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Fin4319 Essay

1281 words - 6 pages

A treasury note has an original maturity of 2-10 years.
A treasury bill trades in the money market & is a pure discount instrument.
Short-term unsecured obligations issued by corporations are commercial papers.
Eurodollar CD’s generally carry higher interest rates than domestic CD’s. Some of the contributing factors are ED CD issuers avoid U.S. reserve requirements, and ED CD issuers avoid paying FDIC deposit insurance premiums.
Commercial paper carries higher quoted yields than Treasury bills even though both securities trade in the money market. A contributing factor is that the commercial paper suffers from credit risk.
A U.S. Treasury bill is trading an ask price of 98.235. The ...view middle of the document...

Dealers “make a market” in an asset by posting bid and ask prices at which it is willing to buy and sell.
The following are examples of intermediaries except: brokers (intermediaries include: commercial banks, investment companies, insurance companies)
The reason that the US is a DSU in the global financial markets is excess of domestic investment over domestic savings.
In the coverage of Bernanke’s speech on global imbalances, it was argued that the so called “global savings glut” resulted in a reduction in interest rates causing a further increase in the US savings deficit.
Who is most likely to be a SSU? Someone with a low rate of time preference and a weak set of available investment opportunities.
Secondary markets facilitate capital formation because the increased liquidity causes an increase in the supply of loanable funds which reduces the cost of capital.
Which of the following would contribute to a decrease in the rate of interest? A decrease in the average rate of time preference.
You see an increase in the quantity of savings and investment. From this you can conclude there was a decrease in the average rate of time preference and/or there was an increase in the expected return on capital projects.
Consider the flow of funds matrix for 06. Which sector was the largest net lender (SSU) in the US economy? Rest of the world
Consider the flow of funds matrix for 06. What was the largest source of household borrowing? Mortgages
Consider the follow of funds matrix for 06. Which sector is the largest DSU in the US economy? HH sector
Consider the flow of funds matrix for 2010. Which sector is the largest DSU in the US economy? Fed govt
Consider the flow of funds matrix for 2010. Which sector is the largest SSU in the US economy? HH sector
Suppose that the nominal interest rate is equal to 5% and the rate of inflation is 2%. If the marginal tax rate is 40%, what is the after-tax real rate of return? What is the effective tax rate on real income? R = i(1-t)-p
= .05(1-.4)-.02=.01
1%; 67%
The nominal interest rate is 10% and the expected rate of inflation is 5%. If inflation expectations decrease by 3 percentage points ( to a new level of 2%) what will be the new nominal rate according to Fisher? If the marginal tax rate is 40% what will be the new nominal rate according to Darby/Feldstein? 7%; 5%
(10-3 = 7 …. 3/(1-.4)=5, 10-5 = 5)
When the rate of inflation is lower than anticipated, borrowers lose.
If the rate of inflation turns out to be higher than expected, wealth is transformed from lenders to borrowers and from bondholders to stockholders.
If a sector is a deficit savings unit (DSU) during a given period, its...

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