Money Market Review

1. A fixed deposit is a deposit placed for a fixed period at a fixed rate of interest.

True

False

2. A _______ deposit is a deposit placed for a fixed period at a fixed rate of interest.

Fixed

Call

Submit

5. Can Central Banks directly lend to commercial banks?

Yes

No

6. O/N is the term for a transaction where the first value date is today and the maturity date is the next business day.

True

False

Submit

8. An example of market participant rate is the deposit rate for borrowing and lending.

True

False

9. The origins of Bills of Exchange can be tracked back to at least the 4th century BC.

True

False

10. The primary purpose of Central banks in lending to commercial banks is to ensure the banks have enough liquidity to meet demand.

True

False

11. Prime rate refers to a short-term interest rate that banks charge to their most creditworthy customers.

True

False

The prime rate is a short-term interest rate that banks charge to their most creditworthy customers. It is also known as the base rate.

Explanation

The prime rate is a short-term interest rate that banks charge to their most creditworthy customers. It is also known as the base rate.

12. In a special repo, 'special' refers to the:

Conterparty

Maturity

Collateral

Documentation

13. To close out a short position in a particular security, a dealer would use:

A repo

A reverse repo

Either a repo or reverse repo

Dealers use reverse repos to close out short positions in a particular security. In this situation, they purchase securities with a simultaneous agreement to sell them back at some date in the future.The increasing use of short selling has provided the opportunity for many institutions (such as insurance companies and pension funds) to increase their portfolio returns by lending their securities to dealers in the repo market.

Explanation

Dealers use reverse repos to close out short positions in a particular security. In this situation, they purchase securities with a simultaneous agreement to sell them back at some date in the future.The increasing use of short selling has provided the opportunity for many institutions (such as insurance companies and pension funds) to increase their portfolio returns by lending their securities to dealers in the repo market.

14. Today is June 6. The repo dealer at DEF Bank has been asked to do some funding for the bank. The dealer needs to raise about USD 50 million and has been asked to see what rates can be achieved. As DEF Bank is only looking for liquid money, the dealer is looking at the rates for one-day and open repos. The rates quoted on the screen are: USD 3.10 - 3.15 If the dealer at DEF wants to raise money, which rate will be used? Input your answer correct to two decimal places.

The answer is 3.15. The market is offering to lend money, against collateral, at 3.15% and is looking to pay 3.10% for deposits.

Explanation

The answer is 3.15. The market is offering to lend money, against collateral, at 3.15% and is looking to pay 3.10% for deposits.

Submit

15. When the dealer looks at the bank's available collateral, he discovers that the bank does not have USD 50 million of US securities on its books to use as collateral. Instead it has the following: USD 30 million US Treasuries 4.5% 11 November 20x6 trading at 100.50 (clean price) EUR 10 million German Bunds 5% 30 April 20X3 trading at 99.89 (clean price) EUR 15 million French OATs 4.75% 31 May 20X6 trading at 99.45 (clean price) What sort of repo structure will enable the bank to use the euro collateral to raise USD?

Classic repo

Buy/sell back repo

Cross currency repo

Cross currency repos have an exchange rate aspect as an additional complication. In practice, its impact on calculation is relatively limited.

Explanation

Cross currency repos have an exchange rate aspect as an additional complication. In practice, its impact on calculation is relatively limited.

16. What do you think is the most common maturity for repurchase agreements?

A day

A week

A month

Three months

Six months

A year

The most common maturity for repurchase agreements is one day.

Explanation

The most common maturity for repurchase agreements is one day.

17. If a security goes on special, the repo rate applied to this particular security will be

Lower

Higher

The repo rate is paid to the lender of funds, the buyer of the securities. If this buyer has a particular need, he is able to charge a lower rate of interest to lend the money.

Explanation

The repo rate is paid to the lender of funds, the buyer of the securities. If this buyer has a particular need, he is able to charge a lower rate of interest to lend the money.

18. Cross currency repos offer investors an opportunity of a yield gain.

True

False

19. The economy of Country A is performing well and market participants feel that this performance will at least be sustained in the future. Therefore, other things being equal, which of the following are likely to occur?

The demand for funds in Country A will tend to decrease

Interest rates in Country A will tend to decrease

The demand for funds in Country A will tend to increase

Interest rates in Country A will tend to increase

Submit

21. It is a benchmark rate that some of the world's leading banks charge each other for short-term notes.

LIBOR

LIBID

LIMEAN

22. What does LIBOR stand for?

London Interbank Offered Rate

London International Bank Offering Rate

London Interim Offered Rate

London Interbank Optimum Rate

23. Deposit rate for borrowing and lending is a -

Market participant rate

Central bank rate

Market average rate

24. Money market securities are short-term debt instruments (one year or less)

True

False

Money market securities are short-term debt instruments (one year or less)

Explanation

Money market securities are short-term debt instruments (one year or less)

25. Money market securities are long-term debt instruments.

True

False

Money market securities are short-term debt instruments (one year or less)

Explanation

Money market securities are short-term debt instruments (one year or less)

26. Money market transactions provide an avenue for both acquiring money (borrowing) and investing (lending) excess funds for short periods

True

False

27. Which of the following statements is true?

Money market transactions provide an avenue for both acquiring money (borrowing) and investing (lending) excess funds for short periods

Money market transactions provide an avenue for acquiring money (borrowing)only, NOT investing (lending) excess funds for short periods

Money market transactions provide an avenue for investing (lending) excess funds for short periods only, NOT for acquiring money (borrowing)

28. Base rates are quoted for borrowing and lending funds in the wholesale markets.

True

False

Interbank rates are quoted for borrowing and lending funds in the interbank (wholesale) markets.

