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Investments 1 > PP 3 - The Money Market > Flashcards

PP 3 - The Money Market Flashcards

(56 cards)

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1
Q

three main categories of asset classes

A
  1. fixed income (debt) securities
  2. equities (stocks)
  3. derivaties
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2
Q

fixed income (debt) securities promise….

A

to make fixed payments in the future

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3
Q

equities (stocks) are…

A

claims to a share of the profit of a corp

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4
Q

derivatives are…

A

payments that depend on the prices of other financial assets

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5
Q

Money market is made up of…

A

debt instrument with less than 1 year to maturity

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6
Q

maturity of in money market is…

A

less than one year

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7
Q

main characteristics on the money market

A

short-term, low risk, highly liquid, low Avery return

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8
Q

the money market is sometimes referred to as…

A

cash equivalents

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9
Q

a treasury bill is a…

A

government debt obligation with less than 1 year to maturity

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10
Q

a treasury bill is ___ owned and exempt from…

A

federally; state tax

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11
Q

a certificate of deposit is…

A

time deposit at a bank

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12
Q

commercial paper is…

A

a short-term debt issued by a large, well-known corporation

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13
Q

what is a bankers’ acceptance?

A

a promise by a bank to pay a pre-specified amount

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14
Q

a bankers acceptance is used to…

A

facilitate import/export transactions

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15
Q

what is a repurchase agreement(repo)?

A

short-term sale of securities with the promise to repurchase the securities at a higher price

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16
Q

who usually used repos?

A

financial institutions such as banks and hedge funds

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17
Q

what are eurodollars?

A

dollar-demonimated deposits held at foreign banks

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18
Q

what are FED funds?

A

funds in the account of commercial banks at the FED

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19
Q

what is the London Interbank Offer Rate (LIBOR)?

A

rate at which large banks in London lend to each other

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20
Q

LIBOR was the..

A

base rate for many loans and derivates

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21
Q

what happened in the 2012 LIBOR scandal?

A

participating banks were colluding to manipulate their LIBOR submissions to inhale profits on their derivative trades

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22
Q

what happened to LIBOR and why?

A

discontinued in 2022 due to concerns of manipulation

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23
Q

what replaced LIBOR?

Study These Flashcards
A

Secured Overnight Financing Rate (SOFR)

24
Q

what is the SOFR?

Study These Flashcards
A

the rate on repurchase agreements on US treasury securities

25
what money market instrument triggered the MMMF 2008 crisis?
commercial papers
26
a money market mutual fund (MMMF) is a...
metal fund that invests in money market instruments
27
between 2005-2008, MMMFs grew by...
88%
28
what started the MMMF crisis?
when the Lehman Brothers filled for bankruptcy on sep 15
29
why was Lehman filling bankruptcy not good?
many funds had heavily invested in Lehman's commercial paper
30
what did Reserve Primary Fund do shortly after?
"broke the buck" due to its holdings of Lehman's commercial paper
31
what does "broke the buck" mean?
net asset value of a money market goes under $1
32
the net asset value of RPF...
fell below $1 per share
33
what ensued from the crisis?
a run on the money market funds
34
a run on the money market funds ensued; it triggers...
investor's redemptions of more than $300 billion
35
what did the US treasury do to attempt to stop the run?
temporarily offered to insure all money funds
36
what amount was in these money funds?
$3.4 trillion
37
2 important causes of 2008 crisis
1. money market fund experienced an unprecedented expansion in their risk-taking opportunities 2. finds has strong incentives to take on risk
38
why did funds have strong incentives to take on risk?
fund inflows we highly responsive to fund yields
39
MMMf's yield ____ after subprime mortgage crisis
increased
40
RPF took ____ by increasing holding in commercial papers
more risk
41
how did RPF take on more risk?
increased holdings in commercial papers
42
under management, RPF experienced...
better performance and growth in assets
43
what did fidelity instruction prime do?
not take on more risk
44
how did not taking on more risk affect fidelity?
did not experience better performance or growth in assets under management (did not "break the buck"
45
RPF was managed by...
a stand-alone fund company with almost no other funds under management
46
what does it mean to be a stand-alone company?
only one fund under management
47
Fidelity is...
one of the worlds largest assets managers
48
In 2006, Fidelity sponsored what types of funds?
non-money market mutual funds
49
non-money market funds charge __________ than money market funds
higher expense ratios
50
what % of fidelities assets did the 252 non-money market mutual funds account for?
93.9%
51
if the run on Fidelity Institutional Prime triggered outflows from its other funds...
fidelity could suffer large losses from a failure of its money market fund business
52
Fidelity is a ______ fund
conglomerate
53
three yields in the money market
1. bank discount yield (BD) 2. bond equivalent yield (BEY) 3. equivalent annual yield (EAY)
54
how do you compare returns across securities in the MM, how to compare returns with bonds?
annualizing returns
55
what is the flaw of bank discount yield?
lower than actual value because it only used 360 days
56
generally, what is the relationship between the answers to BD, BEY, and EAY?
BD

Investments 1 (4 decks)

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