aside from the total securities to be auctioned and is always filled at the average winning rate. The remaining T-Bills to be auctioned are filled from the lowest interest rate bid on up. Once the issue is “sold out,” all of the winning bidders are filled at the highest interest rate bid that completed the sale (so all winning bidders get the same interest rate - this is a “Dutch Auction”). Once the issue is “sold out,” the remaining higher rate competitive bids are void. Thus, non-competitive bids have priority at the weekly auction.
Which statements are TRUE regarding the weekly Treasury Bill auction?
I The minimum non-competitive bid has no dollar limit
II The minimum non-competitive bid amount is $100
III The maximum non-competitive bid has no dollar limit
IV The maximum non-competitive bid amount is $5,000,000
A. I and III
B. I and IV
C. II and III
D. II and IV
The best answer is D.
The minimum non-competitive bid amount in the weekly Treasury Bill auction is $100; the maximum non-competitive bid amount is $5,000,000.
New issue agency securities are sold:
A. by competitive bid at auction
B. by non-competitive bids placed with the Federal Reserve
C. through a selling group of broker-dealers assembled by the agency
D. through commercial banks and savings and loans
The best answer is C.
Whereas government securities are sold at auction conducted by the Federal Reserve, agency securities are sold to the public through a selling group of broker-dealers assembled by the agency. This is done on a negotiated basis, with the group consisting mainly of primary government dealers.
Primary offerings of agency securities are made at:
A. par
B. par plus a commission
C. par plus a mark-up
D. par plus a selling concession
The best answer is A.
Primary offerings of agency securities to the public are made at par. The selling concession is paid to the selling group members by the agency issuing the security. The concession is paid out of the proceeds of the offering.
An investor wishes to buy a new issue of U.S. Government agency bonds. You recommend that the customer purchase Federal Home Loan Bank bonds with a 20 year maturity. An investor who purchases the new issue of Federal Home Loan Bank bonds can expect to pay:
A. par
B. par plus a mark-up
C. discount
D. discount plus a mark-up
The best answer is A.
New issues of agency securities are sold through a selling group that is appointed by the Agency. The group typically consists of large banks and broker-dealers. The group sells the issue at par to the public. Out of the proceeds, a selling concession is paid to the selling group by the agency. In contrast, direct U.S. Government obligations are sold through auction.
All of the following securities are sold through auction EXCEPT:
A. Treasury Bills
B. Treasury TIPS
C. General Obligation Bonds
D. Government National Mortgage Association Bonds
The best answer is D.
All agency securities, including GNMA issues, are sold through selling syndicates in a negotiated offering. T-Bills and TIPS - Treasury Inflation Protection Securities - are sold through yield auctions conducted by the Federal Reserve for the Treasury. General Obligation municipal bonds are sold through competitive bid as well.
Which of the following statements are TRUE?
I New issues of Treasury Bills are generally priced at par
II New issues of Treasury Bonds are generally priced at par, or at a slight discount to par
III New issues of Agency Bonds are generally priced at par, or at a slight discount to par
A. I only
B. III only
C. II and III only
D. I, II, III
The best answer is C.
New issues of T-Bills are always sold at a discount to par value. These are original issue discount obligations, with the accretion of the discount being the interest income earned on these securities. Treasury Bonds and Agency Bonds are issued at par (or at a very slight discount to par), and make periodic interest payments.
Which of the following statements are TRUE regarding new issue government and new issue agency securities?
I Agency securities are sold through a selling group
II Agency securities are sold through auction
III Direct U.S. government obligations are sold through a selling group
IV Direct U.S. government obligations are sold through auction
A. I and III
B. I and IV
C. II and III
D. II and IV
The best answer is B.
New issues of agency securities are sold through a selling group that is appointed by the Agency. The group typically consists of large banks and broker-dealers. Out of the proceeds, a selling concession is paid to the selling group by the agency. Direct U.S. Government obligations are sold through auction.