Explanation

Interbank rates are quoted for borrowing and lending funds in the interbank (wholesale) markets.

29. When issuers of commercial paper sell their issues directly to the public using their own sales force, the commercial paper is said to be -

Directly placed

Dealer placed

30. When issuers of commercial paper sell their issues directly to the public using their own sales force, the commercial paper is said to be "directly placed"

True

False

31. Which 2 of the following statements are CORRECT regarding LIBOR?

LIBOR is published daily by BBA at around 11:45 GMT.

LIBOR is published daily by BBA at around 11:00 GMT

LIBOR is short for London Interbank Offered Rate

All submissions from panel banks are considered in the calculation of LIBOR

BBA calculates LIBOR

Submit

32. When issuers sell CP to large commercial paper dealers who then resell the issue to the public, the instrument is said to be "dealer placed"

True

False

33. Bankers' acceptances are used to facilitate foreign trade.

True

False

34. Bankers' acceptances are actively traded and are considered quite safe since they are secured both by the issuing bank and by the goods originally purchased by the importer.

True

False

35. The average of LIBOR and LIBID

EURIBOR

LIMEAN

LIMODE

REPO

LIMEAN (London Interbank Mean Rate) is the mid-market rate, that is, the average of LIBOR and LIBID.

Explanation

LIMEAN (London Interbank Mean Rate) is the mid-market rate, that is, the average of LIBOR and LIBID.

36. In a repurchase agreement (repo), a dealer sells securities to another dealer and agrees to repurchase them at a specific time, at a specified price.

True

False

37. Repos and reverse repos are typically long-term

True

False

Repos and reverse repos are typically short-term, with most being overnight transactions.

Explanation

Repos and reverse repos are typically short-term, with most being overnight transactions.

38. What is an interbank rate?

A rate quoted by one bank to another

A rate at which a central bank will lend to commercial banks

A rate offered by a bank to its corporate clients

39. Bills of Exchange are unconditional orders to pay a stated sum of money on a specified date.

True

False

Submit

41. Bills of Exchange are accepted by banks.

True

False

42. Banks do not accept bills of exchange.

True

False

43. Bank bill is another term for bankers acceptance.

True

False

44. The ideal period for a Bill of Exchange is the same as the period for which the goods are in transit.

True

False

45. A Bill of Exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand at a fixed or determinable future time, a sum certain in money to or to the order of a specified person or to the bearer.

True

False

46. Bill of Exchange is one of the oldest credit instruments in the world.

True

False

47. These are rates that are calculated as an average of market quoted prices.

Market participant rates

Central bank rates

Market average rates

48. Bills of Exchange were first mentioned in statute of 1379.

True

False

49. Bills of Exchange are used between trading parties to make the process of payment for goods more efficient.

True

False

50. Can trading parties use bills of exchange to process payment for goods?

Yes

No

51. Clearly, the Bill of Exchange must contain financial conditions.

True

False

52. What was the interbank rate used in France prior to January 1, 1999?

FIBOR

PIBOR

EURIBOR

EUROBOR

Until 1999, financial centers within the euro area had their own interbank rates such as FIBOR (Frankfurt) and PIBOR (Paris). However, with the introduction of the EURO, a single euro area interbank rate (EURIBOR) has been quoted since 1999 instead of these local interbank rates.

Explanation

Until 1999, financial centers within the euro area had their own interbank rates such as FIBOR (Frankfurt) and PIBOR (Paris). However, with the introduction of the EURO, a single euro area interbank rate (EURIBOR) has been quoted since 1999 instead of these local interbank rates.

53. A Bill of Exchange would enable the _ of goods to receive payment immediately and allow the __ of the goods to defer payment until the goods are actually delivered.

Seller --- buyer

Buyer --- seller

54. Bills of Exchange are used by buyers and sellers of goods to finance importation of goods.

True

False

Submit

56. If a Bill of Exchange is drawn on another party, it is called a trade draft.

True

False

57. A Letter of Credit is an arrangement between banks and customers to pay and accept bills that are drawn up on the conditions specified in the Letter of Credit.

True

False

Submit

59. A Letter of Credit will specify which of the following conditions: (select all that apply)

The amount of the bill

The tenor of the bill

To whom the bill is to be made payable

Submit

60. A Bill of Exchange is generally a bearer instrument.

True

False

61. Match the following

Market participant rates

Central bank rates

Market average rates

Submit

62. Investing in a call deposit will ensure that the deposited amount from the borrower can be reclaimed within the agreed notice period.

True

False

Submit

64. Central Banks may lend directly to commercial banks.

True

False

65. Can a Bill of Exchange be made payable to the bearer?

Yes

No

A Bill of Exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand at a fixed or determinable future time, a sum certain in money to or to the order of a specified person or to the bearer.

