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b) Briefly explain two common factors (not included in part a above) that caused the steep declines in the stock prices of AIG and Manulife Financial. (4 marks)1.) Not hedging liabilities – explain briefly the similarity between Manulife’s Income Plus funds and AIG’s issue of CDS’s.Page 2 of 8
24. Leading Indicatorsa) Changes in money supply is often considered a leading indicator. List two ways the Bank of Canada can increase money supply during recessionary times. (4 marks), b) On Friday, Feb 7, 2009 it was reported that Canadian employment fell by 129,000 jobs in January (-0.8%), pushing the unemployment rate up 0.6 percentage points to 7.2%. This 129,000 drop in employment exceeds any monthly decline during the previous economic downturns of the 1980s and 1990s. A similarly weak employment number (598,000 jobs lost) was reported for the United States. However both the TSX and S&P500 recorded stock market gains later that day. Brieflyexplain two reasons forthis apparent contradiction. (4 marks).