金融市场习题

1、精选优质文档-倾情为你奉上Moral hazard: The risk that one party to a transaction will engage in behavior that is undesirable from the otherpartys point of view.Yield to maturity: The inlerest rate that equates the present value of payments received from a credit market instrument with its value today.Option cont

2、racts: Contracts that give the purchaser the option to buy or sell the underlying financial instrument at a specified price, called the exercise price or strike price, within a specific period of time.Capital market: A financial market in which longer-term debt (maturity of greater than one year) an

3、d equity instruments are traded.If there is a dcclinc in interest rates, which would you rather be holding, long-term bonds or short-term bonds? Why? Which type of bond has the greater intcrest-ratc risk?You would rather be holding long-term bonds because their price would increase more than the pri

4、ce of the shorl-term bonds, giving them a higher return.What effect will a sudden increase in the volatility of gold prices have on interest rates?Inlerest rates would rise. A sudden increase in peoples expectations of future real estate prices raises the expected return on real estate relative to b

5、onds, so the demand for bonds falls. The demand curve Bd shifts to the left, and the equilibrium interest rate rises.What characteristics define the money markets?The money markets can be characterized as having securities that trade in one year or less, are of large denomination, and are very liqui

6、d.1. Why are finance markets important to the health of the economy?Because they channel funds from those who do not have a productive use for them to those who do, thereby resulting in higher economic efficiency.2. When interest rate rise, how might businesses and consumers change their economic be

7、havior?Businesses would cut investment spending because the cost of financing this spending is now higher, and consumers would be less likely to purchase a house or a car because the cost of financing their purchase is higher.3. How can a change in interest rates affect the profitability of financia

8、l institutions?A change in interest rates affects the cost of acquiring funds for financial institutions as well as changes the income on assets such as loans, both of which affect profits. In addition, changes in interest rates affect the price of assets such as stock and bonds that the financial i

9、nstitution owns which can lead to profits or losses.4. Is everybody worse off when interest rates rise?No. People who borrow to purchase a house or a car are worse off because it costs them more to finance their purchase; however, savers benefit because they can earn higher interest rates on their s

10、avings.5. What effect might a fall in stock prices have on business investment?The lower price for a firms shares means that it can raise a smaller amount of funds, and so investment in plant and equipment will fall.6. What effect might a rise in stock prices have on consumers decisions to spend?Hig

11、her stock prices mean that consumers wealth is higher and so they will be more likely to increase their spending.7. How does a decline in the value of the pound sterling affect British consumers?It makes foreign goods more expensive and so British consumers will buy less foreign goods and more domes

12、tic8. How does a decline in the value of the pound sterling affect American businesses?It makes British goods more expensive relative to American goods. America businesses will find it easier to sell their goods in the United States and abroad, and the demand for their products will rise.9. How can

13、changes in foreign exchange rates affect the profitability of financial institutions?Changes in foreign exchange rates change the value of assets held by financial and thus lead to gains and losses on these assets. Also changes in foreign exchange rates affect the profits made by traders in foreign

14、exchange who work for financial institutions.10. Looking at Figure 3.in what years would you have choscn to visit the Grand Canyon in Arizona rather than the Tower of London?In the mid- to late 1970s and the late 1980s and early 1990s, the value of the dollar was low, making travel abroad relatively

15、 more expensive; that would have been a good lime to vacation in the United States and see the Grand Canyon. As the dolUu.，s value rose in the early 1980s, travel abroad became relatively cheaper, making it a good time to visit the Tower of London.11. What is the basic activity of banks?Banks accept

16、 deposits and then use the resulting funds to make loans.12. What are the other important financial intermediaries in the economy besides banks?Savings and loan associations, mutual savings banks, credit unions, insurance companies, mutual funds, pension funds，and finance companies.13. Can you think

17、 of any financial innovation in the past ten years that lias affected you personally? Has it made you better or worse off? In what way?Answers will vary.14. What types of risks do financial institutions facc?The profitability of financial institutions is affected by changes in interest rates, stock

18、prices, and foreign exchange rates; fluctuations in these variables expose these institutions to risk.15. Why do managers of financial institutions care so much about the activities of the Federal Reserve System?Because the Federal Reserve affects interest rates, inflation, and business cycles, all

19、of which have an imporlant impact on the profitability of financial institutions.1. Why is a share of IBM common stock an asset for its owner and a liability for IBM?The share of IBM stock is an asset for its owner because it entitles the owner to a share of the earnings and assets of IBM. The share

20、 is a liability for IBM bccausc it is a claim on its earnings and assets by the owner of the share.2. IF I can buy a car today for $5000 and it is worth $10000 next year in extra incomc to me bccausc it enables me to get a job as a traveling anvil seller, should I take out a loan from Larry the Loan

