homework1.docx - FIN 3331 Instructor Dr Mike Whilock...

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FIN 3331 Instructor: Dr. Mike Whilock Student: Nguyen Thi Ngoc Anh ID: 1540321 Homework assignment 1 Chapter 2 2.1 The efficiency of the financial system increases -> the costs of intermediation decrease -> the costs to the borrower and hence decrease -> the prices of goods and services to consumers decrease. 2.2 Direct transfers business sells its stocks or bonds directly to savers. Transfers also make go through investment bank that underwrite the issue. Transfers can also be made through a financial intermediary. 2.3 Primary first time on the market is always primary. 2.4 - U.S. treasury bills: Money market security - Long term corporate bonds: Capital market security - Common stocks: Capital market security - Preferred stocks: Capital market security - Dealer commercial paper: Money market security 2.5 Difficult for firms to raise capital. Therefore, capital investment would slow down, unemployment would increase, the output of goods and services would decrease. So that our standard of living would decline.

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