ACCT346 Quizzes and ExamsClick the link below to purchase:

http://hwminute.com/downloads/acct346-quizzes-exams/

(hwminute@gmail.com )Visit Website: http://hwminute.com/

ACCT/346 All Quizzes and Exams Solved A Grade Guaranteed

All Quizzes + Midterm Exam + Final Exam

Chapter 1- 20

CHAPTER 1TRUE/FALSE QUESTIONS1. The purpose of the financial system is to bring savers and borrowers together. 2. Businesses are never DSUs.3. A financial claim is an IOU from a deficit spending unit.4. Investment bankers help DSUs bring new primary security issues to market. 5. Deposits in a credit union by a household are an example of direct finance. 6. When an SSU owns a financial claim created by financial intermediation, itsresidual claim is against a DSU. 7. Assets of financial intermediaries include direct financial claims only. 8. Finance companies take small consumer deposits and make large consumerloans.9. Liabilities of financial intermediaries are indirect financial claims.10. Direct finance requires a more or less exact match of preferences. 11. There must be an equal number of DSUs and SSUs in a period.12. Every financial claim appears on two balance sheets.13. Without a financial sector, real investment must be financed internally by theDSU.14. Depository intermediaries issue claims that are for the most part highly liquid.15. A household is an SSU when income for the period exceeds spending. 16. An SSU must hold a claim until its scheduled maturity.17. Financial claims or securities are written for the mutual benefit of both SSU andDSU. 18. DSUs and SSUs always have some contact with each other in financial markets.19. Commercial banks lend to businesses in direct financial markets. 20. Futures contract and forward contract are interchangeable terms.21. Mortgages are capital market debt securities.222. Households are the major source of funds to the financial system. 23. Secondary markets are important because they provide funds directly to DSUs. 24. Primary markets offer liquidity and ways for investors to alter the risk of theirportfolios.25. The New York Stock Exchange is an example of an organized exchange.26. The money market provides liquidity; the capital market finances economicgrowth.27. Private placements are the simplest form of direct finance.28. Competition among financial intermediaries tends to force interest ratesdownward.29. Money markets have a greater variety of investors than borrowers. 30. Every asset is someone elses liability, but not every liability is someone elses asset.31. All money market instruments are short-term debt.33. The money market is a dealer market, not an exchange, and has no specificlocation.34. Money market borrowers are small in number compared to money marketlenders.35. The money market is a market where liquidity is bought and sold.36. Commercial banks are the major issuer and investor of money market securities.() 37. Organized exchanges are less exclusive than over-the-counter markets. 38. Dealers bring buyer and seller together; brokers make a market. 39. OTC markets are not very important any more.40. When a stock is listed on an exchange, members may trade it on the floor of theexchange.MULTIPLE CHOICE QUESTIONS 1. An SSUsa. income and expenditures for the period are equal.b. income for the period exceeds expenditures.c. expenditures for the period exceed receipts.d. spending is entirely financed by credit cards3 2. Which of the following is an example of indirect financing?a. an SSU purchasing a financial claim from a DSUb. an SSU purchasing a financial claim from a dealerc. an SSU purchasing a financial claim from a commercial bankd. an SSU purchasing a financial claim from an underwriter 3. Which of the following does not take deposits?a. commercial banks.b. savings and loan associations.c. credit unions.d. finance companies. 4. When the financial system has achieved a high degree of efficiency,a. Borrowers are able to finance at the highest possible cost.b. Surplus spending units are able to receive the lowest return on their savings.c. Transaction and intermediation costs are low.d. Lenders will have a limited choice of financial investments. 5. An efficient financial systema. eliminates search and transactions costsb. is a mere theoretical possibilityc. promotes economic growth and social progressd. depends on high volumes of direct transactions 6. Pension funds tend to invest ina. higher-yielding long-term securitiesb. money market securities exclusivelyc. government securities exclusivelyd. none of the above 7. Financial institutions facilitate the flow of investment fundsa. from savers to borrowersb. from SSUs to DSUsc. from the household sector to the business sectord. any of the above 8. Which sector has been most consistently in a surplus budget position?a. Businessb. Governmentc. Foreignd. Household 9. Which of the following are economic units?a. householdsb. businessesc. governmentsd. all of the above 10. Which of the following best describes the "two faces of debt" concept?a. DSUs are sometimes SSUs.b. Every financial asset is someone elses liability.c. Intermediaries may own both direct and indirect financial assets.4d. The government is unable to control its federal spending. 11. A dealer offers to buy shares of IBM at $125 and sell to investors at $127. Thebid isa. $125 b. $127 c. $2 d. none of the preceding 12. Most financial intermediaries:a. issue direct claims and purchase direct financial assets.b. issue indirect claims and purchase indirect financial assets.c. purchase large amounts of real, tangible assets.d. purchase direct financial claims and issue indirect securities. 13. Profitability of financial intermediaries derives from all of the following excepta. government regulation of interest ratesb. economies of scalec. ability to manage credit riskd. control of transactions costs 14. Denomination intermediation is best exemplified bya. issuing insured deposits and making risky business loans.b. bringing together investors of different religionsc. issuing five $3,000 CDs and making one $15,000 loan.d. promising liquidity to SSUs while investing the funds long-term 15. All but one of the following is comparative advantage of financial intermediaries:a. ability to finance businesses and governments.b. ability to achieve economies of scale.c. ability to reduce transaction costs.d. ability to find confidential information. 16. Which of the following would tend to hold corporate bonds in significantamounts?a. life insurance companyb. credit unionc. mutual savings bankd. commercial bank 17. All but one of the following is a standard characteristic of financial claims:a. They are recognized on two balance sheets.b. They are intangible assets.c. They are IOU's traded for funds.d. They represent ownership of real assets. 18. Money market mutual funds are a strong competitor fora. depository institutions.b. contractual savings institutions.c. finance companies.d. the real estate market. 19. All of the following are terms for or examples of financial claims excepta. bonds.5b. money.c. loans.d. commodities. 20. Direct finance is best exemplified bya. the purchase of mutual fund shares.b. depositing in a credit union.c. borrowing from a friend or relative.d. employee contributions to a pension fund. 21. Surplus spending units (SSU) are also calleda. lenders.b. borrowers.c. sellers of securities.d. balanced budget units. 22. During 2008, Bob and Nancy Gutierrez expect total income of about $225,000 and arebudgeting total expenditures of about $180,000. For this budget period, the Gutierrezfamily is most specifically a(n)a. DSUb. businessc. SSUd. household 23. The ease with which a financial claim can be resold is itsa. quality.b. risk.c. marketability.d. perpetuity. 24. The flow of funds from saving to investment through direct financing involvesa. the saver holding the lender's IOU.b. two separate contracts.c. the lender holding the borrower's IOU.d. several different financial institutions. 25. Intermediation, or ____ financing, involves ___ financial claim(s) linking SSUand DSU.a. indirect; twob. direct; twoc. indirect; oned. direct; one 26. In direct financing the lendera. trades a financial claim for money.b. trades money for a financial claim issued by a financial institution.c. trades money with a broker who owns the financial claims of a borrower.d. trades money for the financial claim of the borrower.6 27. All but one is associated with direct financing:a. single financial instrument.b. a broker, dealer or investment banker.c. small denominations.d. dominance of governments and businesses as borrowers. 28. A sale of an entire security issue to one investor or a small group of investors isa. a dealer arrangement.b. a private placement.c. an underwriting.d. intermediation financing. 29. Brokers and dealers work in direct financial markets toa. make commissions.b. minimize the bid-ask spread.c. bring sellers and buyers together.d. underwrite new issues of securities. 30. ______ merely execute buy or sell orders for their clients; _______ makemarkets.a. dealers; brokersb. brokers; investment bankersc. dealers; financial institutionsd. brokers; dealers 31. Hammond Securities holds an inventory of ABC Corp. stock, buying at $65.00and selling at $67.50. The bid is _____; the bid-ask spread is _____.a. $65.00; $2.50b. $67.50; $2.50c. lower than the ask price; higher than the bid priced. higher than the ask price; $2.50 32. The _____ price is the highest price offered by the dealer to purchase a givensecurity.a. market b. ask c. offering d. bid 33. Acting as matchmaker and earning a commission, the ______ is an importantcomponent in direct financial markets.a. dealerb. investment bankerc. brokerd. seller 34. All but one describes a dealer involved in direct financial market:a. provides liquidity to sellersb. buys and sells from inventoryc. earns return from bid-ask spreadd. transforms claims 35. All but one of the following is associated with investment banking:7a. Taking deposits.b. Marketing new issues of securities.c. Underwriting securities.d. Completing regulatory paperwork and rendering advice. 36. Hollon Securities is underwriting an issue of Llamas Unlimited, Inc. commonstock. Hollon will pay LU $45.00 a share and offer the stock to the public at $48.00. Thedirect cost of underwriting the issue is $1.00 per share. The underwriting spread isa. $4.00 per share.b. $3.00 per share.c. $2.00 per share.d. not ascertainable from the information above. 37. Most of the financial claims issued by U.S. financial intermediaries arepurchased bya. the household sector.b. the business sector.c. the government sector.d. the foreign sector 38. The best synonym for financial intermediation isa. direct financeb. investment bankingc. market makingd. transformation of claims 39. An S&L taking short-term deposits and financing local land development isengaging ina. speculation.b. maturity intermediation.c. denomination intermediation.d. currency transformation 40. Credit risk diversification occurs whena. adding loans to the portfolio increases the variability of the loan portfolio.b. loans from similar borrowers are combined in a portfolio.c. adding loans to the portfolio decreases the variability of the loan portfolio.d. combining loans with similar payment patterns in a single portfolio. 