True or False

Question 1

Money market instruments are debt and equity securities

Answer 1

False

Question 2

Stocks are capital market instruments, while short-term negotiable certificates of
indebtedness are money market instruments.

Answer 2

True

Question 3

Bonds are short-term while T-bills are long-term

Answer 3

False

Question 4

Cash Management Bills and T-bills are long term and are money market instruments.

Answer 4

False

Question 5

Treasury bills are issued by the Bureau of the Treasury with 91-day, 182-day, and 364-day maturities.

Answer 5

True

Question 6

Treasury bills are zero coupon securities; they do not earn interest.

Answer 6

True

Question 7

Treasury bills are sold at a premium

Answer 7

False

Question 8

A sight draft is payable immediately, while a time draft is payable in the future

Answer 8

True

Question 9

The accepted time draft may be readily sold in an active market and therefore negotiable.

Answer 9

True

Question 10

The beneficiary in a letter of credit is the buyer or importer

Answer 10

False

Question 11

A negotiable certificate of deposit is a bearer instrument

Answer 11

False

Question 12

Repurchase agreements are closely associated with the functioning of the interbank call loan market.

Answer 12

True

Question 13

Overnight RPs mature in a day, while term RPs have a maturity greater than 1 day.

Answer 13

True

Question 14

Change in the interest rates constitutes the risk in repurchase agreements or repos.

Answer 14

True

Question 15

Eurodollar CDs are dollar-denominated, negotiable, and large time-deposits in banks in the United States

Answer 15

True

Question 16

The first step in making an investment decision is evaluating the different investment alternatives

Answer 16

True

Question 17

Investment risks force investors to evaluate the return and risk characteristics of every
investment alternative before making a decision.

Answer 17

True

Question 18

Investors who like taking risks are termed bears and pigs

Answer 18

False

Question 19

Risk-averse investors are termed bulls and chicken.

Answer 19

False

Question 20

Business risk is the risk in which the issuer of the security may fail to pay interest and
principal.

Answer 20

True

Question 21

Technology/operation risk is the risk associated with technological innovations resulting when investments in technology do not produce the desired results.

Answer 21

True

Question 22

Market value (price) risk is the risk that the prices of goods may increase due to inflation

Answer 22

True

Question 23

Default risk is the risk of not having enough cash when needed

Answer 23

False

Question 24

Political risk is the risk in investing in securities denominated in foreign currency or putting investment in foreign soil

Answer 24

True

Question 25

Systematic risk is company-specific risk.

Answer 25

False

Question 26

Risk-averse investors prefer risk-free assets than risky assets as long as the expected returns on each asset are the same.

Answer 26

True

Question 27

Risk-taker investors are the investors who are ready to pay a higher price for an investment regardless of the risk involved

Answer 27

False

Question 28

Risk-neutral investors are investors who do not take into account the risks involved in the investment and who are focused only on the expected returns.

Answer 28

False

Question 29

Currency/foreign exchange risk is the risk of not having enough cash when needed

Answer 29

False

Question 30

Off-balance sheet risk is the risk associated with a company’s assets, liabilities, and capital

Answer 30

False