Explanation

A Bill of Exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand at a fixed or determinable future time, a sum certain in money to or to the order of a specified person or to the bearer.

66. Investing in a fixed deposit will guarantee a fixed return from a liquid investment.

True

False

67. Money market instruments have period ranging from overnight to a few months, but may be as long as 1 year.

True

False

68. In a call deposit, the deposited amount from the borrower can be reclaimed within the agreed notice period.

True

False

69. In a third-party repo, all transactions are monitored by the third party agent.

True

False

70. A US Commercial paper would be exempt from the prospectus requirements of the Act of 1933.

True

False

71. Which rating agency assigns A1 (highest rating) to A3 to commercial paper?

Moody's

S & P

Fitch

72. Participants to money-market include which of the following: (select all that apply)

Federal Reserve Board

Banks

Securities Dealers

Corporations

Participants to money-market include Federal Reserve Board, banks, securities dealers, and corporations.

Explanation

Participants to money-market include Federal Reserve Board, banks, securities dealers, and corporations.

Submit

73. Bills of Exchange were widely used in England around the time of the Norman Conquest.

True

False

74. If a Bill of Exchange is drawn on a bank, it is called a bank draft.

True

False

75. Customers with strong credit ratings will be able to borrow from banks at a rate close to the prime rate.

True

False

Customers with strong credit ratings will be able to borrow from banks at a rate close to to the prime rate, while those with a weaker credit rating will have to pay a higher premium over the prime rate to reflect their perceived higher credit risk.

Explanation

Customers with strong credit ratings will be able to borrow from banks at a rate close to to the prime rate, while those with a weaker credit rating will have to pay a higher premium over the prime rate to reflect their perceived higher credit risk.

76. Which of the following are NOT examples of money-market securities. Select all that apply.

Commercial paper

Bankers' acceptance

Negotiable certificates of deposits

Federal funds

Money-market funds

Repurchase agreements (repos)

All are examples of money-market securities

Explanation

All are examples of money-market securities

77. Commercial paper is short-term, unsecured corporate debt, which typically matures in 270 days or less (for the United States)

True

False

78. Commercial paper is long-term, unsecured corporate debt, which typically matures in 1 year or more.

True

False

79. Repos and reverse repos are typically short-term, with most being overnight transactions.

True

False

80. Interest rates of Certificates of Deposits are NOT fixed.

True

False

Certificates of Deposits are time deposits carrying fixed rates of interest that mature after a specified period.

Explanation

Certificates of Deposits are time deposits carrying fixed rates of interest that mature after a specified period.

81. A Bill of Exchange is a non-interest bearing instrument.

True

False

82. Market participant rates are rates or prices charged by individual market players for money-market deals.

True

False

83. Who is the legal owner of securities during repo?

Cash Lender

Cash Borrower

Legal ownership of the securities is normally transferred from the cash borrower to the cash lender for the duration of the repo.

However, despite legal change of ownership, the coupon on the securities belongs to the original seller

In a classic repo structure any coupons paid during the term of the repo must be immediately passed on to the original owner. In a sell/buy back the coupon will be paid at the end of the repo agreement.

Explanation

Legal ownership of the securities is normally transferred from the cash borrower to the cash lender for the duration of the repo.

However, despite legal change of ownership, the coupon on the securities belongs to the original seller

In a classic repo structure any coupons paid during the term of the repo must be immediately passed on to the original owner. In a sell/buy back the coupon will be paid at the end of the repo agreement.

84. Which rating agency assigns F1+ (highest rating) to F3 to commercial paper?

Moody's

S & P

Fitch

85. Central bank rates are rates at which central banks make funds available to the banks in the money markets.

True

False

86. At what price are the securities sold in a repurchase agreement?

Above current market prices, that is, at a premium

Below current market prices, that is, at a discount

At current market prices

The securities are normally sold at current market prices, and bought back with interest.

Explanation

The securities are normally sold at current market prices, and bought back with interest.

87. The most common maturity of a central bank rate is O/N

True

False

The most common maturity is overnight (O/N) as the primary purpose is to ensure the banks have enough liquidity to meet demand.

Explanation

The most common maturity is overnight (O/N) as the primary purpose is to ensure the banks have enough liquidity to meet demand.

88. Typically, the minimum denomination of US commercial paper is $100,000

True

False

89. A Bill of exchange is also known as time draft.

True

False

90. Time draft is another term for a bill of exchange.

True

False

91. Banks do not accept Letters of Credit.

True

False

92. Bills of Exchange are said to be existent way back 4th century BC.

True

False

93. A Bill of Exchange would enable the seller of goods to receive payment immediately and allow the buyer f the goods to defer payment until the goods are actually delivered.

True

False

94. Investing in a deposit will guarantee a fixed return from ___ investment.

Fixed ---- liquid

Call ---- liquid

Fixed ---- illiquid

Call ---- illiquid

95. What is the primary use of repurchase agreements?

To close out short positions

To speculate on the money market

To finance long positions

While reverse repos are used to close out short positions, repos are primarily used to finance long positions

Explanation

While reverse repos are used to close out short positions, repos are primarily used to finance long positions

96. A Bill of Exchange is a negotiable instrument that protects international traders from the uncertainties of payments and deliveries.

