#2

If the Fed wishes to slow the economy, it could:

I. sell U.S. government securities.

II. increase reserve requirements.

III. lower reserve requirements.

Multiple Choice

• I and III only
• II and III only
• I and II only
• II only
• I, II, and III

B.

For the purposes for which they are used, money market securities should have which of the following characteristics?

I. Low transaction costs

II. Low default risk

III. Low rate of return

IV. Life greater than one year

Multiple Choice

• I and III
• II and IV
• III and IV
• I and II

• I, II, and III

C.

T-notes and T-bonds are often issued at a slight discount to their PAR value because:

Multiple Choice

• investors prefer older notes and bonds to the most recent issue
• T-notes and T-bonds are zero-coupon securities and are sold at a discount, like T-bills.
• The stop-out yield determined at auction is rounded down to the nearest 0.125% to set the coupon rate.
• Investors require an additional risk premium to invest in Treasury securities due to the deficit.

• The Treasury sells T-notes and T-bonds at a slight discount to attract large investors.