Finals Reviewer

Question 1

basically refers to a section of the
financial market where financial instruments with
high liquidity and short-term maturities are traded.

Answer 1

Money Market

Question 2

has become a component of the
financial market for buying and selling of securities
of short-term maturities, of one year or less, such as
treasury bills and commercial papers.

Answer 2

Money market

Question 3

an unregulated and informal
market and not structured like the capital
markets, where things are organized in a formal
way.

Answer 3

Money Market

Question 4

gives lesser return to investors
who invest in it but provides a variety of
products.

Answer 4

Money Market

Question 5

consists of negotiable instruments
such as treasury bills, commercial papers and
certificates of deposits.

Answer 5

Money Market

Question 6

It is used by many participants, including
companies, to raise funds by selling commercial
papers in the market.

Answer 6

Money Market

Question 7

considered a safe place to invest
due to the high liquidity of securities.

Answer 7

Money Market

Question 8

Importance of Money Market (5)

Answer 8

• Financial Trade
• Financing Industry
• Profitable Investment
• Self-Sufficiency of Commercial Bank
• Help to Central Bank

Question 9

Money market plays crucial role in financing
both internal as well as international trade.

Answer 9

Financial Trade

Question 10

Commercial finance is made available to the
traders through bills of exchange, which are
discounted by the bill market.

Answer 10

Financial Trade

Question 11

It smoothens the functioning and
increases the efficiency of Central Bank.

Answer 11

Help to Central Bank

Question 12

refers to trading in very
short-term debt investments.

Answer 12

money market operations

Question 13

At the wholesale level, it involves large-volume
trades between institutions and traders.

Answer 13

money market operations

Question 14

At the retail level, it includes money market
mutual funds bought by individual investors and
money market accounts opened by bank
customers

Answer 14

money market operations

Question 15

defined as dealing in debt of less
than one year.

Answer 15

money market operations

Question 16

It is primarily used by governments and corporations
to keep their cash flow steady, and for investors to
make a modest profit.

Answer 16

money market operations

Question 17

The capital market is dedicated to the sale and
purchase of long-term debt and equity instruments.

Answer 17

money market operations

Question 18

Money market securing the short-term
loans to meet their working capital
requirements through the system of finance
bills, commercial papers, etc.

Answer 18

Financing Industry

Question 19

Money market enables the commercial
banks to use their excess reserves in
profitable investment.

Answer 19

Profitable Investment

Question 20

Develop Money market helps the
commercial banks to become
self-sufficient.

Answer 20

Self-Sufficiency to Commercial Bank

Question 21

involves the purchase and
sale of large volumes
of very short-term debt
products, such as
overnight reserves or
commercial paper.

Answer 21

money market

Question 22

In the wholesale market, (???) is a popular
borrowing mechanism because the interest rates are
higher than for bank time deposits or Treasury bills, and
a greater range of maturities is available, from overnight
to 270 days.

Answer 22

commercial paper

Question 23

However, the risk of default is significantly higher for
(???) than for bank or government
instruments.

Answer 23

commercial paper

Question 24

(???) investors such as insurance
companies, governments, NBFCs, banks,
credit institutions invest in highly liquid short
term assets providing funds to businesses to
fund their daily operations.

Answer 24

Money market

Question 25

The risk and return is low in this market.

Answer 25

Money market

Question 26

are financial institutions that provide a wide range of financial services similar to traditional banks, but they do not hold a banking license.

Answer 26

Non-Banking Financial Companies (NBFCs)

Question 27

They are involved in activities such as lending, investing, trading in securities, asset management, and various other financial activities

Answer 27

Non-Banking Financial Companies (NBFCs)

Question 28

By securing short-term loans to meet industry's working capital requirements through the system of commercial papers, finance bills, etc

Answer 28

To finance industry

Question 29

They play a crucial role in financing both domestic and international trade. Traders get finance through bills of exchange, which are discounted by the bill market. Discount markets and acceptance houses help in providing finance for international trade

Answer 29

To finance trade

Question 30

They enable commercial banks to use their surplus funds in profitable investments. Commercial banks' main objective is to earn income from their reserves. However, they must also maintain liquidity to meet unexpected cash demands from depositors.

