lec03_01 - ECON 4721H Money and Banking Lecture 03_01...

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Unformatted text preview: ECON 4721H Money and Banking Lecture 03_01 Satoshi Tanaka University of Minnesota September 28, 2011 Satoshi Tanaka ECON 4721H Money and Banking Lecture 03_01 Bond Market I Bond Market and Term Structure of Interest Rate Satoshi Tanaka ECON 4721H Money and Banking Lecture 03_01 Motivation In December 6 1994, Orange County declared bankruptcy after su ering losses around $1.6 billion. Robert Citron, Orange County treasurer who controlled the $7.5 billion pool, had invested the pool's funds in a leveraged portfolio of mainly midterm interest-linked securities. Satoshi Tanaka ECON 4721H Money and Banking Lecture 03_01 Motivation Though Citron took various ways to leverage the pool into more than 20 billion of money. Essentially, what he did was to borrow money for short term (collected as government revenues, and supposed to use for public service) to invest it for long-term . Today's question: Why did this policy turn out to be very risky? Satoshi Tanaka ECON 4721H Money and Banking Lecture 03_01 What is a Bond? What is a bond? De nition (Bond) Bond is de ned as a claim to receive pre-determined amount of payment at some certain point(s) of time....
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This note was uploaded on 02/07/2012 for the course ECON 4721H taught by Professor Tanaka during the Fall '11 term at Minnesota.

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lec03_01 - ECON 4721H Money and Banking Lecture 03_01...

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