True

False

97. Money market basis (ACTUAL/360) is commonly used for all Euro currency rates.

True

False

Money market basis is commonly used for all Eurocurrency LIBOR rates, except sterling. The day count fraction is defined as the actual number of days in the period over 360.

Explanation

Money market basis is commonly used for all Eurocurrency LIBOR rates, except sterling. The day count fraction is defined as the actual number of days in the period over 360.

98. In a third-party repo, settlement risk is increased.

True

False

In a tri-party repo, settlement risk is reduced because the custodian monitors the deal and holds the collateral.

Explanation

In a tri-party repo, settlement risk is reduced because the custodian monitors the deal and holds the collateral.

99. In a third-party repo, the custodian's fee is usually paid by the cash borrower.

True

False

For this service the custodian receives a fee from the cash borrower.

Explanation

For this service the custodian receives a fee from the cash borrower.

100. Which of the following statements is CORRECT about Money Market basis?

Money market basis is also known as ACTUAL/360.

Money market basis is commonly used for all Euro currency LIBOR rates.

Money market basis is commonly used for all sterling interest rates.

The day count fraction is defined as the actual number of days in the period over 365

It is commonly used for money markets in Australia, Canada, and New Zealand.

101. LIBOR and EURIBOR are examples of --

Market participant rates

Central bank rates

Market average rates

102. Prime rates are quoted for borrowing and lending funds in the wholesale markets.

True

False

Interbank rates are quoted for borrowing and lending funds in the interbank (wholesale) markets.

Explanation

Interbank rates are quoted for borrowing and lending funds in the interbank (wholesale) markets.

103. Corporations issue commercial paper when they are in need of short-term financing.

True

False

104. Commercial paper is usually issued at a discount like Treasury Bills, although some issues are interest bearing.

True

False

105. When issuers sell CP to large commercial paper dealers who then resell the issue to the public, the instrument is said to be -

Directly placed

Dealer placed

106. Bankers' acceptances are illiquid and risky instruments since they are not secured by the issuing bank.

True

False

107. If a dealer purchases securities and agrees to sell them back to the other dealer at a specific date and price, this is known as "reverse repo" or "matched sale"

True

False

108. Certificates of Deposits are time deposits carrying fixed rates of interest that mature after a specified period.

True

False

109. Prime rate is also known as interbank rate.

True

False

Prime rate is a short-term interest rate that banks charge to their most creditworthy customers while Interbank rate is a rate quoted by one bank to another.

Explanation

Prime rate is a short-term interest rate that banks charge to their most creditworthy customers while Interbank rate is a rate quoted by one bank to another.

110. Banks can accept trade bills.

True

False

Trade bills would never be accepted by banks.

Explanation

Trade bills would never be accepted by banks.

111. Letters of Credit are accepted by banks.

True

False

112. The most common maturities for Bills of Exchange range between 30 days to 6 months.

True

False

113. The Bill of Exchange is one of the newest credit instruments in the world.

True

False

114. O/N is the term for a trasaction where the first value date is _______ and the maturity date is the next business day.

Today

Previous day

2 days ago

115. Commercial paper is usually issued by corporations with high credit ratings and is considered very safe.

True

False

116. Typically, what is the minimum denomination of US commercial paper?

$100,000

$1,000,000

$10,000

$1,000

$10,000

117. Bills of Exchange are usually preceded by the opening of a Letter of Credit.

True

False

118. Which of the following statements is true about money-market instruments?

The period ranges from overnight to a few months, but may be as long as 1 year.

The period ranges from overnight to a few months only, and cannot be as long as 1 year.

The period ranges from overnight to a few years.

119. In a repurchase agreement (repo), a dealer sells securities to another dealer and may not repurchase them at a specific time, at a specified price.

True

False

In a repurchase agreement (repo), a dealer sells securities to another dealer and agrees to repurchase them at a specific time, at a specified price.

Explanation

In a repurchase agreement (repo), a dealer sells securities to another dealer and agrees to repurchase them at a specific time, at a specified price.

120. The Bund proceeds of EUR 10,039,685 will then have to be converted to USD at the rate of 1.2745. EUR 10,039,685 x 1.2745 = USD 12,795,579. If this is repoed out, which repo rate should be used? The rates quoted on the screen are: USD 3.10 - 3.15

USD 3.10

USD 3.15

USD 3.50

USD 3.55

121. Trade bills would never be accepted by banks.

True

False

122. A is a secured deposit whereas a is a secured borrowing.

Repo -- reverse repo

Reverse repo -- repo

123. Which of the following countries has the oldest established repo market?

France

Germany

Japan

US

UK

The oldest repo market is that of the US. Although the origins of the US repo market can be traced back to the early part of the 20th century, it was not until after World War II that repos became a significant money market instrument.

Explanation

The oldest repo market is that of the US. Although the origins of the US repo market can be traced back to the early part of the 20th century, it was not until after World War II that repos became a significant money market instrument.

124. In a repo, margining is built to whose protection?

Cash Lender

Cash Borrower

As the value of the securities in a repo transaction can rise or fall, margining is built in to protect the cash lender.

Explanation

As the value of the securities in a repo transaction can rise or fall, margining is built in to protect the cash lender.

125. Who transacts the repo?

Cash Lender

Cash Borrower

This is performed by the cash borrower.

