Chapter 5: Domestic and International Money Markets

1. Which of the following is a method of the Central Bank selling Treasury bills and bonds at a fixed price?

A tender issue A public issue An auction issue A direct placement

2. Which one of the following is a repurchase agreement (repo) transaction?

A dealer sells some Treasury bills for 1 week agreeing at the same time to purchase them back a week later. A trader agrees to purchase some bonds that have just been bought by another trader. A trader sells some Treasury bills to one trader but agrees to purchase some equities off another trader to the same value. The central bank buys back some of the Treasury bonds it previously sold prior to maturity.

3. Which of the following financial instruments is used to facilitate trade payment between an exporter and importer?

Commercial paper Certificate of deposit Bankers acceptance A term repo

4. Which of the following is NOT a feature of a Eurobanks?

They tend to match the maturity structure of their assets and liabilities. They tend to keep very low levels of reserves. Their deposits and loans are of a short term nature. Their deposits are protected by the Federal Deposit Insurance Corporation.

5. A note issuing facility is a:

a guarantee by a syndicate of financial institutions to underwrite a series of short term note issues for a period usually between 5 to 10 years. a facility offered by a bank to guarantee a fixed rate of interest loan for a period of time. an issue of commercial paper by company that has a high credit rating. a certificate issued by a deposit taking institution that acknowledges that a specified sum of money has been deposited with that institution.

6. Which one of the following is the correct definition of the TED spread ?

The one year $LIBOR less the three month $LIBOR The three month $LIBOR minus the three month dollar treasury bill yield The six month $LIBOR minus the three month dollar treasury bill yield. The six month $LIBOR minus the six month dollar treasury bill yield.

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