21、 Shark at a 90% interest rate if no one else will give me a loan? Will I be better or worse off as a result of taking out this loan? Can you make a case for legalizing loan-sharking?Yes, I should take out the loan, because I will be better off as a result of doing so. My interest payment will be S4,

22、500 (90% of $5,000), but as a result, I will earn an additional $10,000, so I will be ahead of the game by S5,500. Since Larrys loan-sharking business can make some people better off, as in this example, loan sharking may have social benefits. (One argument against legalizing loan sharking, however,

23、 is that it is frequently a violent activity.)3. Some economists suspect that one of the reasons that economies in developing countries grow so slowly is that they do not have well-developed financial markets. Does this argument make sense?Yes，because the absence of financial markets means that fund

24、s cannot be channeled to people who have the most productive use for them. Entrepreneurs then cannot acquire funds to set up businesses that would help theeconomy grow rapidly.4. In the nineteenth century the U.S. economy borrowed heavily from the British to build a railroad system. What was the pri

25、ncipal debt instrument used? Why did this make both countries better off?The principal debt instruments used were foreign bonds which were sold in Britain and denominated in pounds. The Brilish gained because they were able to earn higher interest rates as a result of lending to Americans, while the

26、 Americans gained because they now had access to capital to start up profitable businesses such as railroads.5. “Because corporations do not actually raise any funds in secondary markets, they are less important to the cconomy than primary markets” Comment.This statement is false. Prices in secondar

27、y markets determine the prices that firms issuing securities receive in primary markets. In addition, secondary markets make securities more liquid and thus easier to sell in the primary markets. Therefore, secondary markets are, if anything, more important than primary markets.6. If you suspect tha

28、t a company will go bankrupt next year, which would you rather hold-bonds issued by the company or equities issued by the company? WTiy?You would rather hold bonds，because bondholders are paid off before equity holders, who are the residual claimants.7. How can the adverse selection problem explain

29、why you arc more likely to make a loan to a family member than to a stranger?Because you know your family member better than a stranger, you know more about the borrowers honesty, propensity for risk taking, and other traits. There is less asymmetric information than with a stranger and less likelih

30、ood of an adverse selection problem, with the result that you are more likely to lend to the family member.8. Think of one example in which you have had to deal with the adverse selection problem.9. Why do loan sharks worry less about moral hazard in connection with their borrowers than some other l

31、enders do?Loan sharks can threaten their borrowers with bodily harm if borrowers take actions that might jeopardize paying off the loan. Hence borrowers from a loan shark arc less likely to engage in moral hazard.10. If you are an employer, what kinds of moral hazard problems might you worry about w

32、ith your employees?They might not work hard enough while you are not looking or may steal or commit fraud.11. If there were no asymmetry in the information that a borrow and a lender had, could there still be moral hazard problem?Yes, because even if you know that a borrower is taking actions that m

33、ight jeopardize paying off the loan, you must still stop the borrower from doing so. Because that may be costly, you may not spend the time and effort to reduce moral hazard, and so moral hazard remains a problem.12. “In a world without information and transaction costs, financial intermediaries wou

34、ld not exist*，Is this statement true, false, or uncertain? Explain your answer.True. If there are no information or transactions costs, people could make loans to each other at no cost and would thus have no need for financial intermediaries.13. Why might you be willing to make a loan to your neighb

35、or by putting funds in a savings account earning a 5% interest rate at the bank and having the bank loan her the funds at a 10% interest rate, rather than loan her the funds yourself?Because the costs of making the loan to your neighbor are high (legal fees, fees for a credit check, and so on), you

36、will probably not be able to earn 5% on the loan after your expenses even though it has a 10% interest rate. You are better off depositing your savings with a financial intermediary and earning 5% interest. In addition, you are likely to bear less risk by depositing your savings at the bank rather t

37、han lending them to yourneighbor.14. How does risk sharing benefit both financial intermediaries and private investors?Risk sharing enabling them to earn a profit on the spread between the returns they earn on risky assets and the payments they make on the assets they have sold, and helping individu

38、als to diversify and thereby lower the amount of risk to which they are exposed。15. Discuss some of the manifestations of the globalization of world capital markets.Increased discussion of foreign financial markets in the U.S. press and the growth in markets for international financial instruments s

39、uch as Eurodollars and Eurobonds.1. Write down the formula that is used to calculatc the yield to maturity on a 20-year 10% coupon bond with $1000 face value that sells for $2000.$2000 = $100/(1 屮 /)+ $100/(1 + /)2+ .+ $100/(1 + 020 + $1000/(1 + /)20.2. If there is a decline in interest rates, which

40、 would you rather be holding, long-term bonds or short-term bonds? Why? Which type of bond lias the greater interest-rate risk?You would rather be holding long-term bonds because their price would increase more than the price of the short-term bonds, giving them a higher return.3. A financial advise