Explanation

This is performed by the cash borrower.

126. Central banks never lend directly to commercial banks.

True

False

127. A buy/sell back transaction is the economic equivalent of a reverse repo transaction.

True

False

128. When a deliver-out repo is transacted, the possession of collateral

Remains with the borrower

Is passed to the lender

Is passed to a third party

A deliver-out repo is the standard repo transaction whereby possession of the collateral is actually passed onto the cash lender.

Explanation

A deliver-out repo is the standard repo transaction whereby possession of the collateral is actually passed onto the cash lender.

129. It is the party that issues a Bill of Exchange in an international trade transaction; usually the seller.

Drawer

Drawee

Payee

130. Which of the following is a market average rate?

Fed funds rate

EURIBOR

ECB marginal lending rate

EURIBOR is the rate at which Euro interbank deposits within the EURO area are offered by one bank to another bank. The rate is determined by a panel of banks chosen by the European Banking Federation (EBF) and published on Reuters at 11 a.m. on a daily basis.

Explanation

EURIBOR is the rate at which Euro interbank deposits within the EURO area are offered by one bank to another bank. The rate is determined by a panel of banks chosen by the European Banking Federation (EBF) and published on Reuters at 11 a.m. on a daily basis.

131. Participants to money-market include Federal Reserve Board, banks, securities dealers, and corporations.

True

False

132. Corporations issue commercial paper when they are in need of long-term financing.

True

False

133. British Bankers' Association (BBA) compiles indicative LIBID rates.

True

False

It is important to note that the British Bankers' Association (BBA) DOES NOT compile indicative LIBID rates.

Explanation

It is important to note that the British Bankers' Association (BBA) DOES NOT compile indicative LIBID rates.

134. Which rating agency assigns NP to speculative commercial paper?

Moody's

S & P

Fitch

135. Prime rate is also known as base rate.

True

False

136. Interbank rates are quoted for borrowing and lending funds in the wholesale markets.

True

False

137. Bankers' acceptances CANNOT be used to facilitate foreign trade.

True

False

138. These are rates at which the central banks make funds available to the banks in the money markets.

Market participant rates

Central bank rates

Market average rates

139. The following statements regarding EONIA are correct EXCEPT --

EONIA is short for Euro Overnight Interbank Average.

The EONIA rate is the 1-day interbank interest rate for the EURO zone.

EONIA is the rate at which banks provide loans to each other with a duration of 1 day only.

EONIA can be considered as the 1 day Euribor rate.

EONIA is short for Euro Overnight Index Average.

Explanation

EONIA is short for Euro Overnight Index Average.

140. The minimum maturity of CD is 7days and maximum maturity is 1 year.

True

False

While most CDs mature in a year or less, the minimum maturity is 7 days and there is no maximum.

Explanation

While most CDs mature in a year or less, the minimum maturity is 7 days and there is no maximum.

141. Base rate is a short-term interest rate that banks charge to their most creditworthy customers.

True

False

The prime rate is a short-term interest rate that banks charge to their most creditworthy customers. It is also known as the base rate.

Explanation

The prime rate is a short-term interest rate that banks charge to their most creditworthy customers. It is also known as the base rate.

142. Bill of exchange is also known as commercial bill.

True

False

143. Which of the following statements is NOT CORRECT about Day Count Convention?

Day count is commonly expressed as a fraction.

Day count convention determines how interest accrues over time in a variety of transactions like bonds, swaps, bills, and loans.

The London Interbank market operates on the basis of ACTUAL/365, except where the currency is sterling.

144. Bankers acceptances are also known as bank bills.

True

False

145. Banks offer borrowers different rates depending on borrower's credit rating.

True

False

Banks offer borrowers different rates depending on the risk category to which the borrower belongs, that is, depending on the borrower's credit rating.

Explanation

Banks offer borrowers different rates depending on the risk category to which the borrower belongs, that is, depending on the borrower's credit rating.

146. A Bill of Exchange bears interest.

True

False

A Bill of Exchange is a non-interest bearing instrument.

Explanation

A Bill of Exchange is a non-interest bearing instrument.

Submit

148. Bills of Exchange are usually followed by opening a Letter of Credit.

True

False

Bills of Exchange are usually preceded by the opening of a Letter of Credit.

Explanation

Bills of Exchange are usually preceded by the opening of a Letter of Credit.

149. Financial conditions are required to be reflected on a bill of exchange.

True

False

150. Issuers of money-market instruments include which of the following: (check all that apply)

Government

Government agencies

Banks

Corporations

Issuers include government, government agencies, banks and corporations.

Explanation

Issuers include government, government agencies, banks and corporations.

Submit

151. The origins of Bills of Exchange can be tracked back to at least the 4th century BC.

True

False

152. The ideal period for a Bill of Exchange is longer as compared to the period for which the goods are in transit.

True

False

The ideal period for a Bill of Exchange is the same as the period for which the goods are in transit.

Explanation

The ideal period for a Bill of Exchange is the same as the period for which the goods are in transit.

153. The shortest period for a call deposit transaction is 1 day.

True

False

Submit

155. Repurchase agreements first became a significant money market instrument in the US:

At the turn of the 20th century

Following World War I

Following World War II

During the 1960s

During the 1970s

Although the origins of repos can be traced back to the early part of the 20th century, it was not until after World War II that they became a significant money market instrument.