Answer 30

To invest profitably

Question 31

the risk that the market of an asset will decline, resulting in a capital loss when sold. Also called interest rate risk.

Answer 31

Market Risk

Question 32

the risk that an investor will forced to place earning from a security into a lower-yielding investment because of interest rates have fallen.

Answer 32

Reinvestment Risk

Question 33

the probability that a borrower fails to meet one or more promised principal or interest payments on a security.

Answer 33

Default Risk

Question 34

the probability that a borrower fails to meet one or more promised principal or interest payments on a security.

Answer 34

Default Risk

Question 35

that risk that an increases in the general price level will reduce the purchasing power of earnings from the investment.

Answer 35

Inflation risk

Question 36

the risk that adverse movements in the price of a currency will reduce the net rate of return from foreign investment. Also called exchange rate risk.

Answer 36

Currency risk

Question 37

the probability that changes in government laws or regulations will reduce the expected return from an investment.

Answer 37

Political risk

Question 38

In emergency situations, when a commercial bank is short of funds, it does not have to ask the central bank for help and borrow at higher interest rates

Answer 38

To improve commercial banks self-sufficiency

Question 39

Even though they are able to function and influence the banking system without money markets, their existence helps smooth the functioning and enhances the efficiency of central banks.

Answer 39

To help central banks

Question 40

Advancements in financial technology have further streamlined money market transactions, allowing for improved real-time processing and enhanced market efficiency

Answer 40

To help central banks

Question 41

Money Market Securities/Instruments

Answer 41

* Call Money * Treasury Bills * Commercial paper * Negotiable certificates of deposits * Repurchase agreements

Question 42

is one of the most liquid instruments. The validity is generally one working day. Banks can face shortfalls that can be solved by borrowing through (???). In contrast, those with surplus cash can invest in other banks through (???).

Answer 42

Call Money

Question 43

work as statutory reserves, the minimum cash balance which banks must hold as part of the central bank's mandate to ensure enough liquid cash for daily operations.

Answer 43

Call Money

Question 44

The investment is available to other financial institutions as well. Borrowing and lending take place at the call rate.

Answer 44

Call Money

Question 45

With no organized market, the transactions generally occur using phone calls/emails/faxes.

Answer 45

Call Money

Question 46

are issued by a country's central bank on behalf of its government. The government often raises funds through

Answer 46

Treasury Bills (T-Bills)

Question 47

In the money market, it is considered one of the safest investments due to the government backing. They don't offer an interest income.

Answer 47

Treasury Bills (T-Bills)

Question 48

are issued at a discount and redeemed at par, with the investor pocketing the difference as profit. The tenure of (???) is generally from 14 days to 364 days.

Answer 48

Treasury Bills (T-Bills)

Question 49

Companies generally use (???) to fund their short-term working capital needs, such as payment of accounts receivables, inventory purchases, etc. However, these are unsecured in nature. As such, in case of liquidation of the company, they will not have priority against other secured financial short-term instruments.

Answer 49

Commercial Papers (CPS)

Question 50

come with an average maturity of two odd months. However, just like the Treasury Bills, these are also issued at a discount, and therefore, they don't come with separate interests.

Answer 50

Commercial Papers (CPS)

Question 51

(???) are peso-denominated short-term fixed income securities issued by the Republic of the Philippines through its Bureau of Treasury.

Answer 51

Treasury Bills

Question 52

typically issued at a discount from the par amount (also called face value).

Answer 52

Treasury Bills

Question 53

For example, if you buy a $1,000 bill at a price per $100 of $99.986111, then you would pay $999.86 ($1,000 x. 99986111 = $999.86111). * When the bill matures, you would be paid its face value, $1,000.