41. Currency transformation is an important service becausea. most SSUs want to invest in more than one currencyb. all financial institutions operate internationallyc. few ordinary investors care to hold claims denominated in foreign currencyd. DSUs cant export unless they borrow in the currency of the importing country 42. A commercial bank provides liquidity when ita. pays the check written by a deposit customer.b. redeems a savings deposit upon demand.c. makes a loan fulfilling a loan commitment.8d. All of the above. 43. Disintermediation is best exemplified bya. purchase of securities.b. sale of securities.c. writing a broker a check to pay for a purchase of IBM stock.d. depositing an insurance settlement with a credit union. 44. The only deposit-type institutions that do not operate for profit area. thrift institutionsb. credit unionsc. pension fundsd. commercial banks 45. Credit unions are _____ institutions; pension funds are _______ institutions.a. depository; contractualb. contractual; depositoryc. federal ; investmentd. depository; depository 46. The financial institution that is the largest issuer of commercial paper isa. commercial banks.b. finance companies.c. property-casualty insurance companies.d. pension funds. 47. Which of the following is not a debt security?a. corporate bonds.b. U.S. Government securities.c. federal agency securities.d. common stock. 48. Federal agencies issue high quality securities and invest primarily in claims issued bya. businesses that are too big to fail.b. the U.S. Treasury to finance government deficits.c. agricultural or housing-related sectors which have limited access to privatecredit.d. foreign governments 49. Money market instruments and capital market instruments differ appreciably ina. maturityb. liquidityc. availability to ordinary individual investorsd. all of the above 50. Potential effects of yield fluctuations on security prices and reinvestment incomerepresenta. credit risk.b. liquidity risk.c. foreign exchange risk.d. interest rate risk.9 51. Which of the following is not an example of capital market securities?a. common stocksb. convertible bondsc. commercial paperd. mortgages 52. Secondary capital markets have promoted economic growth in the U.S. becausea. they have increased marketability of stocks and bonds.b. they have increased the public's access to investment.c. they have helped investors diversify.d. all of the above 53. Security exchanges provide a valuable function in that theya. create interest in stocks.b. increase the marketability of securities.c. provide a legal way to gamble.d. supply money to deficit spending units. 54. The difference between capital spending and real investment is chiefly a differenceina. essential nature and purpose of the assets created or acquiredb. relative cost of the assets created or acquiredc. susceptibility of the assets created or acquired to amortization or depreciationd. semantics 55. Primary capital markets are most likely to financea. plant and equipmentb. inventoryc. operating expensesd. none of the above 56. The household sector is the largest surplus sector and invests in the capitalmarketa. directly by purchasing stocks and bonds.b. indirectly through mutual funds.c. indirectly through pension fundsd. all of the above 57. If Boeing splits its outstanding common stock 2-for-1, that is an example ofa. primary market activityb. secondary market activityc. money market activityd. financial intermediation 58. A standardized, exchange-backed contract to deliver assets 3 months from todayis a:a. forward contract. b. securitized asset. c. futures contract. d. option contract. 59. A conditional contract granting its holder the right to buy assets in the future is a:a. put. b. forward contract. c. futures contract. d. call. 60. Money markets are associated with ; capital markets are associated witha. liquidity; marketability.b. spot; future.10c. liquidity; economic investment.d. primary; secondary. 61. The DSU receives the funds in the primary market; the SSU sells the claim in thea. intermediation market.b. direct financial market.c. federal funds market.d. secondary market. 62. Which of the following is not a characteristic of money market instruments?a. short-term to maturityb. small denominationc. low default riskd. high marketability 63. Small investors are likely to invest in the money market ______ through _____ .a. directly; commercial paperb. locally; their credit unionc. indirectly; negotiable CDsd. indirectly; money market mutual funds 64. Which of the following statements about the money market is true?a. The money market is a dealer market linked by efficient communicationssystems.b. Money market transactions are seldom over $1 million.c. Market transactions include more primary than secondary market trades.d. Most money market transactions are conducted by mail. 65. Which of the following may be a liability of a nonfinancial business?a. commercial paperb. Federal Fundsc. Treasury securitiesd. agency securities 66. Federal Funds are typicallya. Treasury deposits.b. Federal Reserve assets.c. commercial bank deposits at the Federal Reserve.d. overnight loans settled in immediately available funds. 67. The money market is important becausea. it is the world's liquidity market.b. it is the market in which the Fed conducts monetary policy.c. the federal government finances most of its credit needs in the money market.d. all of the above 68. The money market security represented by the largest dollar amount outstandingisa. commercial paper.b. federal agency issues.c. negotiable CDs.d. Treasury bills.11 69. Which of the following bank money market securities is backed by specifiedcollateral?a. negotiable CDsb. banker's acceptancesc. repurchase agreementsd. commercial paper 70. Money market securities have very littlea. default risk.b. price risk.c. marketability risk.d. all of the above. 71. Large industrial U.S. corporations are involved in the money market bya. investing excess cash balances.b. buying and selling goods on credit in international trade.c. issuing commercial paper.d. all of the above 72. Financial markets provide financial institutions:a. a place to securitize assets.b. a source of generating fee income from trading.c. a source of funding.d. all of the above. 73. Corporations list their securities on exchanges in order toa. pay an annual listing fee and disclose important information.b. enhance the liquidity of their securities for investors.c. sell more securities.d. increase the size of the firm.ESSAY QUESTIONS1. Explain financial intermediation and its benefits.2. Explain how and why the secondary capital markets play an important role in our economy. Howdo secondary markets assist the primary market?3. List and briefly describe the main risks managed by financial intermediaries.CHAPTER 2TRUE/FALSE QUESTIONS 1. Deposits should expand when reserve requirements increase. 2. The Fed's most influential tool is reserve requirements.3. Federal Reserve regulations affect many nonbank institutions.4. Depository institutions create money when they lend or invest excess reserves.5. The Federal Open Market Committee basically establishes our nation's monetarypolicy.6. A primary function of the Fed is economic stabilization via control of the moneysupply.7. The Fed can substantially control the level of total bank reserves. 8. The Federal Reserve is independently funded and thus immune to any political13pressure. 9. In the check-clearing system DACI usually exceeds CIPC, creating Fed float.10. A decrease in Federal Reserve float decreases member bank reserves. 11. Currency is an asset of the Federal Reserve Banks. 12. A decrease in reserve requirements increases the total level of member bankreserves. 13. An increase in the money supply does not affect the supply of loanable funds. 14. Open market purchases by the Fed reduce total reserves in the banking system.15. Monetary policy is a highly partisan issue.16. The Fed can change the level of member bank reserves as well as reserverequirements.17. The first impact of monetary policy upon depository institutions is via excessreserves. 18. Deposits should expand when the Fed sells securities. 19. The Discount Rate is a direct control on the money supply.20. The Fed is this nation's first permanent central bank. 21. The Federal Reserve System replaced the National Banking system. 22. Congress is powerless over the Fed. 23. Excess reserve balances pay interest; required reserve balances do not.24. Open Market Operations are the primary tool of monetary policy today. 25. A Fed governor has a lifetime appointment.26. As the Fed expands the monetary base, bank loans and investmentsshould expand also.27. Though decentralized in geography, todays Fed is highly centralized in power structure.28. Reserve requirements are not considered a viable tool of monetary policy. 29. The monetary base comprises the Feds most important assets.30. The Federal Reserve Bank of New York is the headquarters of open market operations.31. No two Governors may be from the same Federal Reserve District. 32. Reserve requirements apply only to member banks in Federal Reserve System. 33. The Chairman of the Fed is highly visible, but not very powerful.34. All national banks must join the Federal Reserve System.35. Margin requirements are an important regulatory power of the Fed.14 36. Excess reserves cost a depository institution nothing to maintain. 37. The monetary base comprises currency in circulation and checks not yet cleared.MULTIPLE-CHOICE QUESTIONS 1. Number of Federal Reserve Governors plus size of FOMC less number ofFederal Reserve banks equals:a. 9. b. 7. c. 14. d. 12. 2. Which of the following can be associated with original objectives of the Fed?a. coordinate an efficient payments mechanism.b. provide an elastic money supply.c. serve as lender of last resort.d. all of the above 3. The primary responsibility of the Federal Open Market Committee (FOMC) is toa. set monetary policyb. supervise and examine member banks.c. guarantee excess reserves to National Banks.d. enforce margin requirementsUse this data answer questions 4-6: Total Reserves $80,000,000; Reserve Requirement5%; Total Deposits $700,000,000. 4. Using the data above, the level of excess reserves isa. $ 4,000,000 b. $ 45,000,000 c. $ 70,000,000 d. not ascertainable 5. The data above exemplifya. an arguable underutilization of resources, at least for the momentb. an excess reserve positionc. a near-term likelihood that loans and deposits will expandd. all of the above 6. The data above could exemplify a direct, immediate effect of any of the following excepta. an open market sale by the Fedb. a lowering of reserve requirements by the Fedc. a new loan at the Discount Window by the Fedd. an open market purchase by the Fed 7. The asset of Federal Reserve banks associated with open market operations isa. Federal Reserve notes.b. U.S. government securities.c. loans to member banks.d. float. 