CBE CBE Financial Markets and Instruments 1

Question 1

Which financial market instrument represents a short-term debt obligation issued by the U.S. Treasury with a maturity of one year or less?

Accepted Answer

Treasury bill

Answer

Treasury bills (T-bills) are short-term U.S. government debt instruments with maturities of 4, 8, 13, 26, or 52 weeks.

Question 2

The yield curve is considered 'inverted' when:

Accepted Answer

Short-term rates are higher than long-term rates

Answer

An inverted yield curve occurs when short-term interest rates exceed long-term rates, which has historically preceded U.S. recessions.

Question 3

A bond trading at a price below its par value is said to be trading at a:

Accepted Answer

Discount

Answer

A bond trades at a discount when its coupon rate is lower than prevailing market interest rates, causing its price to fall below par.

Question 4

Which of the following best describes a derivative financial instrument?

Accepted Answer

A contract whose value is derived from an underlying asset

Answer

Derivatives are financial contracts whose value depends on the price of an underlying asset such as stocks, bonds, commodities, or currencies.

Question 5

The primary market in finance refers to:

Accepted Answer

Where new securities are issued for the first time to raise capital

Answer

The primary market is where companies and governments issue new securities directly to investors, such as through an IPO or bond issuance.

(CBE) Certified Business Economist Practice Test