Answer 53

Treasury Bills

Question 54

A commonly used type of unsecured, short-term debt instrument issued by corporations, typically used for the financing of payroll, accounts payable and inventories, and meeting other short-term liabilities.

Answer 54

Commercial Paper

Question 55

a form of unsecured, short-term debt.

Answer 55

Commercial Paper

Question 56

It's commonly issued by companies to finance their payrolls, payables, inventories, and other short-term liabilities.

Answer 56

Commercial Paper

Question 57

Maturities on (???) range from one to 270 days, with an average of 30 days.

Answer 57

Commercial Paper

Question 58

is issued at a discount and matures at its face value.

Answer 58

Commercial Paper

Question 59

The minimum denomination of (???) is $100,000 and it pays a fixed rate of interest that fluctuates with the market.

Answer 59

Commercial Paper

Question 60

a type of time deposit with the bank. Only a bank can issue a (???).

Answer 60

Certificate of Deposits (CDs)

Question 61

Like all other time deposits, (???) also have a fixed maturity date and cannot be withdrawn before maturity. This acts as a major disadvantage for the instrument.

Answer 61

Certificate of Deposits (CDs)

Question 62

For example, Bank A in need of funds, with Bank B having surplus funds. Bank A will enter into an agreement with Bank B to sell its securities (mostly Treasury Bills). Bank B will receive the required funds. However, on a fixed date in future, the Bank A will repurchase these securities from Bank B as part of the agreement.

Answer 62

Repurchase Agreements (Repos)

Question 63

These are very short-term in nature. Tenure ranges from overnight to a month, while the securities can be directly transferred without the credit risk.

Answer 63

Repurchase Agreements (Repos)

Question 64

The money market for extremely short-period is referred to as (???). Under (???) market, funds are transacted on an overnight basis. The participants are mostly banks, therefore is also called Inter-Bank Money Market.

Answer 64

Call Money and Notice Money Market

Question 65

Under (???) funds are transacted for 2 days and 14 days period. The lender issues a notice to a borrower 2 to 3 days before the funds are to be paid. On receipt of notice, borrowe have to repay the funds. In this market the rate at which funds are borrowed and lent is called the (???) rate.

Answer 65

Call Money and Notice Money Market

Question 66

A product offered by banks and credit unions that provides an interest rate premium in exchange for the customer agreeing to leave a lump-sum deposit untouched for a predetermined period of time.

Answer 66

Certificate of Deposit (CD)

Question 67

The best (???) generally pay higher interest rates than savings and money market accounts.

Answer 67

Certificate of Deposit (CD)

Question 68

are a safer and more conservative investment than stocks and bonds, but offer lower opportunity for growth.

Answer 68

Certificate of Deposit (CD)

Question 69

You can find (???) at banks, credit unions, and brokerages.

Answer 69

Certificate of Deposit (CD)

Question 70

The top (???) rates can be three to four times higher than the national average rate.

Answer 70

Certificate of Deposit (CD)

Question 71

A form of short-term borrowing for dealers in government securities.

Answer 71

Repurchase Agreement (Repo)

Question 72

is a short-term agreement to sell securities and repurchase them later at a slightly higher price.

Answer 72

Repurchase Agreement (Repo)

Question 73

The party selling the (???) is effectively borrowing whatever is traded for the securities, and the implicit interest paid is the difference in price from the initial sale to repurchase.

Answer 73

Repurchase Agreement (Repo)

Question 74

(???) and reverse (???) are for short-term borrowing and lending, often from overnight to 48 hours.

Answer 74

Repurchase Agreement (Repo)

Question 75

The implicit interest rate on these agreements is known as the repo rate.

Answer 75

Repurchase Agreement (Repo)

Question 76

The U.S. Federal Reserve uses (???) to manage the money supply and influence short-term interest rates, a crucial part of the Fed's monetary policymaking.

Answer 76

Repurchase Agreement (Repo)