Final Review Flashcards
Financial markets have the basic function of
bringing together people with funds to lend and people who want to borrow
A discount bond requires the borrower to repay the principal at the maturity date plus interest payment
FALSE
A coupon bond pays the lender a fixed interest payment every year until the maturity date, when a specified amount is repaid.
TRUE
What are secondary markets?
NYSE, US government bonds, NASDAQ, and futures markets
A corporation acquires new funds only when its securities are sold in the
primary market by investment banks
Technical analysis used to predict movements in stocks based on past patterns are, according to efficient market theory ____.
Waste of time
The weak form of efficient market theory asserts
future changes in stock prices cannot be predicted from past prices and technical analysis cannot expect to outperform the market.
An open market sale of securities by the Federal Reserve will
decrease liabilities of the Fed and not affect assets of the banking system
If the Fed wants to lower the monetary base and the money supply it will….
sell government securities
Investors buy at the ___ and sell at the ____
buy at ask and sell at bid
Banks buy at __ and sell at ___
buy at bid and sell at ask
When the value of money changes from 0.50 to 0.75 the money has ___
Depreciated
If the dollar ___ from 0.5 yen per dollar to 0.8 yen per dollar; the dollar ____ from 2 dollars/yen to 1.25 dollars/yen.
Appreciates; Appreciates
If the yen appreciates relative to the dollar
Japanese guitars will be more expensive in the US and American cars will be cheaper in Japan
An important notion about the PPP is that exchange rates are determined in the ____
long run
The theory of PPP asserts that exchange rates adjust according to ____
The two countries price levels
If the Fed buys domestic $ in exchange for foreign $ this will result in
foreign reserves and monetary base to decrease
Assume a country is practicing fixed exchange rate, The domestic currency is currently _____
which is ____ the level its supposed to be. This pushes central bank to sell domestic currency in exchange for foreign currency.
undervalued; below.
If the federal reserve of the US cannot continue to intervene bc it ran out of international reserves. This would cause USD to ___ and a ___ must occur where the equilibrium exchange rate settles in a __ level.
Depreciate; devaluation; lower
A banks assets are
its uses of funds
A banks liabilities are
its sources of funds
Secondary reserves
can be converted into cash with low transaction costs
When comparing S&L and mutual savings banks, which is the most significant difference?
Depositors as a group own mutual banks.
Difference between value and glamour fund is
value funds stocks have high book/market equity prices
Co-insurance is basically
the strategy to decrease moral hazard.
Law of Large Numbers states
the more observations you have the better the distribution is, or smoother the bell curve.
Which is the highest % of Assets for Life Insurance companies and which is the lowest %?
Highest - Bonds
Lowest - Loans
Pension
similar to mutual funds
Defined Benefit vs Defined Contribution Pensions
benefit calculates how much you will get out of the pension, while contribution calculates what you will pay into the pension
What is credit risk?
the risk they assume by lending to different people. Some people won’t be able to pay back the loan and creates a credit risk.
What is compensating balances
Basically money set aside as collateral.
Credit Rationing
it means not everyone who applies for a loan will get it, or not everyone will get the amount they are asking for.
What does the DURATION try to accomplish
essentially the weighted average of the collection time of the asset that are rate sensitive