8. The Treasury draws most of its checks upona. the Comptroller of the Currency.b. national banks.c. Federal Reserve banks.d. its own required reserves 9. For what purposes do depository institutions keep deposits in the Federal Reserve banks?a. for clearing checksb. to satisfy reserve requirements15c. to earn interestd. a and b 10. Federal Reserve notes held in bank vaults are the liability or obligation ofa. the Fed.b. the Treasury.c. the bank.d. none of the above 11. Federal Reserve floata. is the lag time required for monetary policy to take effectb. represents a net extension of credit by the Fed, which increases bank reserves.c. represents a net liability of the Fed.d. is DACI minus CIPC. 12. When the New York Fed sells Treasury securities to a securities dealera. depository institutions deposits in the Fed decrease.b. depository institutions deposits in the Fed increase.c. the deposit balance of the security dealer in its bank decreases.d. both a and c above. 13. Which Fed action does not directly increase total reserves in the banking system?a. Lowering the Discount Rateb. Lowering reserve requirementsc. Buying U.S. Government securities on the open marketd. None of the above 14. To increase the money supply immediately but just slightly, the Fed would most likelya. Buy securities on the open marketb. Lower the Discount Ratec. Lower reserve requirementsd. Any of the above would be suitable for this purpose. 15. Reserve requirements apply toa. National banksb. State banksc. Savings-and-loan associationsd. All of the above 16. The Feds primary tools of monetary policy include all the following excepta. changing the discount rate.b. open market operations.c. adjusting reserve requirements.d. changes in the Federal Funds rate. 17. The 12 Federal Reserve Banks area. Important and autonomous components of a decentralized central bankb. Important components of the Fed, but no longer very autonomousc. Neither important nor autonomousd. All permanently voting members of the FOMC 18. The purchase of government securities by the Fed willa. decrease the money supply.b. increase security prices.16c. increase interest rates.d. decrease credit availability. 19. Which of the following is in the correct historical order?a. Second Bank of the United States, Federal Reserve Act, Crash of 1907b. Crash of 1907, Federal Reserve Act, National Banking Actsc. First Bank of the United States, Crash of 1907, National Banking Actsd. Second Bank of the United States, National Banking Acts, Federal Reserve Act 20. The Feds most visible monetary tool is probablya. open market operations.b. change in reserve requirements.c. Reg Z.d. discount rate policy 21. The Feds non-monetary or regulatory powers do not includea. Margin requirementsb. Interest rate disclosures on depositsc. Investigation and prosecution of counterfeitingd. Bank holding companies 22. Which of the following was a responsibility of the early Federal Reserve System?a. to control the money supplyb. to safeguard the national payment systemc. to establish a more rigorous bank supervisory systemd. all of the above 23. The Federal Reserve System establisheda. a system for federal chartering of banks.b. a system for controlling bank note issuance.c. a source of liquidity for the banking system.d. the beginning of demand deposit accounts. 24. Increases in the Feds assetsa. decrease the monetary baseb. increase the monetary basec. have no effect on the monetary base.d. none of the above 25. Which of the following can be associated with the modern objectives of the Fed?a. coordinate an efficient payments mechanism.b. provide an elastic money supply.c. regulate the financial system.d. all of the above. 26. Reforms and regulatory changes in U.S. financial institutions are best associated with:a. international events affecting U.S. financial institutions.b. periods of severe economic and financial problems in the U.S. economy.c. voter changing the majority party in Congress.d. recommendations of presidential commissions. 27. Who among the following does not have a permanent vote on the FOMC?a. President, Federal Reserve Bank of New Yorkb. Chairman, Board of Governors17c. President, Federal Reserve Bank of Los Angelesd. Members of the Board of Governors 28. There are ______ members of the Federal Reserve Board of Governors, _______members of the Federal Open Market Committee, and ________ Federal Reserve Banks.a. 12; 7; 12 b. 7; 14; 12 c. 14; 12; 12 d. 7; 12; 12 29. All of the following are locations of Federal Reserve Banks excepta. San Francisco b. Dallas c. Washington, DC d. Kansas City 30. An increase in Federal Reserve floata. decreases bank reserve deposits in the Fed.b. increases bank reserve deposits in the Fed.c. has no impact upon bank reserves deposits in the Fed.d. reduces the net loan granted by the Fed to member banks. 31. The Discount Windowa. is a common way for depository institutions to raise loanable fundsb. relates to the Feds lender of last resort functionc. is a relatively recent innovation in the design of the Federal Reserve Systemd. is available only during emergencies 32. The Feds most important duty is toa. regulate national banksb. print currencyc. establish the nations monetary policyd. stimulate the economyESSAY QUESTIONS1. Explain why the Federal Reserve is less "independent" than it appears to be.2. Compare and contrast the tools of monetary policy in terms of their relative usefulness.3. How has the power structure of the Fed changed since 1913?4. Assume the Fed pays $1000 for a government bond on the open market. With a 5% reserverequirement, what is the theoretical ultimate addition to the money supply, and why?5. Why is changing the discount rate not a viable tool for conducting monetary policy?

6. What are margin requirements, and why do they exist?CHAPTER 3TRUE/FALSE QUESTIONS 1. The monetary base exceeds the money supply.2. The cash-holding behavior of the public affects the monetary base.3. The Federal Reserve decreases the monetary base whenever it sells governmentsecurities.4. When reserve requirements are increased, interest rates should increase. 5. If cash drains increase, the Fed may offset their effects with open market sales.6. The Fed substantially controls M1 by controlling total reserves of depositoryinstitutions.7. When the Fed sells an asset to the private sector, the monetary base declines.198. When a bank orders currency from the Fed, the monetary base does not change. 9. A significant move by the Fed toward a tight money policy is likely to enhanceexports.10. Housing investment is sensitive to changes in interest rates.11. Decreasing interest rates increase financial wealth and encourage consumerspending. 12. An increase in the money supply should ultimately cause security prices todecrease.13. Restrictive monetary policy in the United States may slow down net exports andGNP.14. Monetarists think changing the money supply impacts economic units directlyrather than just through interest rates. 15. Increasing interest rates increase wealth of spending limits and encouragespending. 16. Easy monetary policy strengthens the dollar.17. A prolonged tight monetary policy can be associated with falling bond prices. 18. Stable employment is one of the objectives of monetary policy. 19. There is definitely a tradeoff between stable prices and full employment.20. Unexpected high levels of inflation aid debtors at the expense of lenders.21. An increase in Federal Reserve float increases the monetary base.22. Cash drains decrease the monetary base, but not the money supply. 23. The Fed exclusively controls the money supply.24. Interest rates and the money supply tend to vary inversely, at least in theshort term. 25. Real investment is encouraged by rising interest rates.26. Monetary policy first affects financial markets and institutions, then thereal economy. 27. Transaction deposits, such as DDAs, expand when the Fed sellssecurities. 28. When the Fed increases the Fed Funds Rate, financial institutions go tothe Window. 29. Monetary policy only works in the short term. 30. Monetary policy only works in the long term.31. Cash drains are an example of a technical factor.2032. Reserve requirements are not useful for fine tuning. 33. The Fed is powerless against technical factors. 34. High stock prices are a goal of monetary policy.35. The goals of U.S. monetary policy were set by Congress.MULTIPLE-CHOICE QUESTIONS 1. The monetary base will decrease when:a. banks withdraw currency from the Fed.b. the Fed makes loans at the discount window.c. the Fed sells securities on the open market.d. the Fed buys securities on the open market. 2. Deposits tend to expand whenever:a. reserve requirements decrease.b. the public holds more cash.c. reserve requirements increase.d. monetary policy tightens. 3. An increase in excess reserves will causea. the Fed Funds rate to rise.b. planned inventory investment to fall.c. depository institutions to lend more freely.d. foreign investors to buy more T-Bills. 4. The velocity of money measures:a. the rate of growth of the money supply.b. the relationship between the monetary base and the money supply.c. the relationship between the money supply and economic activity.d. all of the above. 5. Ordinarily the money supply will decrease if:a. the Fed makes fewer loans at its discount window.b. the Fed sells securities on the open market.c. the Fed raises reserve requirements.d. all of the above. 6. The money supplya. is exclusively controlled by the Fed.b. is smaller than the monetary basec. excludes any interest-bearing depositsd. none of the above. 7. Which of the following tools of monetary policy has the greatest impact?a. discount rateb. Regulation Qc. open market operationsd. bank examination21 8. An increase in the assets of Federal Reserve banksa. decreases the monetary base.b. increases the monetary base.c. has no effect on monetary base.d. always decreases another Federal Reserve Bank asset. 9. Consumption spending should increase ifa. financial wealth decreases.b. reserve requirements decrease.c. interest rates increase.d. credit availability decreases. 10. Generally, plant and equipment investment spending will decrease ifa. interest rates rise while inflation remains unchanged.b. inflation decreases while interest rates remain unchanged.c. reserve requirements rise.d. any of the above 11. A decrease in the monetary base is related toa. decrease in credit availability.b. increasing interest rates.c. decreased investment.d. all of the above 12. A decrease in reserve requirements will definitely causea. expenditures to fall.b. inflation expectations to fall.c. an increase in the Fed Funds rate.d. excess reserves to increase. 13. Sustained open market buying by the Fed will causea. the Fed Funds rate to rise.b. planned inventory investment to fall.c. depository institutions to lend more freely.d. foreign investors to buy more T-Bills. 14. An expansion in the U.S. money supplya. will increase domestic interest ratesb. will cause the exchange value of the dollar to increase.c. will cause U.S. exports to increase.d. will cause U.S. imports to increase. 