Question

If a primary dealer makes a competitive bid for a Treasury bill and the bid is successful, the dealer will:

A. always pay less than if the dealer had submitted a noncompetitive bid
B. likely pay more than if the dealer had submitted a noncompetitive bid
C. pay the same as other successful competitive bidders
D. pay the average of prices offered in other successful competitive bids

Answer 1

If a primary dealer makes a competitive bid for a Treasury bill and the bid is successful, they will C. pay the same price as other successful competitive bidders.

Step-by-step explanation:

If a primary dealer makes a competitive bid for a Treasury bill and the bid is successful, the dealer will pay the same as other successful competitive bidders (option C).

When bidding for Treasury bills, primary dealers submit either competitive or noncompetitive bids.

Competitive bids specify the desired yield or discount rate, while noncompetitive bids accept the yield or discount rate determined at auction.

If a competitive bid is successful, the dealer will pay the same price as other successful competitive bidders, which is determined by the auction process.