Cash and Cash Equivalents

C is correct. Treasury bills have maturities ranging from 4 weeks to 52 weeks (1 year or less). T-bills are the shortest-maturity U.S. government securities and serve as the benchmark for the risk-free rate.

A (90 days) is incorrect because while 90-day T-bills exist, this is not the maximum maturity. B (270 days) is incorrect because this confuses commercial paper's maximum maturity with T-bill maturities. D (2 years) is incorrect because securities with maturities beyond 1 year are Treasury notes, not Treasury bills.

C is correct. Commercial paper with a maximum maturity of 270 days is exempt from SEC registration under the Securities Act of 1933. This exemption reflects the short-term, low-risk nature of commercial paper as a money market instrument.

A (90 days) and B (180 days) are incorrect because they understate the maximum maturity for the SEC exemption. D (365 days) is incorrect because it exceeds the actual 270-day limit. Most commercial paper has maturities between 30 and 90 days, but the exemption extends to 270 days.

B is correct. Commercial paper is unsecured short-term corporate debt, meaning it is not backed by collateral. Investors rely on the creditworthiness of the issuing corporation. This makes credit quality critical when evaluating commercial paper investments.

A (Secured by collateral) is incorrect because this is backwards. Commercial paper is specifically unsecured, which is why it's typically issued only by financially strong corporations. C (Pays periodic interest) is incorrect because commercial paper, like T-bills, is sold at a discount and matures at par rather than paying periodic coupons. D (Issued by government) is incorrect because commercial paper is issued by corporations, not government entities.

A is correct. Money market deposit accounts (MMDAs) are bank products insured by the FDIC up to $250,000 per depositor, per bank. Money market funds are investment company products regulated under the Investment Company Act of 1940 and are NOT FDIC insured. They are securities, not bank deposits.

B (Funds insured, accounts not) is incorrect because it reverses the correct answer. C (Both FDIC insured) is incorrect because money market funds lack FDIC insurance. D (Neither insured) is incorrect because money market accounts, being bank deposits, do have FDIC insurance.

D is correct. Negotiable CDs (also called jumbo CDs) can be traded in the secondary market, providing liquidity before maturity. Regular bank CDs cannot be traded and typically incur penalties for early withdrawal. This tradability is the key distinguishing feature.

A (Higher rates) is incorrect because while negotiable CDs often have competitive rates, this is not their defining characteristic. B (Longer maturities) is incorrect because both types can have similar maturity ranges. C (Fully FDIC insured) is incorrect because FDIC insurance is limited to $250,000 per depositor, per bank, and negotiable CDs typically have minimums of $100,000 or more (often $1 million+), so amounts above $250,000 are not insured.

B is correct. Bankers' acceptances are time drafts primarily used for international trade, especially importing and exporting goods. A bank guarantees payment, substituting the bank's credit for the importer's credit, which facilitates cross-border commerce. Typical maturities are 1 to 6 months.

A (Domestic corporate financing) is incorrect because corporations typically use commercial paper for short-term domestic borrowing. C (Municipal projects) is incorrect because municipalities issue municipal bonds, not bankers' acceptances. D (Real estate development) is incorrect because this typically involves construction loans or mortgage-backed securities, not bankers' acceptances.

C is correct. SOFR is calculated based on actual overnight Treasury repurchase agreement (repo) transactions. It's a secured rate reflecting the cost of borrowing cash overnight collateralized by Treasury securities. The New York Federal Reserve calculates SOFR daily based on real transaction data.

A (Unsecured interbank lending) is incorrect because this describes LIBOR, which SOFR replaced. SOFR is a secured rate backed by Treasury collateral. B (Fed policy targets) is incorrect because while the Fed calculates SOFR, it's based on market transactions, not Fed policy targets. The federal funds rate is the Fed's policy rate. D (Commercial paper yields) is incorrect because SOFR is specifically based on repo transactions, not commercial paper markets.

D is correct. In a repurchase agreement, the seller agrees to buy back the securities at a higher price on a specified future date. The difference between the sale price and repurchase price represents the interest cost. Repos are essentially short-term collateralized loans using Treasury securities as collateral.

B (Lower price) is incorrect because this would result in the borrower receiving money for free, which makes no economic sense. A (Periodic interest) is incorrect because repos work through the price differential between sale and repurchase, not through periodic interest payments. C (Never repurchase) is incorrect because the repurchase agreement is the defining feature of this transaction. Without the agreement to buy back, it would simply be a sale.

D is correct. The discount yield basis understates the true return an investor receives because it uses a 360-day year (not 365) and calculates yield based on face value (not the actual amount invested). The bond equivalent yield (BEY) adjusts for the 365-day year and shows a higher, more accurate return.

A (Overstates) is incorrect because this is backwards. The discount yield is actually lower than the true return. B (Equals) is incorrect because the calculation methods differ, producing different yields. C (Unrelated) is incorrect because discount yield does measure return, just using a different methodology that understates it.

A is correct. FDIC insurance covers $250,000 per depositor, per bank, per ownership category. Even though the client has $500,000 in the CD, only $250,000 is insured. The remaining $250,000 is at risk if the bank fails.

B ($100,000) is incorrect because it understates the current FDIC coverage limit. C ($500,000) is incorrect because FDIC coverage is capped at $250,000 per depositor, per bank. D (Not insured) is incorrect because negotiable CDs, despite being tradable, are still bank deposits eligible for FDIC insurance up to the $250,000 limit.