15. If the money supply increases too rapidlya. inflationary expectations will rise.b. government spending will decrease.c. bank lending will decrease.d. investment spending will fall. 16. Unemployment should fall if22a. wages increase and people expect prices to rise, too.b. wages increase and people expect prices to be stable.c. interest rates rise more than prices are expected to rise.d. the money supply decreases. 17. An contraction in the U.S. money supply shoulda. increase domestic interest ratesb. cause the exchange value of the dollar to increase.c. cause U.S. exports to decrease.d. all of the above. 18. The intended longer run impact of monetary policy isa. to lower interest rates.b. to raise security prices.c. to influence change consumption and investment spending.d. to reduce government spending. 19. Monetary policy impacts the economya. by affecting real spending directly.b. by affecting real spending through the financial sector.c. by changing interest rates and the cost of housing.d. all of the above 20. Restrictive monetary policy first impacts the market, security prices andinterest rates.a. money, increasing, decreasingb. capital, increasing, decreasingc. money, decreasing, increasingd. mortgage, increasing, decreasing 21. Changes in spending caused by changing security values are called thea. liquidity effect b. wealth effect c. income effect d. reactionary effect 22. Monetary policy probably affects all of the following excepta. housing investment.b. consumer durable investment.c. inventory investment.d. federal government budget outlays. 23. Monetary policies directed toward increased economic growth may have what impactupon the value of the dollar in relation to other currencies?a. increase b. decrease c. no effect d. none of the preceding 24. Monetarists believe that an increase in the money supply, all else equal, will cause:a. consumption expenditures to rise.b. investment spending to fall.c. national income to fall.d. government expenditures to rise.23 25. M3 includesa. currency in circulation b. demand deposits c. both d. neither 26. Which of the following is not a channel of transmission of monetary policy?a. Reg Q interest rate ceilingsb. consumer spending for durable goods and housingc. net exportsd. business investment in real assets 27. The tools of monetary policy, whether viable or not, include all the following excepta. changing the discount rate.b. open market operations.c. changes in reserve requirements.d. changes in the Federal Funds rate. 28. Which of the following would most likely decrease the Federal Funds rate?a. decrease in the discount rate.b. sale of securities by the Fed.c. decrease in reserve requirements.d. none of the above 29. Which of the following was not a responsibility of the early Federal Reserve System?a. replace the National Banking systemb. improve the payments systemc. establish more rigorous bank supervisiond. act as lender of last resort 30. Monetarists and Keynesians agree thata. monetary policy influences the real sectorb. changes in the money supply drive changes in interest ratesc. changes in interest rates drive changes in the money supplyd. monetary policy does not influence the real sector 31. Velocity of moneya. varies inversely with the money supplyb. varies directly with GDPc. is not under the Feds exclusive controld. all of the above 32. Influence of monetary policy on the real sector isa. negligible b. decisive c. significant d. insignificant 33. Influence of monetary policy on the financial sector isa. negligible b. inevitable c. limited d. insignificant 34. Which of the following was a responsibility of the early Federal Reserve System?a. to control the money supplyb. to safeguard the national payment systemc. to establish a more rigorous bank supervisory systemd. all of the above 35. The Federal Reserve System established24a. a system for federal chartering of banks.b. a system for controlling bank note issuance.c. a source of liquidity for the banking system.d. the beginning of demand deposit accounts.ESSAY QUESTIONS1. Explain how the Fed adjusts its balance sheet to increase or decrease the monetary base.2. How does the Federal Reserve control the money supply by controlling the size of the monetarybase? Note the tools of monetary policy and how each can affect the monetary base and money supply.3. What should happen to consumption if the monetary base increases? Explain.4. What exactly is the Fed Funds Rate, and why isnt it considered a tool of monetary policy?5. List and briefly describe the channels of transmission of monetary policy.CHAPTER 4TRUE-FALSE QUESTIONS1. The real rate of interest can be viewed as the time value of not consuming. 2. The current rate of inflation affects the expected level of interest rates.3. The market rate of interest can be viewed as the real rate of interest plus apremium for the expected rate of inflation. 4. Declining interest rates can be caused by an upward shift in the demand forloanable funds relative to the supply of loanable funds. 5. The expected real rate of interest is likely to be negative.6. The realized real rate of interest can be negative if expected inflation is less thanactual inflation. 7. An increase in desired investment shifts the desired savings supply line upwardto higher real rates of interest.8. Nominal interest rates reflect anticipated inflation. 9. Expected increased inflation usually drives up bond prices. 10. Interest rates are directly related to inflation expectations and inversely related tothe level of economic activity. 11. An upward shift in the supply of loanable funds is likely to increase interest rates.12. An increase in rates of return on real capital investment will increase real interestrates. 13. An increase in the desired saving rate will increase real interest rates. 14. Deficit spending units supply loanable funds. 15. If yields on thirty-year U. S. Treasury bonds are 8% and the real rate of interest isestimated at 3%, the historical rate of inflation is 5%.16. The Fisher Effect holds that nominal interest rates include an expected inflation26rate.17. Economic models and flow-of-funds are two ways of forecasting interest rates. 18. Economic models forecast interest rates then estimate measures of economicoutput.19. The flow of funds forecasting method utilizes the concept of supply and demandof loanable funds. 20. Interest rate forecasting using economic models assumes that financial marketsare very efficient.21. Nominal rates generally exceed the real rate.MULTIPLE-CHOICE QUESTIONS 1. Interest isa. the price of money.b. the rent on money.c. time value of delayed consumption.d. all of the above. 2. Which one of the following is not an explanation for paying interest onborrowed money?a. Interest is the rental cost of purchasing power.b. Interest is the penalty paid for consuming income before it is earned.c. Interest is always paid at the maturity of a loan.d. Interest is the time value of delayed consumption. 3. Which of the following factors influence the real rate of interest?a. investor's positive time preferenceb. the gold supplyc. return on capital investmentsd. the rate of inflatione. both a and c 4. All but one of the following factors influences the real rate of interest.a. the rate of inflationb. investor positive time preference for current versus future consumption.c. the return on alternative real investments.d. the real level of output in the economy. 5. ________ real rates are almost always positive; _______real rates may benegative.a. Realized; expectedb. Expected; realizedc. Government; privated. Expected; expected 6. Which statement is true about interest rate movements?a. Interest rates move counter-cyclically with the business cycle.27b. Long-term interest rates have greater swings than short-term rates.c. The expected rate of inflation impacts the level of interest rates.d. Bond prices and interest rates move directly with one another. 7. Which one of the following statements about interest rates is incorrect?a. Bond prices and interest rates change inversely with one another.b. The expected rate of inflation affects current market interest rates.c. Short-term interest rates are not as volatile as long-term interest rates.d. Interest rates are directly related to the level of output in the economy. 8. The Fisher effect is a theory which holds thata. nominal rates include the real rate of interest plus past annual inflation rates.b. nominal rates include the real rate of interest plus expected annual inflation rates.c. real rates are always positive.d. inflation has no impact upon interest rates. 9. If nominal interest rates are 10% and expected inflation is 5%,a. actual inflation exceeds 10%.b. the real rate of interest is 5%.c. market rates are expected to increase to 15%.d. expected interest rates are 5%. 10. If the real rate of interest is 4%, actual inflation for the last year was 5%, andexpected inflation is 8%, the Fisher effect predicts what current level of nominal interestrates?a. 9% b. 8% c. 13% d. 12% 11. If current market rates on Treasury bonds are 6 percent and the real growth of theeconomy has and will be expected to grow at 3 percent, what is the expected rate ofinflation, according to the Fisher effect?a. 3% b. 9% c. higher than 6% d. close to zero 12. The demand for loanable funds may shift upward (increase) froma. a decline in the supply of loanable funds.b. a decline in business prospects.c. an improvement in technology.d. an expectation of an upcoming recession. 13. Interest rates will decline when the demand for loanable fundsa. shifts to the left.b. shifts to the right.c. anticipates reduced growth in the economy.d. "a" and "c" above. 14. All but one of the following affects the supply of loanable funds?a. the level of incomeb. the investment opportunities in the economy.c. the savings rated. Federal Reserve monetary policy actions.28 15. An increase in the rate of expected inflation willa. shift the demand for loanable funds to the left (down).b. shift the supply of loanable funds to the left (down).c. shift demand and supply for loanable funds to the right (up) decreasing interestrates.d. shifts demand and supply for loanable funds to the right (up) increasing interestrates. 16. Deficit spending units (DSU) are represented in loanable funds theory asa. suppliers of loanable funds.b. demanders of financial claims.c. demanders of loanable funds.d. DSUs are not represented in the loanable funds theory of interest ratedetermination. 17. An economic recession would be represented in loanable funds theory asa. a shift in the demand for loanable funds to the right associated with reducedbusiness investment demand and a decline in interest rates.b. a shift in the demand for loanable funds to the left as real investment weakens, ashift to the right of the supply of loanable funds as the Fed expands the moneysupply, and a decrease in interest rates.c. a movement along the demand for loanable funds as interest rates decline.d. an increase in the supply of loanable funds as the level of savings increasesaccompanied with an increase in the demand for loanable funds as housinginvestment is increased, and a decrease in interest rates. 18. Increased government budget deficitsa. shifts the demand for loanable funds to the left, reducing interest rates.b. shifts the supply of loanable funds to the right, reducing interest rates.c. shifts the demand for loanable funs to the right, increasing interest rates.d. shifts the supply of loanable funds to the left, reducing interest rates. 