• Which of the following is NOT a use of short duration products?

Short duration products are used to replace cash, as holding any cash is an inefficient use of capital.

Short duration products are used as investments, as they have a relatively lower level of risk due to their short terms.

Short duration products can be used to engage in different trading strategies.

Short duration products are a cost-effective alternative for corporations to maintaining large cash balances while balancing liquidity requirements.

• Why are central banks moving away from LIBOR as a benchmark rate for funding (loans), short duration products, and derivatives?
• Central banks grew jealous of the BBAs power in setting LIBOR and decided to set their own reference rates.
• There was widespread collusion and rigging of LIBOR rates that lead to the collapse of LIBORs credibility and viability as a benchmark and reference rate.
• LIBOR is based in London, thus it is not applicable to banks in countries outside of England.
• LIBOR was only for USD-denominated rates, so it was not useful for other currencies.
• Why is the day count convention for a financial instrument important?
• Depending on the day count convention used, it is easier to keep track of time periods.
• The 30/360 day count convention is the most effective day count, as it standardizes the number of days for each month.
• Day count conventions have an insignificant effect on financial instruments, as conventions only differ by a few days.
• Day count affects how the interest on a security is calculated, accrued, and paid.

Given the following information, calculate the discount yield of an instrument:

• MMY = 0.149397057%
• Price = 99.96225
• Par Value = 100
• t= 91/360
• 0.149453475%
• 0.149340659%
• 0.149337509%
• 0.149772354%

Given the following information, calculate the money market yield of an instrument:

• Discount Yield = 0.113736264%
• Price = 99.97125
• Par Value = 100
• 0.113716987%
• 0.113736263%
• 0.113768972%
• 0.113722422%
• Why are government money market issuances generally considered risk free?
• Governments typically do not take on a lot of debt, and thus are consider safer when looking at credit and counterparty risk.
• In addition to these instruments having short durations and good liquidity, governments can also print money or raise taxes should they ever be unable to pay back their domestic debt.
• Governments oversee their respective legal systems, and thus cannot be held liable should they fail to meet their debt obligations.
• It is common for governments to get bailouts from other nations or the World Bank, thus making government issues very safe.
• Which of the following agencies does NOT issue agency discount notes?
• Sallie Mae (SLMA)
• Fannie Mae (FNMA)
• Freddie Mac (FHLMC)
• Farmer Mac (FAMC)

• What are the 4 main types of certificates of deposit?
• Yankee, Eurodollar, Domestic, Thrift
• Eurodollar, Domestic, Thrift, New York
• Thrift, Government, Supranational, Eurodollar
• Government, Eurodollar, Domestic, Yankee
• If the sum of all daily volume-weighted average EFFRs in July is 0.4805, what is the price of a July Fed Funds Future Contract?
• $99.9845
• $99.9665
• $99.7925
• $99.9875

Given the following information, calculate the profit or loss you would receive from purchasing this fed funds future contract:

• You purchase 20 fed funds futures contracts of $5MM at the start of June at $99.92 per contract.
• On June 30^th, the effective fed funds rate is 10bps.
• The tick size is $0.005 per tick
• The value per tick is $10.5125
• $782.00
• $841.00
• -$841.00
• -$782.00
• Fill in the blanks.
• If you are selling an FRA you are betting that LIBOR will be ________ the contracted rate. In other words, you are betting that rates ________ . Thus, selling an FRA is like being ________ a Eurodollars futures contract.
• Less than; rise; short
• Less than; fall; long
• Greater than; rise; short
• Greater than; fall; long

• Which of the following is NOT a reason why an investor would want to trade money market futures options?
• Option buyers limit their downside risk to the premium paid.
• Options have a small outlay and allow for leverage.
• Options allow traders to settle their positions easily and cost efficiently if exercised.
• Options can allow investors to increase their potential profit with no effect on risk.
• Why would a fund manager enter into a fixed for floating interest rate swap?
• The fund manager believes that rates will decrease and wants to exchange their current fixed interest rate assets for a floating interest rate asset.
• The fund manager believes that rates will increase and wants to exchange their current fixed interest rate assets for a floating interest rate asset.
• Floating interest rate bonds are considered less risky.
• Floating interest rates make more money when interest rate levels are stable.
• If you want to protect against a drop in price due to changes in interest rates, which of the following options hedging strategies would you use, and how would you do it?
• Interest rate floor; long a put option
• Interest rate cap; long a put option
• Interest rate floor; long a call option
• Interest rate cap; short a put option
• Which of the following is NOT a benefit of investing in derivatives?
• Risk Management
• Contagion
• Market Efficiency
• Trading Efficiency