Explanation

Although the origins of repos can be traced back to the early part of the 20th century, it was not until after World War II that they became a significant money market instrument.

156. Who holds the collateral in a hold-in-custody repo?

The cash borrower

The cash lender

A third party

In a hold-in-custody repo, possession of the collateral remains with the cash borrower. Despite this, many lenders have shown a preference for the securities to be held by a third party (tri-party repo).

Explanation

In a hold-in-custody repo, possession of the collateral remains with the cash borrower. Despite this, many lenders have shown a preference for the securities to be held by a third party (tri-party repo).

157. Which is the most common maturity used for central bank rates?

O/N

S/N

S/W

T/N

The most common maturity is overnight (O/N) as the primary purpose is to ensure the banks have enough liquidity to meet demand.

Explanation

The most common maturity is overnight (O/N) as the primary purpose is to ensure the banks have enough liquidity to meet demand.

158. It is the party to whom the bill is payable; usually the seller or their bankers.

Drawer

Drawee

Payee

159. Which of the following are examples of money-market securities. Select all that apply.

Commercial paper

Bankers' acceptance

Negotiable certificates of deposits

Federal funds

Money-market funds

Repurchase agreeements (repos)

All are examples of money-market securities

Explanation

All are examples of money-market securities

Submit

160. What is the highest rating that Moody's will assign to commercial paper?

P-1 (also called Prime 1) is the highest rating that Moody's will assign to commercial paper. Intermediate ratings are P-2 and P-3.

Explanation

P-1 (also called Prime 1) is the highest rating that Moody's will assign to commercial paper. Intermediate ratings are P-2 and P-3.

Submit

161. Which rating agency assigns P-1 to commercial paper being the highest rating?

Moody's

S & P

Fitch

162. Bills of Exchange are used by buyers and sellers of goods to finance which of the following: (Select all that apply)

Import of goods

Export of goods

Inland sale of goods

Submit

163. It is the recipient of the Bill of Exchange for payment or acceptance in an international trade transaction; usually the buyer.

Drawer

Drawee

Payee

164. Unlike Treasury bills, commercial paper cannot be issued at a discount.

True

False

Commercial paper is usually issued at a discount like Treasury Bills, although some issues are interest bearing.

Explanation

Commercial paper is usually issued at a discount like Treasury Bills, although some issues are interest bearing.

165. Commercial paper is usually issued by Central Bank and is considered very safe.

True

False

Commercial paper is usually issued by corporations with high credit ratings and is considered very safe.

Explanation

Commercial paper is usually issued by corporations with high credit ratings and is considered very safe.

166. A Bill of Exchange is a non-negotiable instrument that protects international traders from the uncertainties of of payments and deliveries.

True

False

A Bill of Exchange is a negotiable instrument.

Explanation

A Bill of Exchange is a negotiable instrument.

167. Interbank rate is a short-term interest rate that banks charge to their most creditworthy customers.

True

False

The prime rate is a short-term interest rate that banks charge to their most creditworthy customers. It is also known as the base rate.

Explanation

The prime rate is a short-term interest rate that banks charge to their most creditworthy customers. It is also known as the base rate.

Submit

169. A repo transaction involves:

A simultaneous sale and re-purchase of securities only

A simultaneous purchase and re-sale of securities only

Both options shown here

170. You are given the following details about a new repo transaction: Security: GBP 100m of 5% Exchequer 20X1 Market (Clean) Price: 100.00 (currently trading at par) Accrued Interest: GBP 410,959 Initial Margin Rate: 1% Calculate the cash lent under the repo. Input your answer correct to the nearest whole number. GBP

The market value of the collateral including accrued interest is:
MV = GBP 100,000,000 + GBP 410,959 = GBP 100,410,959

Given a margin rate of 1%, the cash lent under the repo is:

Cash Lent = GBP 100,410,959 / 1.01 = GBP 99,416,791 (rounded)

Explanation

The market value of the collateral including accrued interest is:
MV = GBP 100,000,000 + GBP 410,959 = GBP 100,410,959

Given a margin rate of 1%, the cash lent under the repo is:

Cash Lent = GBP 100,410,959 / 1.01 = GBP 99,416,791 (rounded)

Submit

172. All of the following statements regarding EURIBOR are correct EXCEPT -

In the calculation of EURIBOR, the highest and lowest 15% of all the quotes collected are eliminated.

EURIBOR is determined and published at about 11:00 AM each day, Central European Time.

There is only 1 EURIBOR rate calculated every business day.

When EURIBOR is being mentioned, it is often referred to as THE EURIBOR, like there's only 1 EURIBOR interest rate. This is not correct, since there are in fact 8 different EURIBOR rates, all with different maturities.

Explanation

When EURIBOR is being mentioned, it is often referred to as THE EURIBOR, like there's only 1 EURIBOR interest rate. This is not correct, since there are in fact 8 different EURIBOR rates, all with different maturities.

173. These are rates (or prices) charged by individual market players for money market deals.

Market participant rates

Central bank rates

Market average rates

174. This is the rate at which major banks can bid to borrow funds from each other on the interbank market.

LIBOR

LIBID

LIMEAN

LIBID (London Interbank Bid Rate) is a rate at which major banks can bid to borrow funds from each other on the interbank market. It is the bid side of the LIBOR.