19. The realized rate of return may be negative ifa. investors' expected rate of inflation (Pe) was less than actual inflation (Pa).b. investors' expected rate of inflation (Pe) was greater than actual inflation (Pa).c. investors over-anticipated the level of inflation.d. investors expected more inflation than was realized. 20. An increase (shift to right) in the supply of loanable funds (SL) may be related toall but one of the following:a. an increase in the money supply.b. an increase in household thriftiness.c. an increase in household income.d. an increase in personal income taxes. 21. If the real rate of interest is 4% and the expected inflation rate is 7%, a loan at12%a. would reward the lender at the borrowers expenseb. would reward the borrower at the lenders expense29c. would penalize the lender at the borrowers expensed. none of the above 22. If the actual rate of inflation is less than the rate expected during a period,a. borrowers benefited at the expense of lenders.b. lenders benefited at the expense of borrowers.c. both borrowers and lenders benefited.d. neither borrowers nor lenders benefited. 23. If expected inflation in a period exceeds actual inflationa. borrowers will benefit.b. savers will lose purchasing power.c. SSUs will benefit at the expense of DSUs.d. interest rates are likely to increase in the future. 24. Interest rates should decease ifa. The economy is in a boom.b. Inflationary expectations have decreased.c. The Federal Reserve has decreased M1 and the supply of loanable funds.d. Business investment demand has decreased significantly. 25. A decrease in interest rates may best be related toa. a recession and a decline in inflationary expectations.b. an acceleration in the growth rate of M1.c. decreased real investment opportunities.d. all of the above 26. An investor received an 8 percent coupon rate last year on a $1000 bondpurchased at par. The inflation rate during the year was 4 percent and is expected to be 5percent next year. The realized real rate earned by the investor last year was:a. 8% b. 3% c. 4% d. -1 percent. 27. An investor earned 12 percent last year, a year when actual inflation was 9percent and was expected to have been 6 percent. The investor realized real rate of returnwas:a. 3% b. 6% c. 18% d. 12% 28. Which of the following is more likely to affect long-term bond yields?a. announcement of the last year's inflation rateb. announcement of this month's inflation ratec. a forecast of next month's inflation rated. a forecast of inflation for the next five years 29. Which of the following is more likely to adversely affect long-term bond prices?a. a forecast of lower inflation in the future.b. a forecast of a slower economy next year.c. a forecast of higher inflation in the future.d. a forecast of lower government budget deficits.30 30. Negative realized real rates of interest are associated with periods wherea. inflation forecasts significantly underestimate inflation.b. nominal interest rates were too high relative to actual inflation.c. prior inflation forecasts overestimated inflation.d. bond prices were priced too low relative to actual inflation. 31. Basic approaches to forecasting interest rates includea. economic modelsb. flow-of-fundsc. both of the aboved. none of the above 32. Economic models predict interest rates by estimating the statistical relationshipsbetween the and the resulting .a. level of interest rates; measures of economic outputb. past level of interest rates; future level of interest ratesc. measures of economic output; level of interest ratesd. prior level of GNP; future level of interest rates 33. The Federal Reserve Bank of St. Louis develops quarterly forecasts of a numberof key economic statistics using only eight equations. The is an example ofa. a naive forecasting model.b. the flow of funds approach.c. a hedged forecast.d. an economic forecasting model.31 34. The flow of funds approach to interest rate forecasting is associated with all butone of the following:a. the National Income Accounts.b. the Flow of Funds Accounts.c. the loanable funds theory of interest rate determination.d. the Federal Reserve System. 35. Which of the following best explains why public interest rate forecasts have alow rate of accuracy?a. Accurate forecasters do not make their forecasts public.b. Reasonably efficient financial markets preclude a forecaster from consistentlyoutguessing the direction of interest rates.c. The level of training of forecasters is lagging an evermore sophisticatedeconomy.d. and above 36. Which of the following is best associated with interest rate movements andinflation?a. Interest rates move inversely with inflation.b. Interest rates vary directly with expected inflation.c. Interest rates vary directly with past inflation rates.d. Inflation is impacted by expected interest rates. 37. A decrease in the money stock by the Federal Reservea. shifts the supply of loanable funds to the left, decreasing interest rates.b. shifts the demand for loanable funds to the left, increasing interest rates.c. shifts the supply of loanable funds to the left, increasing interest rates.d. shifts the supply of loanable funds to the right, increasing interest rates. 38. On any given day if the market interest rate is above the equilibrium interest ratelevel,a. the Fed will declare a monetary policy.b. there will be a shortage of loanable funds and interest rates will increase.c. there will be a surplus of loanable funds at that rate and rates will decline to theequilibrium rate.d. there will be a shortage of loanable funds at that rate and rates will increase to theequilibrium rate. 39. The lower a consumer's positive time preference for consumption,a. the more savings they will accumulate.b. the lower the level of interest rates.c. the greater the supply of loanable funds.d. all of the above. 40. A person with a very high positive time preference for consumptiona. will have a high savings rate.b. will have a low savings rate.c. prefers savings to consumption.d. is not as likely to borrow money as other people with lower positive timepreference.32 41. A change from an income tax to a value added tax on consumptiona. should decrease the supply of loanable funds.b. would decrease the demand for loanable funds.c. should increase the supply of loanable funds.d. should shift consumers' preferences toward consumption. 42. An increase in income tax ratesa. will decrease the savings rate.b. will decrease the supply of loanable funds.c. will increase interest rates.d. all of the above. 43. Economies with very high current and expected inflation ratesa. will have a significant long-term debt market.b. will have debt instruments with interest rates indexed to the inflation rate.c. will favor long-term financing over short-term.d. will have very low interest rates. 44. All but one of the following is associated with economies with very highinflation rates?a. Very few people who wish to borrow at a fixed rate.b. Little if any long-term debt market.c. Variable interest rate loans.d. Reliance on short-term debt contracts. 45. With the real rate at 3 percent, most loans were made at 10 percent last year.This year interest rates have declined to 8 percent. What was the expected inflation ratelast year?a. 5% b. 2% c. 7% d. 8% 46. Interest rates move ______ with expected inflation; _____ with economicactivity.a. directly/inversely b. inversely/inversely c. directly/directly d. inversely/directly 47. Interest rates representa. allocational forcesb. penalties for early consumptionc. rewards for deferring consumptiond. all of the above 48. Which of the following actions will reduce the interest rate risk of the lender?a. Make fixed interest rate loans.b. Make fixed interest rate, long-term loans.c. Make variable interest rate loans.d. Invest in fixed rate Treasury bonds. 49. An investor loaned money at 14 percent with an expected rate of inflation of 11percent. During the year the actual rate of inflation was 8 percent. The investor'sexpected real rate of interest was _____ and the realized real rate for the investor was______?33a. 14 percent; 8 percent.b. 6 percent; 3 percent.c. 3 percent; 3 percent.d. 3 percent; 6 percent. 50. An investor purchased a $1000 face value bond for $925. The bond has an 8percent coupon rate, paid annually, and matures in five years. The investor sold the bondone year later for $965, while the price level was increasing at 5 percent. Calculate thepre-tax real realized rate of return on the investment?a. -.7% b. 8% c. 3% d. 5%ESSAY QUESTIONS1. Using loanable funds theory, discuss how changes in consumer savings, business investment, andin the money supply by the Federal Reserve System can influence the level of interest rates.Answer: The Fisher Effect states that investors embody expected inflation in nominal interestrates. The relatively low inflation rates of recent years has dampened expected inflation andlowered nominal interest rates.3. Explain why realized real rates of interest are sometimes negative, but expected real rates arealways positive. Give an example.5. Sam has just lent Mary $1000 for 1 year 6%. Sam and Mary expect inflation to be 3% over thenext year. If inflation turns out to have been only 2%, what is the impact upon Sam and Mary?CHAPTER 5TRUE-FALSE QUESTIONS1. The coupon rate may be the market rate of interest for a bond.2. The price of a bond and the market rate of interest are inversely related. 3. The price of a bond is the present value of future payments discounted at the coupon rate.4. Yield to maturity assumes reinvestment of coupons at the same yield.5. The realized yield may be influenced by coupon reinvestment rates. 6. If market interest rates have increased since a bond was purchased, price risk will increase theprice of the bond and reinvestment risk will decrease the return on the coupons.7. A zero coupon bond has no reinvestment risk.8. The higher the coupon rate, the lower the bond price volatility. 9. Price risk is a measure of bond volatility. 10. Short-term bonds have greater price risk compared to long-term bonds.11. The price risk of a bond tends to offset reinvestment risk somewhat as market interest ratesvary. 12. In a short-term bond price risk is not a problem, but reinvestment risk is a considerable concern.13. Price risk is one aspect of interest rate risk.14. Price risk is of no concern to the investor if the bond is held to maturity. 15. Duration is a measure of interest rate volatility.16. The duration of a zero coupon bond equals the term to maturity of the bond.17. The duration of a coupon bond must be shorter than its term to maturity. 18. If the coupon rate equals the market rate, a bond is likely to be selling at a discount. 19. The coupon rate varies inversely with bond prices. 20. Bonds with lower coupon rates have a shorter duration than similar bonds with high couponrates. 