Series 3: Exercise

Exercise

Answer the following questions.

1. 1. Which of the following represents the carrying cost for T-bills?
2. A. T-bill purchase price
3. B. The difference between the interest earned from holding the T-bills and the cost of borrowing to finance their purchase
4. C. The interest expense incurred for funding the purchase of the T-bills
5. D. The T-bills repo rate
6. 2. Corporation X enters into a short-term contract with Securities Dealer A. Under the terms of the contract, Corporation x will pay $990,000 to obtain T-bills with a face value of $1 million. In three months, Corporation x will return the same amount of T-bills to Securities Dealer A in exchange for $991,000. Corporation x and Securities Dealer A have entered into which type of arrangement?
7. A. A T-bill futures contract
8. B. A repurchase agreement
9. C. A T-bills forward contract
10. D. A Treasury loan
11. 3. Which of the following is equal to the basis for a T-bill futures contract?
12. A. Cost of underlying T-bills
13. B. Cost of carry
14. C. Repo rate
15. D. Implied repo rate

Answers

1. 1. C. For interest rate futures, the c