disintermediation. sell at a discount because they have no interest payments. Interest rate riskB. Long-term CDs can be callable, so they are subject to call risk in a declining interest rate environment. Question Status: Previous Edition Financial intermediaries promote economic efficiency and thereby increase peoples wealth by reducing the transactions cost of linking together borrowers and lenders. ? A) banker's acceptance. The Federal Reserve is adding liquidity to the system. A customer buys a Brokered CD for $100,000. Question Status: Previous Edition Financial intermediaries lower costs by spreading them over a large number of customers, thereby taking advantage of risk sharing. A) commercial invoice B) banker's acceptance C) packing list D) bill of lading. A) $250,000 B) $244,000 C) $242,500 D) $241,250. consumer and business loans. The person or company to whom the draft or bill of exchange is addressed is the. ? They can both be long-term financial instruments. This is called a reverse repo or matched sale. in the primary market by a stock exchange broker. treasury bonds stocks commodities all of the above none of the above ? Repurchase agreements are initiated by the Federal Reserve to tighten the money supplyC. savings and loan associations, mutual savings banks, and credit unions. You buy a U.S. Treasury bill from the bank. Bankers acceptances U.S. Treasury Bills Eurodollars Commercial paper Residential mortgages ? Question Status: Previous Edition The presence of _____ in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets. Commercial paper has a maximum maturity of 90 daysB. The Fed sells U.S. Government securities to the dealer and is tightening credit in the banking system. If the borrowing arrangement is all-inclusive and involves a dealers commission and backup costs, for example, in the case of commercial paper, the formula is again adjusted as follows: $$ \text{Cost}=\cfrac {\text{Interest}+\text{Dealers commission}+\text{Backup costs} }{\text{Loan amount}-\text{Interest}} $$. C) notary public, importer, and importer's bank. Money market securities are usually more widely traded than longer-term securities and so tend to be more liquid. All of the following statements are true about commercial paper EXCEPT commercial paper: A. is a funded debt of the issuerB. London Interbank Offered Rate C. Last-In, Best Offered RateD. A corporation buys a short-term security issued by another corporation. to the extent that they help solve the problems due to asymmetric information. Start studying for CFA exams right away! bonds. D) none of the above. A customer wishes to buy a $50,000 certificate of deposit offered by your firm. B) It acts as a contract. A debt instrument is long term if its maturity is more than one year. Answer: D. Question Status: Study Guide Which of the following statements about financial markets and securities are true? capital market instrument that is considered funded debtD. A corporation takes out loans from a bank. D) goods are received. A. Any expansion of the money supply would loosen credit and push down interest rates. Question Status: Previous Edition The concept of adverse selection helps to explain which firms are more likely to obtain funds from banks and other financial intermediaries, rather than from the securities markets. can be explained by only (a) and (b) of the above. a security that pays the prevailing prime rateC. D) the exporting firm is considered of higher risk. The bank then gets cash which it can lend out. There is virtually no liquidity risk, since the loan is of the shortest term and is secured by pledged government securities. I t c h a n n e l s f u n d s f r o m l e n d ers-savers to borrowers-spenders. noncollateralized risk free-riding asymmetric information costly state verification ? Banker's acceptances are distinguished from ordinary time drafts in that ownership is transferable prior to maturity, allowing them to be traded in the secondary market.[1]. ? Bankers' Acceptances financial definition of Bankers' Acceptances Both (a) and (b) of the above. Since the interest rate on the instrument is fixed at issuance, if market interest rates rise, then the price of this instrument must fall to bring its yield up to current market levels. corporate stocks and bonds. A corporations stock is traded in an over-the-counter market. A pension fund manager buys a short-term corporate security from the issuing corporation. D) be issued by the bank at the request of an exporter. Given a range of short-term funding options, a company has to select the most cost-effective one. A life insurance company A pension fund A mutual fund Only (a) and (b) of the above ? None of the above. A dealer who needs cash will buy some of its inventory overnight to another dealer and is subject to interest rate riskD. Government securities dealersB. Q u e s t i o n S t a t u s : P r e v i o u s E d i t i o n W h i c h o f t h e f o l l o w i n g i n s t r u m e n t s a r e t r a d e d i n a c a p i t a l m a r k e t ? corporate bonds and stock. ? ? Which of the following securities would be assigned a P (Prime) rating? They are not eligible for Fed trading. Question Status: New Reducing risk through the purchase of assets whose returns do not always move