International Finance and Treasury MCQ Questions and Solutions with Explanations | Management

The demand for heavy loans can cause deficiencies for banks.

Agreement which incurs transaction between two parties and promise held that second party will sell security at specific maturity is classified as reverse repurchase agreement. A reverse repurchase agreement, or "reverse repo", is the purchase of securities with the agreement to sell them at a higher price at a specific future date.

Repurchase agreements having maturity of one week or lesser have denominations of $25 million or more. A repurchase agreement (repo) is a form of short-term borrowing for dealers in government securities. In the case of a repo, a dealer sells government securities to investors, usually on an overnight basis, and buys them back the following day.

Instrument used by Federal Reserve to smooth money supply and interest rates includes repurchase agreements. A repurchase agreement (repo) is a form of short-term borrowing for dealers in government securities. In the case of a repo, a dealer sells government securities to investors, usually on an overnight basis, and buys them back the following day.

For a particular security transaction, agreement is 'repo' with point of view of security seller.

Accounting entry of institutions who lends federal funds to other institutions is as assets on balance sheet. Federal funds are overnight borrowings between banks and other entities to maintain their bank reserves at the Federal Reserve. Banks keep reserves at Federal Reserve Banks to meet their reserve requirements and to clear financial transactions.

Rate which is used in major banks in United States as a rate for industrial and commercial loans is London interbank offered rate. The London Interbank Offered Rate is the average interest rate at which leading banks borrow funds from other banks in the London market.

Certificate of deposits which are usually negotiable are issued by banks. A certificate of deposit (CD) is a product offered by banks and credit unions that offers an interest rate premium in exchange for the customer agreeing to leave a lump-sum deposit untouched for a predetermined period of time.

Investors held commercial papers generally from issuance to maturity. Commercial paper is an unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts payable and inventories and meeting short-term liabilities. Maturities on commercial paper rarely range longer than 270 days.

Funds transferred usually for a day between financial institutions are classified as federal funds. Federal funds, often referred to as fed funds, are excess reserves that commercial banks and other financial institutions deposit at regional Federal Reserve banks; these funds can be lent, then, to other market participants with insufficient cash on hand to meet their lending and reserve needs. The loans are unsecured and are made at a relatively low interest rate, called the federal funds rate or overnight rate, as that is the period for which most such loans are made.