金融学双语版课后题答案莫琳伯顿.doc

金融学 莫林伯顿 网络教学平台 答案
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Introduction and Overview
1. Provide a short discussion or definition of the following terms: economics, finance, the financial system, net lenders, net borrowers, direct and indirect finance, financial markets, financial intermediaries, liquidity, the business cycle, depository institutions, and monetary policy.
Economics: The study of how a society decides what to produce, how to produce, and who gets what; the study of how scarce resources get allocated to satisfy unlimited wants.

Finance: The study of how the financial system coordinates and channels the flow of funds from lenders to borrowers—and vice versa— and how new funds are created by depository institutions during the borrowing process; the raising and using of money by households, firms, governments, and the “rest of the world” (foreign) sectors.

Net lenders: Spending units such as households and firms whose spending on consumption and investment is less than income.

Net borrowers: Spending units such as households and firms whose spending on consumption and investment is more than income.

Direct finance: When net lenders lend their surplus funds directly to net borrowers.

Indirect finance: When net lenders deposit their surplus funds into financial intermediaries which in turn, lend the funds to net borrowers; when net borrowers borrow funds from financial intermediaries that have acquired funds to lend from net lenders and that issue their own liabilities.

Financial intermediaries: Financial institutions that borrow from net lenders for the purpose of lending to net borrowers; financial intermediaries such as banks, savings and loan associations, credit unions, mutual funds, insurance companies, and finance companies issue monetary and other claims on themselves; they serve as gobetweens to link up net lenders and net borrowers.

Liquidity: The ease with which a financial or real asset can be converted to cash without loss of value.

Business cycle: Shortrun fluctuations in the level of economic activity as measured by the output of goods and services in the economy.

Depository institutions: Financial intermediaries that offer checkable deposits which are subject to withdrawal by writing a check to a third party and which are part of the nation’s money supply.

Monetary policy: The Fed’s effort to promote the overall health and stability of the economy.
2. Some people have money; some people need money. Explain how the financial system links these people together.
Net lenders deposit surplus funds into financial intermediaries that in turn lend the funds to net borrowers. Net lenders gain interest payments from the financial intermediaries for the use of their funds. Net borrowers make interest payments to the financial intermediaries for the use of the borrowed funds. The profit to financial intermediaries is the difference between the cost of their liabilities and the earnings on their loans and investments.
5. Why do financial intermediaries exist? What services do they provide to the public? Are all financial institutions financial intermediaries?
Financial intermediaries exist to link up net lenders and net borrowers and to help minimize the transactions costs associated with borrowing and lending. Financial services provided by financial intermediaries include appraising and diversifying risk, offering a menu of financial claims that are relatively safe and liquid, and pooling funds from individual net lenders. Not all financial institutions are financial intermediaries. Financial intermediaries are a type of financial institution that issue claims on themselves. Other financial institutions, such as stock and bond brokers merely link up net lenders and net borrowers for a fee and do not issue claims on themselves.
8. Why does the Fed monitor the economy? What actions can the Fed take to affect the overall health of the economy?
The Fed monitors the economy in order to promote the overall health and stability of the economy. The Fed can influence the economy through monetary policy. The Fed implements monetary policy to affect the level of interest rates and credit availability. When interest rates decrease and credit availability increases, the level of economic activity speeds up. When interest rates increase and credit availability decreases, the level of economic activity slows down.

CHAPTER 2
Principles of Money
1. Discuss or define briefly the following terms and concepts: means of payment, store of value, unit of account, barter, monetary aggregates, liquidity, domestic nonfinancial debt, electronic funds transfer system, and risk.
Means of payment: Something that is generally accepted and used to make payments.

Store of value: Something that retains its value over time.

Unit of account: A standardized accounting unit, such as the dollar, which is the standard measure of value.

Barter: Trading goods for goods in an exchange economy.

Monetary Aggregates: The measures of money, including MI, M2, M3, and L, which the Fed keeps track of and monitors.

Liquidity: The ease with which a non-monetary asset can be converted to money without loss of value.

Domestic Nonfinancial Debt: Total credit market debt owed by the nonfinancial sector and accumulated in the past and present years; includes the debt owed by the household, nonfinancial business, government, and rest of the world (foreign) sectors.

EFTS (Electronic Funds Transfer System): The transfer of funds to third parties in response to electronic instructions rather than instructions written on paper checks.

Risk: The possibility of financial assets losing value.

2. What are the functions of money? Which function do you think is most important?
The functions of money are to serve as a means of payment (medium of exchange), a unit of account, and a store of value.

The most important function of money is to serve as a means of payment (medium of exchange). Thus, it is critical that money is generally accepted to make payments. Without a generally accepted means of payment, exchange is very costly. For an exchange to take place, there would have to be a double coincidence of wants where the person you wished to buy from wanted what you were offering in exchange.
5. How does the Fed calculate M1, M2, M3, and DNFD? Are these aggregates all money? Why or why not? Which contains the most liquid assets? Which is smallest? Which is largest?
To calculate M1, M2, M3, and DNFD, we merely add up the items included in the aggregate as follows:
M1 = currency in the hands of the public + demand deposits at commercial banks + other checkable deposits + travelers’ checks

M2 = M1 + small savings and time deposits (less than $100,000), including money market deposit accounts + individual money market mutual funds

M3 = M2 + large time deposits + term repurchase agreements and term Eurodollars + institutional money market mutual funds

DNFD = credit market debt of the U.S. Government and state and local governments + corporate bonds + mortgages + consumer credit (including bank loans) + other bank loans + commercial paper + other debt instruments

All of these aggregates except DNFD are a measure of money. M1 is the narrowest measure of money and the smallest aggregate. M1 is generally used for transactions and contains the most liquid assets—assets that are money per se. M2 and M3 are progressively broader measures of money that include M1 and other near money assets. For example, M2 contains everything in M1 plus some other highly liquid near monies. M3 contains everything in M2 plus other less liquid near money substitutes. DNFD is the largest aggregate but many of the items in DNFD are not money or near monies. DNFD is the broadest measure of nonfinancial credit in the domestic economy.
10. Zoto is a remote island that has experienced rapid economic growth. In contrast, Zaha is an island where growth has been sluggish and the level of economic activity remains low. How could the existence of money have affected these two outcomes?
Since money facilitates economic development, one would suspect that Zoto has a sophisticated and advanced “money,” while Zaha relies mainly on barter. The existence of money could explain the differing growth rates.