together is disintermediation. Question Status: New The primary purpose of deposit insurance is to improve the flow of information to investors. Question Status: Previous Edition. Question Status: Previous Edition Not surprisingly, the United States and _____, which have the most developed securities markets in the world, also make the greatest use of them in financing corporations. none of the above. ___ may be required so that the contents of containers can be identified, either for customs purposes or for importer identification of the contents of separate containers. As the broker handling the account, you should tell the customer that: A. the CD is insured because the amount is less than the $100,000 maximum permitted amount that qualifies for FDIC coverageB. A) Banker's acceptances B) Commercial invoices C) Consular invoices D) Packing lists. intervention. economies of scale. C) It must be in writing and signed by the maker or drawer. a low quality issue tied to the prime rate plus a risk premium. Question Status: Study Guide The primary liabilities of a credit union are bonds. Department of Justice. bonds. They can both be long-term financial instruments. a negotiable certificate of deposit. Which of the following is NOT a requirement for a draft to become a negotiable instrument? DOC Are You suprised - Weber State University bond markets. Question Status: Previous Edition Which of the following instruments are traded in a money market? A dealer who needs cash will sell some of its inventory overnight to another dealer, with an agreement to buy the position back the next day. ____ are documents included in a contract to ensure that specific quality, purity, or weight specifications are met. "Investments", page 28, 6th Canadian Edition. ? A corporation takes out a loan from a bank. C) maker. ? financial regulations in industrial countries are an unqualified failure. three-, six-, and twelve-month maturities. None of the above. D) Ex - Im bank, commercial bank, and importer. Government securities dealers, Commercial banks, and the Federal Reserve through its open market trading desk, all initiate repurchase agreements. A banker's acceptance is a ________ that has been accepted by a bank. disclosure. stable prices. Question Status: Previous Edition Which of the following instruments are traded in a capital market? A negotiable certificate of deposit A bankers acceptance A U.S. Treasury bond Both (a) and (b) of the above Both (b) and (c) of the above ? Federal Home Loan BanksD. Trades of all of the following securities will settle in Fed Funds EXCEPT: A. D) initiate the sale. stocks. Commercial paper matures on a pre-set date at a pre-set priceC. Which statement is FALSE about commercial paper? Reverse repurchase agreements enhance the liquidity of the dealer D. If a repurchase agreement extends for longer than overnight, the agreement is known as a Due Bill repurchase agreement. life insurance companies. t/f: An exporter who insists on cash or a letter of credit for foreign shipments is likely to lose orders to competitors from other countries that provide more favorable credit terms. D) All of the above. ? all of the above. A pension fund manager buys a short-term corporate security in the secondary market. Solved 16. Small, undercapitalized firms a. Are generally - Chegg because of all of the above. 360 days. Question Status: Study Guide Which of the following is not a contractual savings institution? Question Status: New Asymmetric information is a universal problem. As long as the customer does not have deposits at the issuing bank in excess of $200,000 (thus not exceeding the $250,000 maximum FDIC coverage) and the CD is titled in the customers name, then the CD would be FDIC insured. A corporate bond A share of Texaco common stock A Treasury bill Each of the above Only (a) and (b) of the above ? deposits. ? Question Status: Previous Edition Bonds that are sold in a foreign country and are denominated in the countrys currency in which they are sold are known as foreign bonds. spreading the cost of borrowed funds over many customers. Question Status: Previous Edition The Federal Deposit Insurance Corporation (FDIC) regulates savings and loan associations. by reducing the exposure of investors to risk. Federal Reserve to broker-dealersB. Since the maturity of the underlying securities can be of any length, long maturity values may decline more than the accrued interest to be earned on the agreement. All of the above. All of the following statements are true regarding the Federal Funds rate EXCEPT: A. ? The maximum maturity is 270 days. Both (b) and (c) of the above. ? The Federal Reserve is the buyer of the underlying securitiesD. The interest payment is fixedB. government agencies; more government agencies; less financial intermediaries; more financial intermediaries; less ? These instruments are similar to T-Bills and are frequently used in money market funds. avoid the asymmetric information problem. Because of their short terms to maturity, the prices of money market instruments tend not to fluctuate wildly. Question Status: Previous Edition Which of the following instruments are traded in a capital market? commercial bank. All of the following statements regarding short term negotiable certificates of deposit are correct EXCEPT: A. the minimum denomination is $100,000B. protect bank shareholders against losses. Question Status: Previous Edition Which of the following financial intermediaries are depository institutions? 