AnsPS No1S08

AnsPS No1S08 - Economics 330 Money and Banking Problem Set...

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Economics 330 – Money and Banking Problem Set No. 1 Spring 2008 Dr. John Neri Due within the first 5 minutes of lecture on Thursday February 14. Late submissions will not be accepted. You must show your calculations. 1) Using your own words, in no more than 10 short clear sentences; describe each of the following financial instruments, including the kind of claim (debt or equity), maturity (money market or capital market), risk, and liquidity characteristics, and any other distinguishing characteristics. Identify a type of financial institution or other participant in the financial market (individuals, government, business) that are most likely to borrow using these instruments, and a type of institution or other participant that are most likely to lend using these instruments. (Read ahead in the book and use the Information Document for PS No. 1 posted on Blackboard. ) (a) Negotiable Certificates of Deposit Negotiable CDs: Money Market Instrument. Certificate of deposits (CDs) pay annual interest of a given amount and the principal at maturity. Negotiable CDs are CDs that are sold in the secondary markets. Liquid. Short maturity (less than a year in most cases). Low risk. Negotiable CDs are issued by major commercial banks. They are an important source of funds for commercial banks from corporations, money market mutual funds, charitable institutions, government agencies. Their denomination is $100,000 or more. (b) Municipal Bonds Municipal Bonds: Capital Market Instrument. Municipal bonds are long-term debt instruments that state and local governments issue to finance their expenditure. There is a secondary market, but its size is smaller than that of the US government
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AnsPS No1S08 - Economics 330 Money and Banking Problem Set...

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