Nature of the Money Market
Overview of the Money Market
Economic Role of Money Market (MM)
Short-term debt market - most under 120 days
A few high quality borrowers
The Unique Nature of Mortgage Markets
Role of Market
Kinds of Mortgage Markets
Individuals, business, and othe
Chapter 2 Overview of the Financial System
1) Financial markets have the basic function of
A) bringing together people with funds to lend and people who want to borrow funds.
B) assuring that the swings in the business cycle are less pronounced.
AN INTRODUCTION TO
DEBT POLICY AND VALUE
Many factors determine how much debt a firm takes on. Chief among them ought to be the effect of the debt on the value of
the firm. Does borrowing create value? If so, for whom? If not, then why do so many executiv
Chapter 17 Banking and the Management of Financial Institutions
1) Which of the following statements is false?
A) A bank's assets are its uses of funds.
B) A bank issues liabilities to acquire funds.
C) A bank's assets provide the bank with income.
Chapter 4 Why Do Interest Rates Change?
1) As the price of a bond _ and the expected return _, bonds become more attractive to
investors and the quantity demanded rises.
A) falls; rises
B) falls; falls
C) rises; rises
D) rises; falls
2) The supply curve f
Chapter 21 Insurance Companies and Pension Funds
1) The certainty equivalent for risk-averse people who buy insurance is the
A) maximum loss they may sustain.
B) expected loss they may sustain.
C) insurance premium they pay.
D) profit the insurance compan
Chapter 20 The Mutual Fund Industry
1) Mutual funds hold about _ of financial intermediaries' total assets.
2) _ intermediation means that small investors can pool their funds with other investors to
Chapter 22 Investment Banks, Security Brokers and Dealers, and Venture Capital Firms
1) An investment bank is a financial institution that
A) bundles small deposits into larger loans.
B) helps corporations raise funds.
C) holds most of its assets in comme
Chapter 18 Financial Regulation
1) When one party to a transaction has incentives to engage in activities detrimental to the other party,
there exists a problem of
A) moral hazard.
B) split incentives.
C) ex ante shirking.
D) precontractual opportunism.
Chapter 23 Risk Management in Financial Institutions
1) If borrowers with the most risky investment projects are more likely to seek bank loans than
borrowers with the safest investment projects, banks face the problem of _.
A) adverse credit risk
BOND PRICES AND INTEREST RATE RISK
The Time Value of Money: A dollar now is worth more than a dollar later.
Investingin financial assets or in real assetsmeans giving up consumption
The positive time preference for consumpt
Chapter 6 Are Financial Markets Efficient?
1) According to the efficient market hypothesis, the current price of a financial security
A) is the discounted net present value of future interest payments.
B) is determined by the highest successful bidder.
Chapter 7 Why Do Financial Institutions Exist?
1) Of the following sources of external finance for American nonfinancial businesses, the most
A) loans from banks.
C) bonds and commercial paper.
D) nonbank loans.
2) Of the sources o
Chapter 14 The Mortgage Markets
1) Which of the following are important ways in which mortgage markets differ from the stock and bond
A) The usual borrowers in the capital markets are government entities and businesses, whereas the usual
Chapter 12 The Bond Market
1) (I) Securities that have an original maturity greater than one year are traded in capital markets.
(II) The best known capital market securities are stocks and bonds.
A) (I) is true, (II) false.
B) (I) is false, (II) true.
Chapter 11 The Money Markets
1) Activity in money markets increased significantly in the late 1970s and early 1980s because of
A) rising short-term interest rates.
B) regulations that limited what banks could pay for deposits.
C) both A and B of the above
AN OVERVIEW OF FINANCIAL MARKETS AND INSTITUTIONS
The financial system facilitates the flow and allocation of funds throughout the economy.
Basic components of the financial system: markets and institutions.
Financial markets are
What Are Equity Securities?
Common Stock - Basic Ownership in a Corporation
Preferred Stock - Preferred claim on earnings and assets compared to common stock.
One vote per share.
THE FED AND INTEREST RATES
How the Fed measures and manages the money supply.
The monetary base and the money supply are not the same thing.
The monetary base chiefly comprises the Feds 2 largest liabilities:
Federal Reserve Notes in
THE LEVEL OF INTEREST RATES
What are interest rates?
Rental price for money.
Rentprice of borrowing anothers property.
Interest rateprice of borrowing anothers purchasing power.
Usually expressed as percentage of amount lent.
THE FEDERAL RESERVE AND ITS POWERS
A central bank is a unique and powerful financial institution. It
supervises a nations money supply and payments system;
regulates other financial institutions, especially depository institutions;
Purposes and Functions of the Capital Markets - Finance Real Assets
Issuers of Capital Market Claims - Primary Borrowers
Purchasers of Capital Market Claims
Directly - surplus units (households). See Exhib
THE STRUCTURE OF INTEREST RATES
Interest rate changes and differences between interest rates can be explained by several
Term to Maturity
Term Structure of Int
Structure of the Federal Reserve System
-Elements of the Federal Reserve System
-Relationship among different elements
-Functions of each element
What is independence?
The similarity and differences between Federal reserve System and European Ce
Financial Institutions and Markets
FIN 4303 (Section 901)
M 6:30 PM 9:15 PM
Monday 5:00PM 6:00PM
and by appointment
Course Resources Required
Chapter 1 Why Study Financial Markets and Institutions?
1) Financial markets and institutions
A) involve the movement of huge quantities of money.
B) affect the profits of businesses.
C) affect the types of goods and services produced in an economy.
Chapter 3 What Do Interest Rates Mean and What Is Their Role in Valuation?
1) (I) A simple loan requires the borrower to repay the principal at the maturity date along with an
(II) A discount bond is bought at a price below its face valu
20 Factor Test
What is the factor test? According to irs.gov it is a series of questions and guidelines that regulate
and determine if an individual is an employee or an independent contractor. These guidelines range
from providing train