CHAPTER 3
The Role of Money and Credit
2. Briefly define the interest rate, reserves, the required reserve ratio, the inflation rate, and nominal GDP.
Interest Rate: The cost to borrowers of obtaining money and the return (or yield) of money to lenders.

Reserves: Assets that are held by depository institutions as either vault cash or reserve deposit accounts with the Fed.

Required Reserve Ratio: Depository institutions must have reserve assets equal to a certain percentage of deposit liabilities; the required reserve ratio is that percentage.

The Inflation Rate: The rate of change of a price index, such as the consumer price index.

Nominal GDP: The quantity of final goods and services produced in an economy during a given time period and valued at today’s prices.
8. What are the sources of credit? Explain the following statement: “The money supply is measured at a point in time while the flow of credit is measured over time.”
Credit comes from depository institutions, other financial intermediaries, and other financial and nonfinancial institutions. The money supply is a stock, while credit is a flow. Flows over time lead to changes in stocks measured at different points in time. Likewise, changes in stocks measured at different points in time result from flows over time.
11. Explain the difference between money and credit. Give an example of each.
Money is anything that functions as a means of payment, unit of account, and store of value. Credit is the flow of money in a given time period from net lenders or financial intermediaries to net borrowers. Currency is money whereas a loan is credit.

CHAPTER 4
Financial Markets, Instruments, and Market Makers
1. Distinguish between primary and secondary markets and between money and capital markets.
Primary markets are markets where new securities, issued to finance current deficits, are bought and sold.

Secondary markets are markets where outstanding (previously issued) securities are bought and sold.

The money market is the market where securities with original maturities of one year or less are traded.

The capital market is the market where securities with original maturities of more than one year are traded.
3. What is the difference between financial futures and financial forward markets? What are derivative markets? What are the ways derivatives can be used?
In both financial futures and financial forward markets, transactions are consummated today for the purchase or sale of financial instruments on a date in future.

Financial futures markets trade financial futures agreements that are standardized with regard to the financial instrument, quantities, and delivery dates. Financial futures agreements exist for U.S. government securities of several maturities, several stock market indexes, and foreign currencies.

Financial forward markets trade financial forward agreements that are usually arranged by banks or other brokers and dealers and that are not standardized with regard to quantities or delivery dates.

Financial futures and forward markets are, among others, derivative markets because financial futures and forward agreements “derive” their value from some underlying financial instrument. Derivative markets can be used to hedge or to speculate.
8. Define commercial paper, negotiable certificates of deposit, repurchase agreements, bankers’ acceptances, federal funds, and Eurodollars. In what ways are they similar, and in what ways are they different?
Commercial paper: Shortterm debt instruments issued by domestic and foreign corporations.

Negotiable certificates of deposit (CDs): Short-term debt instruments with typical maturities of 1 to 12 months that are sold by depository institutions and that make interest payments and repay the principal at maturity; certificates of deposit have a minimum denomination of $100,000 and can be traded in secondary markets.

Repurchase agreements: Shortterm agreements where the seller sells a government security to a buyer with the simultaneous agreement to buy the government security back on a later date at a higher price; the difference between what the seller sells the government security for and what the seller buys it back for is in effect interest.

Bankers’ acceptances: Money market instruments created in the course of international trade to guarantee bank drafts due on a future date.

Federal funds: Loans of reserves between depository institutions, typically overnight.

Eurodollars: Originally considered to be deposits denominated in dollars in a foreign bank. Today, the term Eurodollar has come to mean any deposit in a foreign (host) country where the deposit is denominated in the currency of the country from which it came rather than that of the host country.

The terms defined in this question are all money market instruments with original maturities of less than one year. They differ with regard to who issues the claim, whether it is a bank, a corporation, or government. They differ with regard to who the usual participants are in the market. For example, depository institutions are the borrowers and lenders in the fed funds market.
10. Define and contrast stocks and bonds. What are the advantages of owning preferred stock? What are the advantages of owning common stock?
Stocks are equity claims that represent ownership of the net income and assets of a corporation. The income that stockholders receive for their ownership is called dividends. Corporate bonds are longterm debt instruments issued by corporations, usually (although not always) with excellent credit ratings. The owners of such bonds receive interest payments twice a year and the principal at maturity. Bondholders are paid interest before stockholders are paid any dividends. Government bonds are issued by the federal government and are considered risk-free. The proceeds of the bonds are used to finance the deficits of the federal government.

Preferred stock pays a fixed dividend and, in the event of bankruptcy, the owners of preferred stock are entitled to be paid first after other creditors of the corporation have been paid.

Common stock pays a variable dividend, which is dependent on the profits that are left over after preferred stockholders have been paid and retained earnings set aside. Owning common stock may result in higher profit rates when the company is growing and electing to pay high dividends.
14. What are the fed funds rate, the Treasury bill rate, the discount rate, and the LIBOR?
Fed funds rate: The interest rate charged on overnight loans of