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economics of money banking and financial markets

Questions and Answers of Economics Of Money Banking And Financial Markets

2. The Internet is a great source of information on stock prices and stock price movements. Yahoo Finance is a great source for stock market data. Go to finance.yahoo.com and click on
1. Go to the CANSIM database and download monthly data from January 1956 to October 2017 on the S&P TSX Composite Index(series V122620).a. Calculate the mean and standard deviation as well as the
25. A company has just announced a three-for-one stock split, effective immediately. Prior to the split, the company had a market value of $5 billion with 100 million shares outstanding.Assuming the
24. The current price of a stock is $65.88. If dividends are expected to be $1 per share for the next five years, and the required return is 10%, what should the price of the stock be in five years
23. After careful analysis, you have determined that a firm’s dividends should grow at 7%, on average, in the foreseeable future. The firm’s latest dividend was $3. Compute the current price of
14. Suppose that in every last week of November stock prices go up by an average of 3%. Would this constitute evidence in favour of or against the efficient market hypothesis?
2. Figure 6-7 shows a number of yield curves at various points in time. Go to www.bloomberg.com/markets/rates/index.html, and find the Canadian yield curve. Does the current yield curve fall above or
1. Go to www.bloomberg.com and click on “Market Data” and then“Rates & Bonds” to find information about the yield curve in Australia, Germany, Japan, the United Kingdom, and the United
2. Go to the CANSIM database, and find monthly yield data from January 1983 to October 2017 on the following government securities: 1-month (series V122529), 3-month (series V122531), 6-month (series
1. Go to the CANSIM database, and download monthly data, from January 1976 to October 2017, on the three-month T-bill rate(series V122531) and the interest rate on long-term Canada bonds (series
23. Assuming the expectations theory is the correct theory of the term structure, calculate the interest rates in the term structure for maturities of one to five years, and plot the resulting yield
17. If a yield curve looks like the one shown in the following figure, what is the market predicting about the movement of future short-term interest rates? What might the yield curve indicate about
16. If a yield curve looks like the one shown in the following figure, what is the market predicting about the movement of future short-term interest rates? What might the yield curve indicate about
15. Suppose the interest rates on 1-, 5-, and 10-year Canada bonds are currently 3%, 6%, and 6%, respectively. Investor A chooses to hold only 1-year bonds, and Investor B is indifferent with regard
14. If bond investors decide that 30-year bonds are no longer as desirable an investment as they were previously, predict what will happen to the yield curve, assuming (a) the expectations theory of
12. Prior to 2008, mortgage lenders in the United States required a house inspection to assess a home’s value and often used the same one or two inspection companies in the same geographical
9. Predict what would happen to the risk premiums on corporate bonds if brokerage commissions were lower in the corporate bond market.
7. The Canadian government offers some of its debt as Real Return Bonds, in which the price of bonds is adjusted for inflation over the life of the debt instrument. Real Return Bonds are traded on a
3. Do you think that a Canadian Treasury bill will have a risk premium that is higher than, lower than, or the same as that of a similar security (in terms of maturity and liquidity) issued by the
2. One of the points made in this chapter is that inflation erodes investment returns. Go to www.moneychimp.com/articles/econ/inflation_calculator.htm and review how changes in inflation alter your
1. Increasing prices erode the purchasing power of the dollar. It is interesting to compute what goods would have cost at some point in the past after adjusting for inflation. Go to
2. Go to the St. Louis Federal Reserve FRED database, and find data on the M1 money supply (M1SL) and the 10-year U.S. Treasury bond rate (GS10). For the M1 money supply indicator, adjust the units
1. Go to the CANSIM database and download monthly data from 1962:1 to 2017:10 for the three-month T-bill rate (series V122531).a. What is the average nominal interest rate, i ?b. Calculate the change
19. M1 money growth in the United States was about 15% in 2011 and 2012, and 10% in 2013. Over the same time period, the yield on three-month Treasury bills was close to 0%. Given these high rates of
11. In the aftermath of the global economic crisis that started to take hold in 2008, Canadian government budget deficits increased dramatically, yet interest rates on Canada bonds debt fell sharply
7. Suppose Maria prefers to buy a bond with a 7% expected return and 2% standard deviation of its expected return, while Jennifer prefers to buy a bond with a 4% expected return and 1% standard
1. In this chapter, we discussed long-term bonds as if there were only one type, coupon bonds. In fact, investors can also purchase long-term discount bonds. A discount bond is sold at a low price,
2. Go to the CANSIM database and download monthly data (from November 1991 to Octo2017) for the interest rate on long-term Canada Real Return Bonds (series V122553). This is a direct measure of the
1. Go to the CANSIM database and download monthly data from January 1953 to October 2017 for the three-month T-bill rate(series V122541) and the total consumer price index (series V41690973).a. What
19. Which $1000 bond has the higher yield to maturity, a 20-year bond selling for $800 with a current yield of 15% or a 1-year bond selling for $800 with a current yield of 5%?
18. What is the yield to maturity on a simple loan for $1 million that requires a repayment of $2 million in five years’ time?
16. A lottery claims its grand prize is $10 million, payable over five years at $2 million per year. If the first payment is made immediately, what is this grand prize really worth? Use an interest
15. Calculate the present value of a $1000 discount bond with five years to maturity if the yield to maturity is 6%.
5. Suppose today you buy a coupon bond that you plan to sell one year later. Which part of the rate of return formula incorporates future changes into the bond’s price? Note: Check Equations 7 and
2. Go to www.bankofcanada.ca and click on “Core Functions” and then on “Monetary Policy.” Select one policy on which the Bank of Canada has a written policy. Write a one-paragraph summary of
1. Go to www.bankofcanada.ca and click on “Statistics” and then“Summary of key monetary policy variables.”a. What has been the growth rate in M1+, M1++, and M2++over the past 12 months?b.
2. Go to the CANSIM database and find data on M1++ for Canada(series V37152). Calculate the annual growth rate, as 1200 × ln(Mt/Mt−1), from January 2000 to September 2017. What is the average
1. Go to the CANSIM database and download monthly data from January 1970 to September 2017 on the M2 (gross) monetary aggregate (series V41552796).a. What is the average monthly monetary growth rate
18. Suppose a researcher discovers that a measure of the total amount of debt in the Canadian economy over the past 20 years was a better predictor of inflation and the business cycle than M1+ or
17. In April 2009, year-over-year the growth rate of M1 in the United States fell to 6.1%, while the growth rate of M2 rose to 10.3%. In September 2013, the growth rate of the M1 money supply was
16. Assume that you are interested in earning some return on the idle balances you usually keep in your chequing account and decide to buy some money market mutual funds shares by writing a cheque.
15. For each of the following assets, indicate which of the monetary aggregates (M1+, M2+ and M2++) includes them:a. Currencyb. Money market mutual fundsc. Canada Savings Bondsd. Chequable deposits
14. It is not unusual to find a business that displays a sign saying “No personal cheques, please.” On the basis of this observation, comment on the relative degree of liquidity of a chequing
13. Which of the Bank of Canada’s measures of the monetary aggregates—M1+ or M2—is composed of the most liquid assets?Which is the larger measure?
12. