Chapter 6: Questions and Applications 3 and 9; Problems 1, 7, and 8 Candy Medeiros
Strayer University
FIN350
Professor Dr. Marcus Crawford
October 27, 2013

3. Secondary Market for T-bills Describe the activity in the secondary T-bill market. How can this degree of activity benefit investors in T-bills? Why might a financial institution sometimes consider T-bills as a potential source of funds? The activity in the secondary market for T-bills is sort of like an auction, because the treasury bills are sold at a price that dealers are willing to purchase and sell, which the purchase is considered the bid price and when they sell, it is called the asking price. The spread that is between these prices is what the dealers are paid for their broker fees for handling the transactions. In this market, since there are no competitive bidders, the par value can go up to about a million dollars per auction and the ones that normally are interested in this secondary market are large corporations.
9. Banker’s Acceptances Explain how each of the following would use banker’s acceptances: (a) exporting firms, (b) importing firms, (c) commercial banks, and (d) investors. If a merchant needs products from suppliers, they will have the capital to complete the transaction, but if they do not have the funds, then Banker’s Acceptance is another avenue they could use to raise the capital to purchase the goods or services. How this works, is the merchant can ask the bank for a time draft, then the financial institution informs the exporting company of a promise to pay by a specified date, and for the financial institution to get paid, they will deduct from their account what is owed from the merchant, who is also known as the importer. It is kind of like when we write a post-dated check on a bill. Now, the financial institution could sell the Banker’s Acceptance on the