21. Money has time value because of inflation.35 22. Duration matching eliminates risk. 23. A zero-coupon bond bears no interest.24. Expected yield is essentially a forecast.MULTIPLE CHOICE QUESTIONS 1. Which of the following statements is true?a. Bond prices and interest rates move together.b. Coupon rates are fixed at the time of issue.c. Short-term securities have large price swings relative to long-term securities.d. The higher the coupon, the lower the price of a bond. 2. Which of the following statements is true about bonds?a. The higher the coupon rate, the shorter the duration.b. The yield on a bond is usually fixed.c. A bond's coupon rate is equal to its face value.d. Most bonds pay interest annually. 3. $5,000 invested at 6%, compounded quarterly, will be worth how much after 5 years?a. $6,691 b. $16,036 c. $6,734 d. $5,386 4. Tom deposits $10,000 in a savings deposit paying 4%, compounded monthly. Whatamount would he have at the end of seven years?a. $13,225 b. $13,159 c. $13,179 d. $13,325 5. Judy would like to accumulate $70,000 by the time her son starts college in ten years.What amount would she need to deposit now in a deposit account earning 6%,compounded yearly, to accumulate her savings goal?a. $4,200 b. $39,513 c. $39,088 d. $125,359 6. If a $1000 par value bond has an 8% coupon (annual payments) rate, a 4-year maturity,and similar bonds are yielding 11%, what is the price of the bond?a. $1,000.00 b. $880.22 c. $906.93 d. $910.35 7. A corporate bond, paying $65 interest at the end of each year for 6 years, has a facevalue of $1,000. If market rates on newly issued similarly rated corporate bonds arenow 7.5%, what is the current market price of this bond?a. $953.06 b. $1,000.00 c. $1,048.41 d. $936.42 8. A $1000 bond with an 8.2% coupon rate, interest paid semiannually, and maturing insix years is currently yielding 7.6% in the market. What is the current price of thebond?a. $1,027.08 b. $1,131.19 c. $1,028.48 d. $972.00 9. A $1000 bond with a coupon rate of 7% matures in eight years. The bond is nowselling for $950, what is the expected yield to maturity on the bond?a. 6.5% b. 7.9% c. 9.0% d. 8.3% 10. A $1000 bond with a coupon rate of 10%, interest paid semiannually, matures in eightyears and sells for $1120. What is the yield to maturity?a. 10.8% b. 11.0% c. 7.9% d. 7.6%36 11. When a bond's coupon rate is equal to the market rate of interest, the bond will sell fora. a discount. b. a premium. c. par. d. a variable rate. 12. A bond currently selling at a premium price above face valuea. has a yield equal to its coupon rate.b. has a yield below its coupon rate.c. has a yield above its coupon rate.d. has no risk. 13. If market interest rates fall after a bond is issued, thea. face value of the bond increases.b. investor will sell the bond.c. market value of the bond is increasing.d. market value of the bond is decreasing. 14. Duration is a measure ofa. a bond's price.b. a bond's contractual maturity.c. the length of time it takes to get back the original investment.d. bond price volatility. 15. Bond A has a duration of 5.6 while bond B has a duration of 6.0. Bond Ba. will have greater price variability, given a change in interest rates, relative tobond A.b. will have a longer maturity than bond A.c. will have a higher coupon rate than bond A.d. will have less price variability, given a change in interest rates, relative to bondA. 16. A 3-year zero coupon bond selling at $900 and yielding 12.18 percent has a duration ofa. 3 years. b. 2.78 years. c. 2.50 years. d. 2 years. 17. A $1000 2-year 10% coupon bond is priced at $1000 in the market. The duration isa. less than two years. b. more than two years. c. 10%. d. 2years. 18. The duration of a $1000, 2-year, 7% coupon bond (interest paid annually) is _____when market rates are 8%?a. 2.036 b. 1.934 c. 1.902 d. 1.856 19. As bond maturity _________, so does the _________ and ________.a. decreases; coupon rate; market price.b. decreases; duration; face value.c. increases; duration; price variability.d. increases; risk; coupon rate. 20. In a fixed-rate bond, the variable which changes to determine market rate of return is37a. price. b. coupon rate. c. coupon amount. d. face value. 21. A $1,000 par, 8% Treasury bond maturing in three years is priced to yield 7%. Itsmarket price (assuming semiannual compounding) isa. $974.21 b. $813.50 c. $927.50 d. $1,026.64 22. Which of the following risks will not affect zero coupon bonds?a. price risk b. reinvestment risk c. credit risk d. default risk 23. A bond yield measure should capture all of the following excepta. coupon payments.b. reinvestment income.c. changing coupon rate levels.d. capital gains or losses. 24. The yield to maturity measure assumes that coupon interest is reinvested ata. the yield to maturity.b. the changing market rates.c. the coupon rate.d. the treasury bond rate. 25. Calculate the realized return on a $1,000 face value, 9 percent coupon bond (annual)purchased for $800 and sold one year later for $850.a. 9% b. 11.25% c. 14.5% d. 17.5% 26. If a 7% coupon (semiannual) bond purchased at par sells 2 years later for $990, what isthe realized rate of return (annualized)?a. 8% b. 6.52% c. 7.32% d. 5.75% 27. Calculate the volatility of $1,000 face value 8% coupon bond whose price has variedfrom $1,020 to $1,050.a. $30.00 b. 5% c. 3% d. $50.00 28. Which of the following statements is true?a. Bonds vary directly with interest rates.b. Bond volatility varies inversely with maturity.c. Low coupon bonds have lower bond volatility than high coupon bonds.d. Bond duration increases with maturity. 29. Interest rate risk isa. duration.b. the extent that coupon rates vary with time.c. the potential variability in the realized rate of return caused by changes in marketrates.d. the potential variability in the bond maturity caused by changing discount rates.38 30. Price risk and reinvestment riska. offset one another to a certain extent as interest rates change.b. are two bond risks related to credit risk.c. work together to magnify the price impact of a change in interest rate.d. both have an effect on bond price. 31. Jane needs a specific sum of money in five years. She should invest ina. high quality, 20 year Treasury bonds.b. high quality coupon bonds with a duration of five years.c. high quality coupon bonds maturing in five years.d. high credit risk bonds maturing before five years. 32. Which of the following statements about duration is true?a. Duration is the length of time necessary to pay back the investor's originalinvestment.b. The duration of a bond is some time longer than the maturity of the bond.c. Duration is the investment period necessary to offset price risk and reinvestmentrisk.d. A bond sold at the duration point will always be priced at $1,000. 33. What is the price of a $1,000 face value bond with a 10% coupon if the market rate is10%?a. more than $1,000 b. $1,000 c. less than $1,000 d. cannot ascertain 34. What is the price of the bond in the above question, if the market rate rises to 12% andthe bond matures in 5 years? (Assume semiannual compounding).a. $829.60 b. $1,000.00 c. $926.40 d. $1,040.80 35. Tom purchased a bond last year for $1240, received $60 in interest return, and sold thebond for $1300 one year later. What is Tom's realized annual rate of return?a. 4.8% b. 9.7% c. 9.2% d. More than 10%. 36. The bond yield to maturity calculation isa. the guaranteed rate of return to an investor.b. the same as the coupon rate.c. the expected rate of return on the bond.d. the realized rate of return on the bond. 37. An investor worried about interest rate risk shoulda. not purchase coupon bonds.b. select bonds whose maturity matches the investor's investment holding period.c. select bonds whose duration matches the investor's investment holding period.d. invest only in U.S. Treasury bonds. 38. An investor who selects coupon bond maturities matching his/her holding period39a. has eliminated price risk, but not reinvestment risk.b. has eliminated just one part of interest rate risk.c. cannot precisely predict the rate of return on the bond.d. All of the above. 39. Reinvestment risk is the variability of return associated witha. the variability of bond maturities.b. the variability of bond coupon payments.c. the variability of rates of return on reinvested coupons.d. the variability of the market price on the bond. 40. There is generally a _______ relationship between term to maturity and duration.a. positive b. favorable c. inverse d. large 41. Bonds with _______ coupon rates have a ________ duration than bonds with ________coupons of the same maturity.a. higher; shorter; smallerb. lower; longer; smallerc. higher; longer; largerd. higher; shorter; larger 42. The _______ the interest rate and the ________ the number of compounding periods ina year, the _________ the rate of return on a present sum.a. lower, greater, lowerb. higher, fewer, higherc. higher, greater, higherd. lower, lower, higher 43. If a bond investor receives all the coupon payments on time and the face value on thecontract maturity date, investor's return could still vary because ofa. default risk b. price risk c. liquidity risk d. reinvestment risk. 44. Two factors that affect interest rate risk area. default risk and reinvestment risk.b. liquidity risk and reinvestment risk.c. price risk and political risk.d. price risk and reinvestment risk. 45. The sum of time weighted discounted cash flows divided by the price of the security isthea. volatility of the security.d. present value of the security cash flows.c. duration of the security.d. always greater than the maturity of the security. 46. An increase in the supply of bonds in the bond market willa. be associated with a decrease in interest rates.b. always be matched by an increased demand for securities.c. be associated with an increase in bond interest rates.d. not affect interest rates, only security prices.40 47. An increase in the demand for securitiesa. will be associated with an increase in interest rates.b. will be associated with a decrease in interest rates.c. will have no affect on interest rates.d. will be matched with an increase in the supply of securities. 48. In a fixed rate bond, the variable which changes to provide the current market rate ofreturn to investors isa. face value b. coupon rate c. maturity d. price 49. All of the following are contractually fixed excepta. par value b. yield c. maturity d. coupon 50. The duration of any financial instrumenta. cannot exceed the instruments term to maturityb. is a proxy for the instruments default riskc. must exceed the instruments term to maturityd. must be calculated before yield to maturity can be accurately determinedESSAY QUESTIONS1. Name and discuss the variables that determine the price or value of a fixed-rate coupon bond.2. Name and discuss the factors that must be considered when calculating the realized rate of return on abond.3. What are the relationships between bond price volatility and bond maturity; coupon rate?4. Define and discuss interest rate risk. What are the two risk components of interest rate risk and howdo these interact with each other?5. What is bond duration and what are the implications of holding a bond to its duration versus holdingthe bond to maturity?CHAPTER 6TRUE/FALSE QUESTIONS1. If interest rates are expected to increase in the future, one would expect to see anupward sloping yield curve 2. The major reason that municipal bonds have lower yields than corporate bonds isthat, as a class, municipal debt has less marketability than corporate debt. 3. A downward sloping yield curve forecasts higher future interest rates. 