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Asset Classes and Financial Instruments Questions and Answers

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Multiple Choice Questions 1. Which of the following is not a characteristic of a money market instrument? A. liquidity B. marketability C. long maturity D. liquidity premium E. C and D Money ma... rket instruments are short-term instruments with high liquidity and marketability; they do not have long maturities nor pay liquidity premiums. Difficulty: Easy 3. Treasury Inflation-Protected Securities (TIPS) A. pay a fixed interest rate for life. B. pay a variable interest rate that is indexed to inflation. C. provide a constant stream of income in real (inflation-adjusted) dollars. D. have their principal adjusted in proportion to the Consumer Price Index. E. C and D TIPS provide a constant stream of income in real (inflation-adjusted) dollars because their principal is adjusted in proportion to the Consumer Price Index. Difficulty: Easy 4. Which one of the following is not a money market instrument? A. a Treasury bill B. a negotiable certificate of deposit C. commercial paper D. a Treasury bond E. a Eurodollar account Money market instruments are instruments with maturities of one year or less, which applies to all of the above except Treasury bonds. Difficulty: Easy 2-1 5. T-bills are financial instruments initially sold by ________ to raise funds. A. commercial banks B. the U.S. government C. state and local governments D. agencies of the federal government E. B and D Only the U.S. government sells T-bills in the primary market. Difficulty: Easy 6. The bid price of a T-bill in the secondary market is A. the price at which the dealer in T-bills is willing to sell the bill. B. the price at which the dealer in T-bills is willing to buy the bill. C. greater than the asked price of the T-bill. D. the price at which the investor can buy the T-bill. E. never quoted in the financial press. [Show More]

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