16. as long as the CD is titled in the customers name and the customer does not have accounts at the issuing bank totaling more than $200,000, then the CD is FDIC insuredD. ? are all of the above. municipal bonds. risky assets into safer assets. U.S. Government agency securities. Buy securities from dealersC. Long Term Bond Offered RateB. What is a banker's acceptance? Overnight repurchase agreements are typically effected between government securities dealers. adverse selection. Further, GARP is not responsible for any fees or costs paid by the user to AnalystPrep, nor is GARP responsible for any fees or costs of any person or entity providing any services to AnalystPrep. The rate is lower than the discount rateC. A. Bankers AcceptancesB. B) It must be payable on demand or at a fixed or determinable future date. why direct finance is more important than indirect finance as a source of business finance. A signed ________ is issued by the exporter and contains a precise description of the merchandise. Question Status: New In the early 1980s, a particular bank in Oklahoma developed a reputation of readily providing loans to borrowers for the purpose of exploring for oil deposits. protect investors against financial losses. 5%. external financing for corporations is dominated by securities issues. Negotiable CDs that mature in 1 year or less are issued at par and mature with accrued interest. Call risk C. Reinvestment risk D. Prepayment risk. Great Britain Canada Japan Germany ? The interest rate on such agreements generally parallels and is somewhat lower (since the loans are secured) than the Fed funds rate, since overnight loans using government securities are most similar to overnight loans of reserves (Fed Funds) from bank to bank. in the secondary market by a securities dealer. Which statement is FALSE regarding repurchase agreements? You make a loan to your neighbor. Experts are tested by Chegg as specialists in their subject area. Question Status: New The concept of diversification is captured by the statement dont look a gift horse in the mouth. Many common stocks are traded over-the-counter, although the largest corporations usually have their shares traded at organized stock exchanges such as the New York Stock Exchange. regulatory avoidance problem. Question Status: Previous Edition The primary assets of fire and casualty insurance companies include municipal bonds. Abbreviation: BA See more. If the issue is 270 days or less, it is exempt from SEC registration and prospectus requirements. Equities often make periodic payments called dividends and are considered to be long-term securities because they have no maturity date. mortgages. Federal Deposit Insurance Corporation. Negotiable bank CDs. 0.5%. three-, nine-, and twelve-month maturities. Bankers acceptancesD. C) The exporter applies to its local bank for the issuance of a letter of credit. Commercial PaperD. The New York Stock Exchange The U.S. government bond market The over-the-counter stock market The options markets All of the above ? Question Status: Previous Edition Financial markets have the basic function of getting people with funds to lend together with people who want to borrow funds. None of the above? Since the 7.85% cost for the bankers acceptance is the lowest of the three options, the bankers acceptance has the lowest cost of credit. in the secondary market by a commercial bank. free-riding. t/f: The major advantage to the exporter of a letter of credit is that the exporter does not receive any funds until the documents have arrived at a local port or airfield. moral hazard adverse selection diversification free rider bureaucratic behavior ? It does this by selling eligible securities to the banks, who buy them for cash. Treasury Receipts. A) Clean; new trading partners B) Documentary; their own affiliates C) Clean; their own affiliates D) None of the above, t/f: Most drafts in international trade are "clean", Drafts that have been accepted by banks become. A short-term credit investment created by a nonfinancial firm and guaranteed by a bank as to payment. Question Status: Previous Edition Which of the following statements about the characteristics of debt and equity are true? stock exchange. All content on this website, including dictionary, thesaurus, literature, geography, and other reference data is for informational purposes only. A life insurance company A pension fund A mutual fund Only (a) and (b) of the above ? create a market for newly constructed houses. An insurance company buys shares of common stock in the primary markets. A dealer who needs cash will buy some of its inventory overnight to another dealer and is not subject to interest rate risk. ? Banker's acceptance Definition & Meaning - Merriam-Webster The interest rate on such agreements generally parallels and is somewhat lower (since the loans are secured) than the Fed funds rate, since overnight loans using government securities are most similar to overnight loans of reserves (Fed Funds) from bank to bank.