Explanation

LIBID (London Interbank Bid Rate) is a rate at which major banks can bid to borrow funds from each other on the interbank market. It is the bid side of the LIBOR.

175. Commercial paper is subject to the prospectus requirements of the Act of 1933.

True

False

Commercial paper would be exempt from the prospectus requirements of the Act of 1933.

Explanation

Commercial paper would be exempt from the prospectus requirements of the Act of 1933.

176. If a dealer purchases securities and agrees to sell them back to the other dealer at a specific date and price, this is known as "repo"

True

False

If a dealer purchases securities and agrees to sell them back to the other dealer at a specific date and price, this is known as "reverse repo" or "matched sale"

Explanation

If a dealer purchases securities and agrees to sell them back to the other dealer at a specific date and price, this is known as "reverse repo" or "matched sale"

177. Interbank rate is also knows as base rate.

True

False

Prime rate is also known as base rate.

Explanation

Prime rate is also known as base rate.

178. While most CDs mature in a year or less, the minimum maturity is 7 days and there is no maximum.

True

False

179. Commercial bill is another term of a bill of exchange.

True

False

Submit

182. The Bill of Exchange is one of the newest credit instruments in the world.

True

False

183. Calculate the start proceeds (to the nearest whole number) for the deal to repo out the below security: USD 30 million US Treasuries 4.5% 11 November 20X6 trading at 100.50 (clean price). Day count 26 days USD

The answer is USD 30,245,380 (rounded). The calculation is USD 30,000,000 x (100.50 + (100 x 4.5%/2 x 26/184))/100 = 30,245,380.43, so this is the amount that can be borrowed against this collateral. The borrowing rate for this is the repo rate of 3.15%.

Explanation

The answer is USD 30,245,380 (rounded). The calculation is USD 30,000,000 x (100.50 + (100 x 4.5%/2 x 26/184))/100 = 30,245,380.43, so this is the amount that can be borrowed against this collateral. The borrowing rate for this is the repo rate of 3.15%.

Submit

184. The EURIBOR rates are based on the interest rates at which a panel of European banks borrow funds from one another.

True

False

Submit

186. Which of the following refers to a transaction where the first value date is today and the maturity date is the next business day?

S/W

S/N

T/N

O/N

Overnight (O/N) is the term for a transaction where the first value date is today and the maturity date is the next business day.

Explanation

Overnight (O/N) is the term for a transaction where the first value date is today and the maturity date is the next business day.

187. Money market basis (ACTUAL/360) is commonly used for all Eurocurrency LIBOR rates, EXCEPT sterling.

True

False

Money market basis is commonly used for all Eurocurrency LIBOR rates, except sterling. The day count fraction is defined as the actual number of days in the period over 360.

Explanation

Money market basis is commonly used for all Eurocurrency LIBOR rates, except sterling. The day count fraction is defined as the actual number of days in the period over 360.

188. Which 2 of the following laws regulate Bills of Exchange in different countries?

Bills of Exchange Act of 1882 - United Kingdom

Geneva Convention of 1930

The Coinage Act of 1903

Securities Exchange Act of 1933

Submit

189. US Fed Funds rates and ECB marginal lending and deposit facility rates are examples of --

Market participant rates

Central bank rates

Market average rates

190. Issuers include government, government agencies, banks and corporations.

True

False

191. Match the following

Market participant rates

Central bank rates

Market average rates

Submit

192. Match the following

Market participant rates

Central bank rates

Market average rates

Submit

193. What rating does Moody's assign to speculative commercial paper?

Speculative commercial paper would receive a rating of NP (not prime)

Explanation

Speculative commercial paper would receive a rating of NP (not prime)

Submit

196. Which of the following statements is CORRECT about Money Market basis?

It is commonly used for all Euro currency LIBOR rates.

The day count fraction is defined as the actual number of days in the period over 360.

This is commonly used for all sterling bonds.

This is commonly used for all Euro-denominated bonds.

197. Match the following

Interbank rate

Fed funds rate

LIBID

LIMEAN

Submit

Money Market Review

1. A fixed deposit is a deposit placed for a fixed period at a fixed rate of interest.

2.

What first name or nickname would you like us to use?

2. A _______ deposit is a deposit placed for a fixed period at a fixed rate of interest.

3. What is the interest rate to pay for GBP 1-M for 1 year at 6%? (write it in whole no)

4. Fill in the blank: When currency is GBP, the formula for computation of interest rate is : Principal x Rate x (no of days / ______ )

5. Can Central Banks directly lend to commercial banks?

6. O/N is the term for a transaction where the first value date is today and the maturity date is the next business day.

7. When a country is performing well and market participants feel that this performance will at least be sustained in the future, the demand for funds will tend to ___________ .

8. An example of market participant rate is the deposit rate for borrowing and lending.

9. The origins of Bills of Exchange can be tracked back to at least the 4th century BC.

10. The primary purpose of Central banks in lending to commercial banks is to ensure the banks have enough liquidity to meet demand.

