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

Financial instruments traded in money markets are then traded in capital markets. Financial instruments are assets that can be traded, or they can also be seen as packages of capital that may be traded. Most types of financial instruments provide efficient flow and transfer of capital all throughout the world's investors.

Principal issuer of commercial papers are commercial banks and major investors of principal investors includes brokers and dealers, corporations and other financial institutions.

Government issues treasury bills at discounted rate from face value. U.S. Treasury bills (T-bills) are typically sold at a discount from their par value. The level of discount is determined during Treasury auctions. Unlike other U.S. Treasury securities such as Treasury notes (T-notes) and Treasury bonds (T-bonds), T-bills do not pay periodic interest at six-month intervals.

Transactions in market of treasury bills is mostly transacted over telephone and hence classified as decentralized. It is the process by which the activities of an organization, particularly those regarding planning and decision making, are distributed or delegated away from a central, authoritative location or group.

Overnight loans transaction are part of trading of 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.

Forgone amount for holding balances of cash at time they are received is classified as opportunity cost. Opportunity costs represent the benefits an individual, investor or business misses out on when choosing one alternative over another. While financial reports do not show opportunity cost, business owners can use it to make educated decisions when they have multiple options before them.

Most flexible and liquid source of funding for savings banks is federal funds market. 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.

As compared to US certificate of deposit, interest rate paid on Eurodollar certificate of deposits is higher than other one.