41、r has just given you the following advice: “Long-term bonds arc a great investment because their interest rate is over 20%.，Is the financial adviser necessarily right?No. If interest rates rise sharply in the future, long-term bonds may suffer such a sharp fall in price that their return might be qu

42、ite low, possibly even negative.4. If mortgage rates rise from 5% to 10% but the expected rate of increase in housing prices from 2% to 9%, are people more or less likely to buy house?People are more likely to buy houses because the real interest rate when purchasing a house has fallen from 3 percen

43、t (=5 percent -2 percent) to 1 percent (=10 percent -9 percent). The real cost of financing the house is thus lower, even though mortgage rates have risen. (If the tax deductibility of interest payments is allowed for, then it becomes even more likely that people will buy houses.)1. Explain why you

44、would be more or less willing to buy a share of Polaroid stock in the following situations:a. Your wealth falls.b. You expect it to appreciate in value.c. The bond market becomes more liquid.d. You expect gold to appreciate in value.e. Prices in the bond market bccomc more volatile.(a) Less, because

45、 your wealth has declined;(b) more, because its relative expected return has risen;(c) less, because il has become less liquid relative to bonds;(d) less, because its expected return has fallen relative to gold;(e) more, because it has become less risky relative to bonds.2. Explain why you would be

46、more or less willing to buy a house under the following circumstances:a. You just inherited % 100,000.b. Real estate commissions fall from 6% of the sales price to 4% of the sales price.c. You expect Polaroid stock to double in value next year.d. Prices in the stock market become more volatile.e. Yo

47、u expect housing prices to fall.(a) More, because your wealth has increased;(b) more, because it has become more liquid;(c) less, because its expected return has fallen relative to Polaroid stock;(d) more, because it has become less risky relative to stocks;(e) less, because its expected return has

48、fallen.3. “The more risk-averse people are, the more likely they are to diversify.” Is this statement true, false, or uncertain? Explain your answer.True, because the benefits to diversification arc greater for a person who cares more about reducing risk.4. I own a professional football team, and I

49、plan to diversify by purchasing shares in either a company that owns a pro basketball team or a pharmaccutical company. Which of these two investments is more likely to reduce the overall risk I face? Why?Purchasing shares in the pharmaceutical company is more likely to reduce my overall risk becaus

50、e the correlation of returns on my investment in a football team with the returns on the pharmaceutical company shares should be low. By contrast, the correlation of returns on an investment in a football team and an investment in a basketball team are probably pretty high, so in this case there wou

51、ld be little risk reduction if I invested in both.5. “No one who is risk-averse will ever buy a security that has a lower cxpcctcd return, more risk, and less liquidity than another security.” Is this statement true, false, or uncertain? Explain your answer.True, because for a risk averse person, mo

52、re risk, a lower expected return and less liquidity make a security less desirable.6. An important way in which the Federal Reserve decreases the money supply is by selling bonds to the public. Using a supply and demand analysis for bonds, show what effect this action has on interest rates.When the

53、Fed sells bonds to the public, it increases the supply of bonds, thus shifting the supply curve Bs to the right. The result is that the intersection of the supply and demand curves Bs and Bd occurs at a higher equilibrium interest rate, and the interest rate rises. With the liquidity preference ramc

54、work, the decrease in the money supply shifts the money supply curve Ms to the left, and the equilibrium interest rate rises. The answer from the loanable funds framework is consistent with the answer from the liquidity preference framework.7. Using the supply and demand for bonds framework, show wh

55、y interest rates are procyclical (rising when the economy is expanding and falling during recessions).When the economy booms, the demand for bonds increases: the publics income and wealth rises while the supply of bonds also increases, because firms have more attractive investment opportunities. Bot

56、h the supply and demand curves (Bd and Bs) shift to the right，but as is indicated in the text, the demand curve probably shifts less than the supply curve so the equilibrium interest rate rises. Similarly, when the economy enters a recession, both the supply and demand curves shift to the left, but

57、the demand curve shifts less than the supply curve so that the interest rate falls. The conclusion is hat interest rates rise during booms and fall during recessions: that is, interest rales are procyclical8. Why should a rise in the price level (but not in expected inflation) cause interest rates t

58、o tise when the nominal money supply is fixed?When the price level rises, the quantity of money in real terms falls (holding the nominal supply of money constant); to restore their holdings of money in real terms to their former level, people will want to hold a greater nominal quantity of money. Th

59、us the money demand curvc Md shifts to the right, and the interest rate rises.9. Find the “Credit Markets” column in the Wall Street Journal. Underline the column that explain bond price movements, and draw the appropriate supply and demand diagrams that support these statements.Interest rates fall. The increased volatility of gold prices makes bonds rela