11. Prime rate refers to a short-term interest rate that banks charge to their most creditworthy customers.

12. In a special repo, 'special' refers to the:

13. To close out a short position in a particular security, a dealer would use:

16. What do you think is the most common maturity for repurchase agreements?

17. If a security goes on special, the repo rate applied to this particular security will be higher lower

18. Cross currency repos offer investors an opportunity of a yield gain.

19. The economy of Country A is performing well and market participants feel that this performance will at least be sustained in the future. Therefore, other things being equal, which of the following are likely to occur?

20. In what year did the League of Nations convene to provide a uniform law for Bills of Exchange?

21. It is a benchmark rate that some of the world's leading banks charge each other for short-term notes.

22. What does LIBOR stand for?

23. Deposit rate for borrowing and lending is a -

24. Money market securities are short-term debt instruments (one year or less)

25. Money market securities are long-term debt instruments.

26. Money market transactions provide an avenue for both acquiring money (borrowing) and investing (lending) excess funds for short periods

27. Which of the following statements is true?

28. Base rates are quoted for borrowing and lending funds in the wholesale markets.

29. When issuers of commercial paper sell their issues directly to the public using their own sales force, the commercial paper is said to be -

30. When issuers of commercial paper sell their issues directly to the public using their own sales force, the commercial paper is said to be "directly placed"

31. Which 2 of the following statements are CORRECT regarding LIBOR?

32. When issuers sell CP to large commercial paper dealers who then resell the issue to the public, the instrument is said to be "dealer placed"

33. Bankers' acceptances are used to facilitate foreign trade.

34. Bankers' acceptances are actively traded and are considered quite safe since they are secured both by the issuing bank and by the goods originally purchased by the importer.

35. The average of LIBOR and LIBID

36. In a repurchase agreement (repo), a dealer sells securities to another dealer and agrees to repurchase them at a specific time, at a specified price.

37. Repos and reverse repos are typically long-term

38. What is an interbank rate?

39. Bills of Exchange are unconditional orders to pay a stated sum of money on a specified date.

40. Bills of Exchange are __________ orders to pay a stated sum of money on a specified date.

41. Bills of Exchange are accepted by banks.

42. Banks do not accept bills of exchange.

43. Bank bill is another term for bankers acceptance.

44. The ideal period for a Bill of Exchange is the same as the period for which the goods are in transit.

46. Bill of Exchange is one of the oldest credit instruments in the world.

47. These are rates that are calculated as an average of market quoted prices.

48. Bills of Exchange were first mentioned in statute of 1379.

49. Bills of Exchange are used between trading parties to make the process of payment for goods more efficient.

50. Can trading parties use bills of exchange to process payment for goods?

51. Clearly, the Bill of Exchange must contain financial conditions.

52. What was the interbank rate used in France prior to January 1, 1999?

53. A Bill of Exchange would enable the ___________ of goods to receive payment immediately and allow the ____________ of the goods to defer payment until the goods are actually delivered.

54. Bills of Exchange are used by buyers and sellers of goods to finance importation of goods.

55. If a Bill of Exchange is drawn on a bank, it is called a ________ draft.

56. If a Bill of Exchange is drawn on another party, it is called a trade draft.

57. A Letter of Credit is an arrangement between banks and customers to pay and accept bills that are drawn up on the conditions specified in the Letter of Credit.

58. A Letter of _________ is an arrangement between banks and customers to pay and accept bills that are drawn up on the conditions specified in the Letter of Credit.

59. A Letter of Credit will specify which of the following conditions: (select all that apply)

60. A Bill of Exchange is generally a bearer instrument.

61. Match the following

62. Investing in a call deposit will ensure that the deposited amount from the borrower can be reclaimed within the agreed notice period.

63. How many day/s is the shortest period for a call deposit?

64. Central Banks may lend directly to commercial banks.

65. Can a Bill of Exchange be made payable to the bearer?

66. Investing in a fixed deposit will guarantee a fixed return from a liquid investment.

67. Money market instruments have period ranging from overnight to a few months, but may be as long as 1 year.

68. In a call deposit, the deposited amount from the borrower can be reclaimed within the agreed notice period.

69. In a third-party repo, all transactions are monitored by the third party agent.

70. A US Commercial paper would be exempt from the prospectus requirements of the Act of 1933.

71. Which rating agency assigns A1 (highest rating) to A3 to commercial paper?

72. Participants to money-market include which of the following: (select all that apply)

73. Bills of Exchange were widely used in England around the time of the Norman Conquest.

74. If a Bill of Exchange is drawn on a bank, it is called a bank draft.

75. Customers with strong credit ratings will be able to borrow from banks at a rate close to the prime rate.

76. Which of the following are NOT examples of money-market securities. Select all that apply.

77. Commercial paper is short-term, unsecured corporate debt, which typically matures in 270 days or less (for the United States)

78. Commercial paper is long-term, unsecured corporate debt, which typically matures in 1 year or more.

79. Repos and reverse repos are typically short-term, with most being overnight transactions.

80. Interest rates of Certificates of Deposits are NOT fixed.

17. If a security goes on special, the repo rate applied to this particular security will be

53. A Bill of Exchange would enable the _ of goods to receive payment immediately and allow the __ of the goods to defer payment until the goods are actually delivered.

94. Investing in a deposit will guarantee a fixed return from ___ investment.

122. A is a secured deposit whereas a is a secured borrowing.