FIN 430

Question 1

Fiscal policy

Answer 1

executive branch legislative branch house and senate and judicial branch supreme court deals with gov’t spending and taxation

Question 2

Monetary policy

Answer 2

federal reserve system bankers meet up talks about money supply ben bernanke and Janet Yellen

Question 3

Financial Markets

Answer 3

Markets where funds are transferred from people and firms who have excess to people and firms who need funds

Question 4

who do companies pay first

Answer 4

Bonds Preferred stock Common stock earns residual earning

Question 5

Financial intermediaries

Answer 5

Institutions that borrow from people who have saved and make loans to others EG banks insurance mutual funds

Question 6

data shows a connection between two pieces of info

Answer 6

monney supply and price level and the growth in money supply and inflation

Question 7

GDP

Answer 7

Aggregate Output,Income,and expenditures

Question 8

Two ways to measure aggregate price level and what is it

Answer 8

it is the average price in economy use the GDP deflator and the CPI

Question 9

Nominal

Answer 9

Price level *Real

Question 10

Real

Answer 10

Nominal/Price level

Question 11

Labor force

Answer 11

number of employed + number of unemployed

Question 12

Unemployment rate

Answer 12

Unemployed/labor force
or
unemployed/unemployed+employed

Question 13

what is a problem with the unemployment rate

Answer 13

the discourage worker effect when labor give up on working and leave work force

Question 14

growth rate

Answer 14

look at slide 50 in ch 1

Question 15

stock(tricky)

Answer 15

is a quantity measured at a point in time

Question 16

flow(tricky)

Answer 16

is a quantity measured per unit of time

Question 17

financial crisis

Answer 17

are major disruptions in financial markets characterized by sharp declines in assets price failures of many finacial and non financial firms

Question 18

Financial markets: direct finance

Answer 18

Borrowers borrow funds directly from lenders in financial markets by selling them securities

Question 19

Slide 2-6

Answer 19

Important slide to have on paper hasto do with flow of funds

Question 20

Money Markets

Answer 20

Short term debt instruments COmmercial paper US treasury bill federal funds and security repurchase negotiable bank CDs

Question 21

Capital Market

Answer 21

Long term debt instruments Corporate stocks US gov securities consumer loans bank commercial loans

Question 22

Financial Intermediaries

Answer 22

lower transaction cost and reduce exposure of investors to risk EG RIsk sharing diversification They allow small burrowers like households to benefit from financial markets

Question 23

Assymmetric info

Answer 23

one party has more info than another

Question 24

Adverse Selection

Answer 24

Try to avoid selecting risky burrowers which is why banks gather much info on the burrower

Question 25

Moral Hazard

Answer 25

ensure burrowers will not engage in risky activities EG gambling by making them sign contracts

Question 26

Slide 2-19

Answer 26

great list of financial intermediaries

Question 27

Greek crisis

Answer 27

Inflation was extremely high many banks defaulted and outside lenders could not get their money back solved problem by extending payment period of loan

Question 28

Financial markets vs financial intermediaries

Answer 28

Markets are far riskier but offer better returns for entreprneurs

Question 29

Why didnt treasury bail out some and not others

Answer 29

Didnt want to bring a self forefilling prophecy if investors think you will fail you will fail

Question 30

Sarbannes oxley

Answer 30

5 things better internal monitoring of management board better external monitoring by auditors more disclosure of internal controls restriction of insiders EG loans to executives and seperation of stock analysts from other activities at investment banks

Question 31

Was SOX a good regulation?

Answer 31

made it more costly for companies to partake in stock market and required extreme transparency and so went to germany and hong kong

Question 32

four type of credit market intruments

Answer 32

simple loan fixed payment loan discount bond premium bond

Question 33

yield to maturity

Answer 33

the interest rate that equates the present value of cash flow payments received from a debt instrument with its value today

Question 34

slides to add to sheet

Answer 34

4-17 4-18 4-16 4-20 4-49 4-60

Question 35

consol

Answer 35

is a bond with no maturity date that does not repay principal but pays fixed coupon payments forever

Question 36

who sets interest rates

Answer 36

the central bank or the market

Question 37

how can investors buy insurance against inflation

Answer 37

TIPS treasury inflation protected securities offers rates that keep up with inflation

Question 38

what is the difference between continuos and discrete fisher equation

Answer 38

continuos uses addition and discrete uses multiplications

Question 39

Adaptive expectation

Answer 39

is the view that expectation change relatively slowly over time in response to new information

Question 40

Who issues what debt instruments comercial paper fed funds repos treasury bonds CD's

Answer 40

Treasury bills are short-term debt instruments issued by the United States government to cover immediate spending obligations, i.e. finance deficit spending. Certificates of deposit (CDs) are issued by banks and sold to depositors. Corporations and large banks issue commercial paper as a method of short-term funding in debt markets. Repos are issued primarily by banks, and funded by corporations and other banks through loans in which treasury bills serve as collateral, with an explicit agreement to pay off the debt (repurchase the treasuries) in the near future. Fed funds are overnight loans from one bank to another.

Question 41

3 functions of money

Answer 41

Medium of exchange easily standardized widely accepted be divisible easy to carry Store value used to save purchasing power Unit of account used to measure economy value

Question 42

Commodity money

Answer 42

things like gold or jewels has intrinsic value

Question 43

Fiat money

Answer 43

has no intrinsic value like paper

Question 44

M1

Answer 44

currency travelers checks demand deposits

Question 45

M2

Answer 45

Savings Money market mutual funds shares