4. A downward sloping yield curve is typically seen just before an economic expansion.5. The less marketable a security, the higher its yield.5. Default risk premiums are usually smaller during periods of high economicgrowth. 6. Bonds rated Baa would have higher yields than Aaa bonds, and higher prices,everything else the same.7. Callable bonds have higher market yields than noncallable bonds. 8. The call price of a bond is usually below the bond's par value.9. Expected higher rates of inflation will lead to an upward sloping yield curve. 10. The higher the marginal tax rate of an investor, the lower the after-tax return onany security. 11. Liquidity premiums cause an observed yield curve to be less upward sloping than thatpredicted by the expectations theory12. A delay in the coupon payment on a bond would imply an increase in default risk.13. An investor in the 33 percent tax bracket will buy a 6 percent municipal bondrather than a similarly rated 8.5 percent corporate bond. 14. A put option sets a "floor" or minimum price of a bond at the exercise price,42which is generally at or above par value. 15. A convertible bond will generally have a higher market yield relative to similar,nonconvertible bonds. 16. Treasury and corporate security yields may be combined when plotting a yieldcurve. 17. Putable bonds offer higher yields than similar non-putable bonds 18. A descending yield curve forecasts higher short-term rates in the future.19. The market segmentation theory allows for the possibility of a discontinuous yield curve.20. According to the preferred habitat theory, investors may change their preferred maturity inresponse to expected yield premiums.MULTIPLE CHOICE QUESTIONS 1. Which of the following statements about bonds is not true?a. The greater the default risk, the greater the yield.b. Bonds selling at premium are especially high quality.c. The less marketable a bond, the higher the yield.d. Municipal bonds have lower yields than similar corporate bonds. 2. Which of the following statements is true?a. Interest rates move inversely with economic activity.b. Default risk premiums vary inversely with economic activity.c. Municipal bond yields are usually higher than similar risk corporate yields.d. Treasury bond yields are always higher than Treasury bill yields. 3. A bond investor is more likely to exercise a put option in a bond contract ifa. interest rates increase.b. interest rates decrease.c. the default risk of a bond decreases.d. tax-free municipals are now available. 4. The term structure of interest ratesa. describes the relationship between maturity and yield for similar securities.b. ranks security yield according to the default risk structure.c. describes how interest rates vary over time.d. describes the pattern of interest rates over the business cycle. 5. The yield curve is a plot ofa. maturity changes as risk changes.b. yields by varied risk-taking of varied bond issuers.c. yields by maturity of securities with similar default risk.d. interest rates over time past.43 6. The source of data for a yield curve might bea. bond yield by issuers over time.b. historical Treasury security yields.c. realized Treasury security yields by time.d. outstanding Treasury security yields by maturity.44 7. An upward sloping yield curve indicates that security investors expect futureinterest rates to _____ and security prices to ______.a. fall; fall.b. fall; rise.c. rise; fall.d. rise; rise. 8. A downward sloping yield curve indicates that future short-term rates are expectedto ______ and outstanding security prices will _______.a. fall; rise.b. fall; fall.c. rise; rise.d. rise; fall. 9. According to the expectation theory of the term structure of interest ratesa. investors prefer holding short-term securities.b. the shape of the yield curve is determined by investors' expectations of futureshort-term interest rates.c. institutional investors' maturity preferences determine the shape of the yield curve.d. both a and b are true. 10. Calculate the one-year forward rate three years from now if three- and four-yearrates are 5.50% and 5.80%, respectively?a. The rate cannot be calculated from the information above.b. 6.2%c. 6.7%d. 5.6% 11. If three-year securities are yielding 6% and two-year securities are yielding 5.5%,future short-term rates are expected to ______, and outstanding security prices areexpected to ______.a. fall; fall.b. rise; fall.c. fall; rise.d. rise; rise 12. With reference to the question above, what is the expected one-year rate twoyears from now as implied by the two actual rates above?a. 6.4%b 4.7%c. 7.0%d. 5.8% 13. The major determinants of the bond ratings assigned by Moody's or Standard andPoor isa. marketability.b. tax treatment.c. term to maturity.d. default risk.45 14. Default risk premiums vary _______ with the ________ of the security?a. directly; default riskb. inversely; default riskc. similar; priced. forward; sizeThe following interest rates prevail in the market and are used to answer the next threequestions.90-day Treasury bills 8.36 percent180-day Treasury bills 8.48 percent3-year Treasury securities 9.25 percent2-year Treasury securities9.10 percent90-day Commercial paper 9.15 percent3-year Corporate bonds (AA)10.1 percent3-year Municipal (AA)7.10 percentExpected 2-year inflation rate 3.50 percent 15. With reference to the data above, which security below did the market view ashaving the greatest default risk?a. 90-day Treasury securitiesb. 180-day Treasury securitiesc. 10-year Treasury securitiesd. 90-day Commercial paper 16. With reference to the data above what is the expected real rate of return on the 2-year Treasury security?a. 12.6%b. 3.5%c. 5.6%d. 4.2% 17. With reference to the data above, what is the default risk premium on commercial paper?a. 9.15%b. 0.95%c. 0.79%d. 0.55% 18. With reference to the data above, calculate the one-year forward rate on Treasurysecurities two years from now?a. 8.86%b. 9.55%c. 9.10%d. 9.18%46 19. At what tax rate would an investor be indifferent between holding the 3-yearmunicipal or 3-year corporate bond?a. 33%b. 18%c. 3%d. 30% 20. With reference to the data above, calculate the default risk premium on the 3-yearcorporate bond.a. 0.95%b. 0.85%c. 10.10%d. There is no default risk on the bond. 21. With reference to the data above, the yield curve slopes _______, indicating themarket expectation of ______ future short-term rates.a. downward; fallingb. downward; risingc. upward; fallingd. upward; rising 22. Which of the following statements about interest rates is true?a. Interest rates generally tend to move together.b. The expected rate of inflation influences the level of interest rates.c. At the bottom of the business cycle, the yield curve is typically upward sloping.d. all the above are true 23. Which of the following statements is true?a. The more marketable a security, the higher its yield.b. The longer the term to maturity, the greater its yield.c. Putable bonds offer higher yields than similar non-putable bondsd. Taxable bonds have to offer higher before tax yields than comparable tax-exemptbonds. 24. Which of the following statements about callable bonds is not true?a. Callable bonds have higher yields than comparable noncallable bonds.b. The call price is usually above the bond's par value.c. The shorter the term to maturity, the greater the call interest premium.d. Investors are notified when bonds are called. 25. Bond A is not callable; bond B is callable. Investors will want a higher yield onbond __ and will pay ____ for the bond.a. A; lessb. A; morec. B; lessd. B; more47 26. Federal Agency securities have higher yields than similar Treasury securitiesbecause theya. have greater default risk.b. have greater tax liability.c. are less marketable.d. both a and c 27. Current interest rates are 7 percent. If inflationary expectations increased from thecurrent 5 percent to 3 percent, what would be the new market interest rates?a. 9 percentb. 5 percentc. 10 percentd. 4 percentAnswer the following questions with reference to the following data.Treasury Bills, 90 days 4.20%Commercial Paper, 90 days 4.84%Treasury Bill, 1 year 4.67%Treasury Note, 2 year 5.25%Corporate Bond AA, 20 year 8.23%Municipal Bond AA, 20 year 6.42%Expected Annual Inflation Rate 3.00% 28. With reference to the data above, the default risk premium on the 90-day commercialpaper above isa. 4.03%.b. 3.39%.c. 0.17%.d. 0.64%. 29. With reference to the above data, what is the expected default loss rate on the 90-daycommercial paper?a. 403 basis pointsb. 64 basis pointsc. 17 basis pointsd. zero basis points 30. With reference to the data above, the implied one-year forward rate (expected one-yearrate one year from now) on Treasuries isa. 4.67%.b. 5.83%.c. 0.58%.d. 4.09%.48 31. With reference to the above data, at what marginal tax rate would an investor beindifferent between owning the corporate bond and the municipal bond?a. 22%b. 28%c. 18%d. 20% 32. With reference to the above data, what is the approximate expected pre-tax real rate ofreturn on the one-year Treasury bill?a. 3.00b. 1.67%c. 4.67%d. 0.13% 33. With reference to the data above, what is the expected after-tax real rate of return on theone-year Treasury Bill for an investor in the 33 percent marginal tax bracket?a. 1.11%b. 3.13%c. 0.13%d. -1.11% 34. Yield differences between two securities may be explained by differences ina. maturity.b. default risk.c. marketability.d. call provision.e. all of the above 35. Yield difference in Treasury securities of varied maturities may be explained bya. marketability.b. default risk.c. expectations of future inflation.d. all of the above 36. Applying the expectations theory, a bank depositor has the option of purchasing a oneyearCD at 5 percent and a 5.5 percent two-year CD. If indifferent between the two, thedepositor must expect one-year CDs one year from now to have a rate ofa. 6.5 percent.b. 4.5 percent.c. 6 percent.d. 5 percent. 37 The liquidity premium theory of the term structure of interest rates is best supported bywhat type of yield curve?a. a decreasing curve over time.b. a flat yield curve.c. an increasing yield curve over time.d. none of the above.49 38. What actions by bond investors, given their expectations of increasing interest rates,results in an upward sloping yield curve?a. selling long-term securities and buying short-term securities.b. buying long-term securities and selling short-term securities.c. selling short-term securities and holding cash.50d. selling long-term securities and holding cash. 39. A bondholder in the 30 percent tax bracket owns a $1000 Treasury bond with an 8percent coupon rate. Calculate the after-tax return on the bond.a. 8 percentb. 2.4 percentc. 5.6 percentd. 30 percent 40. The yield differentials between an AAA corporate bond and a BAA corporate bond of thesame maturity may be explained bya. marketability.b. tax treatment.c. default risk.d. term to maturity. 