The Money Markets:

Candidates are required to give their answers in their own words as far as practicable Attempt
all questions:
Question 1:
Bank A enters into a repo agreement with Bank B to sell government bonds worth Rs 100,000
with a 2% repo rate. Calculate the interest Amount Bank A will pay when it repurchases the
bonds after 30 days.
Question 2:
Everest Bank buys Rs 50,000 worth of treasury bonds in a repo agreement with Nicasia Bank at
a 1.5% repo rate. Calculate the interest income of Everest bank will earn if it holds the bonds
for 45 days.
Question 3:
Company X enters into a reverse repo agreement with Company Y, lending Rs 200,000 in
treasury bills at a reverse repo rate of 1.75%. Calculate the interest income Company X will earn
after 60 days.
Question 4:
Company A sells Rs 75,000 worth of corporate bonds in a repo agreement with Company B at a
repo rate of 3.25%. Calculate the interest expense for Company A if it repurchases the bonds
after 90 days.
Question 5:
NIBL enters into a reverse repo agreement with Nabil Bank, lending Rs 300,000 in municipal
bonds at a reverse repo rate of 2.5%. Calculate the interest income NIBL Bank will earn after
120 days.
Question 6:
Nepal Bank sells Rs 50,000 worth of mortgage-backed securities in a repo agreement with ADB
at a repo rate of 4%. Calculate the interest expense for Nepal Bank if it repurchases the
securities after 60 days.
Question 7:
Company A sells Rs 100,000 worth of municipal bonds in a repo agreement with Company AA
at a repo rate of 2.25%. Calculate the interest expense for Company A if it repurchases the
bonds after 75 days.
Question 8:
Company AB enters into a reverse repo agreement with Company AC, lending Rs 400,000 in
treasury bills at a reverse repo rate of 2%. Calculate the interest income Company AB will earn
after 90 days.

Notes: Interest Amount = Principal Amount x rate x Time / 365

Where: Principal Amount is the initial amount of the transaction.

Rate is the repo rate or reverse repo rate (expressed as a decimal).

Time is the number of days the transaction is held or the investment period.

365 is the number of days in a year.

Question 9:
Company A purchases government bonds worth Rs 200,000 in a repo agreement and agrees to
pay Rs 204,000 when repurchasing them after 10 days. Calculate the repo rate.
Question 10:
Company B sells corporate bonds worth Rs 150,000 in a repo agreement and agrees to
repurchase them for Rs 151,500 after 7 days. Calculate the repo rate.
Question 11:
Company C enters into a repo agreement to buy municipal bonds worth Rs 300,000 and agrees
to pay Rs 306,000 when repurchasing them after 14 days. Calculate the repo rate.
Question 12:
Company D sells treasury bills worth Rs 100,000 in a repo agreement and agrees to repurchase
them for Rs 101,500 after 21 days. Calculate the repo rate.
Question 13:
Company E purchases mortgage-backed securities worth Rs 250,000 in a repo agreement and
agrees to pay Rs 254,000 when repurchasing them after 120 days. Calculate the repo rate.
Question 14:
Company F sells government bonds worth Rs 75,000 in a repo agreement and agrees to
repurchase them for Rs 76,500 after 60 days. Calculate the repo rate.
Question 15:
Company G enters into a repo agreement to buy corporate bonds worth Rs 400,000 and agrees
to pay RS 408,000 when repurchasing them after 75 days. Calculate the repo rate.
 Certificate of Deposit
Question 1:
Company A purchases a 1-year CD with a face value of Rs 1,00,000 at an annual interest rate of
5.5%. Calculate the interest amount and total amount to be paid of the CD after 6 months.
Question 2:
Company B buys a 6-month CD with a face value of Rs 50,000 at an annual interest rate of 4%.
Calculate the interest amount and total amount paid of the CD after 3 months.
Question 3:
Company C invests in a 9-month CD with a face value of Rs 2,00,000 at an annual interest rate
of 6.25%. Calculate the interest amount and total amount paid of the CD after 4 months.
Question 4:
Company D purchases a 3-month CD with a face value of Rs 75,000 at an annual interest rate of
3.75%. Calculate the interest amount of the CD after 1 month.
Question 5:
Company A purchases a 1-year CD with a face value of Rs 1,00,000 at an annual interest rate of
6%. The current market interest rate is 5.5%. Calculate the current price of the CD.
Question 6:
Company B buys a 6-month CD with a face value of Rs 50,000 at an annual interest rate of
4.5%. The current market interest rate is 4%. Calculate the current price of the CD.
Question 7:
Company C invests in a 9-month CD with a face value of Rs 2,00,000 at an annual interest rate
of 7%. The current market interest rate is 6.25%. Calculate the current price of the CD.
Question 8:
Company D purchases a 3-month CD with a face value of Rs 75,000 at an annual interest rate of
3%. The current market interest rate is 3.5%. Calculate the current price of the CD.
Question 9:
Company E buys a 1-year CD with a face value of Rs 1,50,000 at an annual interest rate of 8%.
The current market interest rate is 7.5%. Calculate the current price of the CD.
 Quotation of Treasury bill (T-bill)
10. Assume you found the following quotation for a Treasury bill in an issue of the wall street
journal:

Maturity Days to Mat. Bid Asked Change Ask Yield

Jun 28 12 357 0.185 0.180 0.015 0.183

a. What does ‘Days to mat. 357’ mean?

b. Explain the difference between the “bid” and “ask” quotes.
c. Calculate the ask price and bid price of Treasury bill.
d. What is dealer’s spread?
e. Explain the “change” of 0.015.
f. Notice that the bill mature in 357 days and has an “ask yield” of 0.183 percent. Is this a
357 day yield or an annualized yield?
11. Assume you found the following quotation for a Treasury bill in an issue of the wall street
journal:

Maturity Days to Mat. Bid Asked Change Ask Yield

Mar 08 12 245 0.085 0.070 0.005 0.071

a. What does ‘Days to mat. 245’ mean?

b. Explain the difference between the “bid” and “ask” quotes.
c. Calculate the ask price and bid price of Treasury bill.
d. What is dealer’s spread?
e. Explain the “change” of 0.005.
f. Notice that the bill mature in 245 days and has an “ask yield” of 0.071 percent. Is this a
245 day yield or an annualized yield?

Thank you!