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1、Malhazard:Theriskthatonepartytoatransactionwillengageinbehavithatisundesirablefromtheotherparty’spointofview.Yieldtomaturity:Theinterestratethatequatesthepresentvalueofpaymentsreceivedfromacreditmarketinstrumentwithitsva
2、luetoday.Optioncontracts:Contractsthatgivethepurchasertheoptiontobuyselltheunderlyingfinancialinstrumentataspecifiedpricecalledtheexercisepricestrikepricewithinaspecificperiodoftime.Capitalmarket:Afinancialmarketinwhichl
3、ongertermdebt(maturityofgreaterthanoneyear)equityinstrumentsaretraded.IfthereisadeclineininterestrateswhichwouldyouratherbeholdinglongtermbondsshttermbondsWhyWhichtypeofbondhasthegreaterinterestrateriskYouwouldratherbeho
4、ldinglongtermbondsbecausetheirpricewouldincreasemethanthepriceoftheshttermbondsgivingthemahigherreturn.WhateffectwillasuddenincreaseinthevolatilityofgoldpriceshaveoninterestratesInterestrateswouldrise.Asuddenincreaseinpe
5、ople’sexpectationsoffuturerealestatepricesraisestheexpectedreturnonrealestaterelativetobondssothedemfbondsfalls.ThedemcurveBdshiftstothelefttheequilibriuminterestraterises.WhatacteristicsdefinethemoneymarketsThemoneymark
6、etscanbeacterizedashavingsecuritiesthattradeinoneyearlessareoflargedenominationareveryliquid.1.WhyarefinancemarketsimptanttothehealthoftheeconomyBecausetheychannelfundsfromthosewhodonothaveaproductiveusefthemtothosewhodo
7、therebyresultinginhighereconomicefficiency.2.WheninterestraterisehowmightbusinessesconsumerschangetheireconomicbehaviBusinesseswouldcutinvestmentspendingbecausethecostoffinancingthisspendingisnowhigherconsumerswouldbeles
8、slikelytopurchaseahouseacarbecausethecostoffinancingtheirpurchaseishigher.3.HowcanachangeininterestratesaffecttheprofitabilityoffinancialinstitutionsAchangeininterestratesaffectsthecostofacquiringfundsffinancialinstituti
9、onsaswellaschangestheincomeonassetssuchasloansbothofwhichaffectprofits.Inadditionchangesininterestratesaffectthepriceofassetssuchasstockbondsthatthefinancialinstitutionownswhichcanleadtoprofitslosses.4.Iseverybodywseoffw
10、heninterestratesriseNo.Peoplewhobrowtopurchaseahouseacararewseoffbecauseitcoststhemmetofinancetheirpurchasehoweversaversbenefitbecausetheycanearnhigherinterestratesontheirsavings.5.Whateffectmightafallinstockpriceshaveon
11、businessinvestmentThelowerpricefafirm’ssharesmeansthatitcanraiseasmalleramountoffundssoinvestmentinplantequipmentwillfall.6.Whateffectmightariseinstockpriceshaveonconsumers’decisionstospendHigherstockpricesmeanthatconsum
12、ers’wealthishighersotheywillbemelikelytoincreasetheirspending.7.HowdoesadeclineinthevalueofthepoundsterlingaffectBritishconsumersItmakesfeigngoodsmeexpensivesoBritishconsumerswillbuylessfeigngoodsmedomesticgoods.4.Inthen
13、ieenthcenturytheU.S.economybrowedheavilyfromtheBritishtobuildarailroadsystem.WhatwastheprincipaldebtinstrumentusedWhydidthismakebothcountriesbetteroffTheprincipaldebtinstrumentsusedwerefeignbondswhichweresoldinBritainden
14、ominatedinpounds.TheBritishgainedbecausetheywereabletoearnhigherinterestratesasaresultoflendingtoAmericanswhiletheAmericansgainedbecausetheynowhadaccesstocapitaltostartupprofitablebusinessessuchasrailroads.5.“Becausecpat
15、ionsdonotactuallyraiseanyfundsinsecondarymarketstheyarelessimptanttotheeconomythanprimarymarkets.”Comment.Thisstatementisfalse.Pricesinsecondarymarketsdeterminethepricesthatfirmsissuingsecuritiesreceiveinprimarymarkets.I
16、nadditionsecondarymarketsmakesecuritiesmeliquidthuseasiertosellintheprimarymarkets.Therefesecondarymarketsareifanythingmeimptantthanprimarymarkets.6.Ifyoususpectthatacompanywillgobankruptnextyearwhichwouldyouratherholdbo
17、ndsissuedbythecompanyequitiesissuedbythecompanyWhyYouwouldratherholdbondsbecausebondholdersarepaidoffbefeequityholderswhoaretheresidualclaimants.7.Howcantheadverseionproblemexplainwhyyouaremelikelytomakealoantoafamilymem
18、berthantoastrangerBecauseyouknowyourfamilymemberbetterthanastrangeryouknowmeaboutthebrower’shonestypropensityfrisktakingothertraits.Thereislessasymmetricinfmationthanwithastrangerlesslikelihoodofanadverseionproblemwithth
19、eresultthatyouaremelikelytolendtothefamilymember.8.Thinkofoneexampleinwhichyouhavehadtodealwiththeadverseionproblem.9.WhydoloansharkswrylessaboutmalhazardinconnectionwiththeirbrowersthansomeotherlendersdoLoansharkscanthr
20、eatentheirbrowerswithbodilyharmifbrowerstakeactionsthatmightjeopardizepayingofftheloan.Hencebrowersfromaloansharkarelesslikelytoengageinmalhazard.10.Ifyouareanemployerwhatkindsofmalhazardproblemsmightyouwryaboutwithyoure
21、mployeesTheymightnotwkhardenoughwhileyouarenotlookingmaystealcommitfraud.11.IftherewerenoasymmetryintheinfmationthatabrowalenderhadcouldtherestillbemalhazardproblemYesbecauseevenifyouknowthatabroweristakingactionsthatmig
22、htjeopardizepayingofftheloanyoumuststillstopthebrowerfromdoingso.Becausethatmaybecostlyyoumaynotspendthetimeeffttoreducemalhazardsomalhazardremainsaproblem.12.“Inawldwithoutinfmationtransactioncostsfinancialintermediarie
23、swouldnotexist.”IsthisstatementtruefalseuncertainExplainyouranswer.True.Iftherearenoinfmationtransactionscostspeoplecouldmakeloanstoeachotheratnocostwouldthushavenoneedffinancialintermediaries.13.Whymightyoubewillingtoma
24、kealoantoyourneighbbyputtingfundsinasavingsaccountearninga5%interestrateatthebankhavingthebankloanherthefundsata10%interestrateratherthanloanherthefundsyourselfBecausethecostsofmakingtheloantoyourneighbarehigh(legalfeesf
25、eesfacreditchecksoon)youwillprobablynotbeabletoearn5%ontheloanafteryourexpenseseventhoughithasa10%interestrate.Youarebetteroffdepositingyoursavingswithafinancialintermediaryearning5%interest.Inadditionyouarelikelytobearl
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