金融市场习题.docx
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金融市场习题
金融市场习题.
Moralhazard:
Theriskthatonepartytoatransactionwillengageinbehaviorthatisundesirablefromthe
otherparty'spointofview.
Yieldtomaturity:
Theinterestratethatequatesthepresentvalueofpaymentsreceivedfromacredit
marketinstrumentwithitsvaluetoday.
Optioncontracts:
Contractsthatgivethepurchasertheoptiontobuyorselltheunderlyingfinancial
instrumentataspecifiedprice,calledtheexercisepriceorstrikeprice,withinaspecificperiodoftime.
Capitalmarket:
Afinancialmarketinwhichlonger-termdebt(maturityofgreaterthanoneyear)and
equityinstrumentsaretraded.
Ifthereisadeclineininterestrates,whichwouldyouratherbeholding,long-termbondsorshort-term
bonds?
Why?
Whichtypeofbondhasthegreaterinterest-raterisk?
Youwouldratherbeholdinglong-termbondsbecausetheirpricewouldincreasemorethanthepriceofthe
short-termbonds,givingthemahigherreturn.
Whateffectwillasuddenincreaseinthevolatilityofgoldpriceshaveoninterestrates?
Interestrateswouldrise.Asuddenincreaseinpeople'sexpectationsoffuturerealestatepricesraisesthe
expectedreturnonrealestaterelativetobonds,sothedemandforbondsfalls.ThedemandcurveBdshifts
totheleft,andtheequilibriuminterestraterises.
Whatcharacteristicsdefinethemoneymarkets?
Themoneymarketscanbecharacterizedas
havingsecuritiesthattradeinoneyearorless,
areof
largedenomination,andareveryliquid.
1.Whyarefinancemarketsimportanttothehealthoftheeconomy?
Becausetheychannelfundsfromthosewhodonothaveaproductiveuseforthemtothosewhodo,thereby
resultinginhighereconomicefficiency.
2.Wheninterestraterise,howmightbusinessesandconsumerschangetheireconomicbehavior?
Businesseswouldcutinvestmentspendingbecausethecostoffinancingthisspendingisnowhigher,and
consumerswouldbelesslikelytopurchaseahouseoracarbecausethecostoffinancingtheirpurchaseis
higher.
3.Howcanachangeininterestratesaffecttheprofitabilityoffinancialinstitutions?
Achangeininterestratesaffectsthecostofacquiringfundsforfinancialinstitutionsaswellaschangesthe
incomeonassetssuchasloans,bothofwhichaffectprofits.Inaddition,changesininterestratesaffectthe
priceofassetssuchasstockandbondsthatthefinancialinstitutionownswhichcanleadtoprofitsorlosses.
4.Iseverybodyworseoffwheninterestratesrise?
No.Peoplewhoborrowtopurchaseahouseoracarareworseoffbecauseitcoststhemmoretofinance
theirpurchase;however,saversbenefitbecausetheycanearnhigherinterestratesontheirsavings.
5.Whateffectmightafallinstockpriceshaveonbusinessinvestment?
ssharesmeansthatitcanraiseasmalleramountoffunds,andsoinvestmentin
'Thelowerpriceforafirm
plantandequipmentwillfall.
6.Whateffectmightariseinstockpriceshaveonconsumers'decisionstospend?
Higherstockpricesmeanthatconsumers'wealthishigherandsotheywillbemorelikelytoincreasetheir
spending.
7.HowdoesadeclineinthevalueofthepoundsterlingaffectBritishconsumers?
ItmakesforeigngoodsmoreexpensiveandsoBritishconsumerswillbuylessforeigngoodsandmore
domesticgoods.
8.HowdoesadeclineinthevalueofthepoundsterlingaffectAmericanbusinesses?
ItmakesBritishgoodsmoreexpensiverelativetoAmericangoods.Americabusinesseswillfinditeasierto
selltheirgoodsintheUnitedStatesandabroad,andthedemandfortheirproductswillrise.
9.Howcanchangesinforeignexchangeratesaffecttheprofitabilityoffinancialinstitutions?
Changesinforeignexchangerateschangethevalueofassetsheldbyfinancialandthusleadtogainsand
lossesontheseassets.Alsochangesinforeignexchangeratesaffecttheprofitsmadebytradersinforeign
exchangewhoworkforfinancialinstitutions.
10.LookingatFigure3.inwhatyearswouldyouhavechosentovisittheGrandCanyoninArizonarather
thantheTowerofLondon?
Inthemid-tolate1970sandthelate1980sandearly1990s,thevalueofthedollarwaslow,makingtravel
abroadrelativelymoreexpensive;thatwouldhavebeenagoodtimetovacationintheUnitedStatesandsee
theGrandCanyon.Asthedollar'svalueroseintheearly1980s,travelabroadbecamerelativelycheaper,
makingitagoodtimetovisittheTowerofLondon.
11.Whatisthebasicactivityofbanks?
Banksacceptdepositsandthenusetheresultingfundstomakeloans.
12.Whataretheotherimportantfinancialintermediariesintheeconomybesidesbanks?
Savingsandloanassociations,mutualsavingsbanks,creditunions,insurancecompanies,mutual
funds,pensionfunds,andfinancecompanies.
13.Canyou