41. Which of the following bonds probably has the highest call interest premium?a. a low coupon, short-term corporate note in an increasing rate marketb. a high coupon rate bond in a falling interest rate marketc. a high coupon rate bond in a rising interest rate marketd. a low coupon rate bond in an increasing interest rate market 42. Which of the following statements explains the liquidity premium theory of the termstructure of interest rates?a. Investors will pay higher prices for longer-term securities.b. Investors demand a higher yield for securities that cannot be sold quickly at highprices.c. Investors demand a higher return on longer-term securities with greater price riskand less marketability.d. Investors will pay higher prices for securities with greater price risk and lessmarketability. 43. Which of the following theories of the term structure of interest rates best explainsdiscontinuities in the yield curve?a. the market segmentation theoryb. the liquidity premium theoryc. the expectations theoryd. the loanable funds theory 44. Commercial banks, savings and loan associations, and finance companies traditionallyhave better profits whena. the level of interest rates were expected to fall sharply.b. the yield curve had a descending slope.c. the yield curve had an ascending slope.d. loan losses were increasing. 45. Historically, high default premiums have been associated with51a. economic recessions.b. economic boom periods.c. generally rising interest rates.d. the number of bonds rated by Moody's and Standard & Poor's. 46. Bonds are called speculative grade or junk bond if their Moody's and Standard & Poor'srating isa. above Baa (BBB).b. Baa (BBB) and below.c. B1 (B+) and below.d. A1 (A+) and below 47. All but one of the following are considered when assigning a bond rating?a. the variability of earningsb. the expected cash flowc. the rating on the prior issue of securities soldd. the amount of the fixed contractual cash payments 48. An investor is more likely to exercise a put option on a bond whena. interest rates are expected to increase.b. interest rates are expected to decrease.c. the security's price is expected to increase.d. the security's rating is upgraded by Moody's. 49. A convertible bond is most likely to be converted whena. stock price levels are declining.b. stock price levels are increasing.c. the interest levels are decreasing.d. the company's rating have been downgraded by Standard & Poor's. 50. Which of the following is true?a. Convertible bonds offer higher yields than similar nonconvertible bonds.b. Putable bonds offer higher yields than similar nonputable bonds.c. Bonds with call options must offer higher interest rates than similar noncallablebonds.d. All Treasury securities offer lower rates than any securities issued by businessfirms. 51. Contingent Convertible bonds (CoCos) are not similar to ordinary convertible bondsbecause:a. CoCos are convertible to the firms preferred stock while the ordinaryconvertible bonds are convertible to the firms common stock.b. CoCos offer a higher coupon than ordinary convertible bonds.c. Cocos are convertible into stock only if the firms stock price hits a certain level.d. Ordinary convertible bonds are converted to the firms stock if the firms stockfalls below a certain level. 52. Suppose we consider a yield curve that has taken into consideration both the expectationstheory and the liquidity premium theory. Assume the yield curve is initially downward52sloping. If liquidity premium theory is no longer important, the yield curve you wouldexpect to see would be:a. more steeply downward slopingb. more upward slopingc. less steeply downward slopingd. none of the above. 53. According to expectations theory, an investor who believes that interest rates are likely todecrease in the near future woulda. would invest in short-term securities immediately.b. would invest in long-term securities immediately.c. would sell long-term securities from her portfolio.d. would sell short-term securities from her portfolio. 54. According to expectations theory, if the market believes that interest rates are likely todecrease in the near future, it would lead to:a. An increase in the demand for short-term securities.b. An increase in the demand for long-term securities.c. A decrease in the supply of short-term securities.d. An increase in the supply of long-term securities. 55. According to expectations theory, if the market believes that interest rates are expected toincrease in the near future,a. borrowers would immediately increase their supply of short-term securities.b. investors would immediately increase their demand for long-term securities.c. borrowers would immediately increase their supply of long-term securities.d. neither borrowers nor investors would do anything until the interest rates actuallyincreased.ESSAY QUESTIONS1. List and discuss five basic factors which explain the differences in interest rates on differentsecurities at any point in time.2. Explain how the term structure of interest rates can be used to help forecast future economicactivities.3. Explain why municipal bonds have lower yields than comparable corporate taxable bonds.4. Define the term default risk premium. Why does the "premium" represent the "expected defaultloss rate"? Explain how and why default risk premiums vary over the business cycle.

5. How do bond options such as a call, put, and convertibility influence the yields on securitiesrelative to bonds without such options?

CHAPTER 7TRUE-FALSE QUESTIONS1. Many diverse institutions borrow in the money markets, while relatively few invest.2. All money market instruments are short-term debt. 3. Treasury bills are sold on a discount basis, with interest paid separately atmaturity.4. Commercial banks act as dealers and are major investors in Treasury securities. 5. For large corporations, commercial paper is more expensive but is a moreassured alternative to bank borrowing.6. Commercial paper is more likely to be placed directly by large financecompanies. 7. The Federal Funds market is not available for the smaller, regional bank.8. Bankers' acceptances are used primarily for financing international trade. 9. Eurodollars are dollar denominated, foreign-owned deposits in U.S. banks.5410. The 24-hours-a-day market for U. S. Treasury securities is an example of theglobalization of financial markets. 11. Consumers most often have only indirect access to the money market throughcommercial banks.12. The money market is a dealer market, not an exchange, and has no specificlocation.13. Money market borrowers are small in number compared to money marketlenders.14. The money market is a market where liquidity is bought and sold.15. Commercial banks are the major issuer and investor of money market securities.16. Federal Reserve open market operations, reserve requirement changes, anddiscount rate policy first impact the economy in the money market. 17. Dealers bring buyer and seller together; brokers make a market. 18. Much of the added yield provided investors in "agency" issues is attributed totheir higher default risk.19. Commercial banks are important indirect guarantors of commercial paper. 20. Interest arbitrage keeps the interest rates of the many money market securities equal. 21. Lower marginal tax rates increase the demand for tax-exempt securities.22. The money market provides liquidity for deficit units; the capital market financeseconomic growth. 23. Competitive bids in T-bill auctions require the bidder to specify only the quantitydesired.24. Non-competitive bidders in the U. S. Treasury security auctions pay the weightedaverage price of all accepted competitive bids. 25. Reverse repos are contracts that require a firm to first sell securities with theagreement to buy them back in a short period at a higher price.MULTIPLE-CHOICE QUESTIONS 1. Which of the following is not a characteristic of money market instruments?a. short-term to maturityb. small denominationc. low default risk55d. high marketability 2. Small investors are likely to invest in the money market through.a. directly; commercial paperb. locally; their credit unionc. indirectly; negotiable CDsd. indirectly; money market mutual funds 3. Which of the following statements about the money market is true?a. The money market is a dealer market linked by efficient communicationssystems.b. Money market transactions are seldom over $1 million.c. Market transactions include more "primary market" trades for a security thansecondary market trades.d. Most money market transactions are conducted by mail. 4. Which statement is not true about Treasury bills?a. They have maturities less than one year.b. Most are sold by "book-entry" method.c. They are sold at a discount.d. They are tax free. 5. Which of the following may be a liability of a non-financial businesscorporation?a. commercial paperb. Federal Fundsc. Treasury securitiesd. agency securities 6. Federal Funds are typicallya. Treasury deposits.b. Federal Reserve assets.c. commercial bank deposits at the Federal Reserve.d. overnight loans settled in immediately availablefunds. 7. The most important money market instrument utilized in the Fed's open marketoperation isa. Federal Funds.b. commercial paper.c. Treasury bills.d. Agency securities. 8. Banks can satisfy their short-term borrowing needs bya. Federal Funds purchased.b. Federal Funds sold.c. issuing negotiable CDs.d. both a and c56 9. Which of the following statements is not true about repurchase agreements?a. These are a form of secured borrowing by a bank.b. They are settled in federal funds.c. These are seldom used by the Federal Reserve for making temporary reservepositions adjustments.d. Treasury securities are often used in this type of transaction. 10. Which of the following money market instruments would typically be used ininternational transactions?a. a Treasury billb. a banker's acceptancec. commercial paperd. a negotiable CD 11. The money market is an important financial market becausea. the money market is the world's liquidity market.b. it is the market in which the Fed conducts monetary policy.c. the federal government finances most of its credit needs in the money market.d. all of the above 12. Which of the following money market securities is usually not found on acommercial bank's balance sheet?a. Ba rated corporate bondsb. Treasury billsc. certificates of depositd. banker's acceptance 13. The money market security represented by the largest dollar amount outstandingisa. commercial paper.b. federal agency issues.c. negotiable CDs.d. Treasury bills. 14. Which of the following bank money market securities is backed by specifiedcollateral?a. negotiable CDsb. banker's acceptancesc. repurchase agreementsd. commercial paper57 15. Money market securities have very littlea. default risk.b. price risk.c. marketability risk.d. all of the above. 16. An important economic function of the U.S. government security dealer is toa. underwrite Treasury securities.b. "make a market" for Treasury securities.c. support open market operations of the Federal Reserve.d. all of the above 17. Large industrial U.S. corporations are involved in the money market bya. investing excess cash balances.b. buying and selling goods on credit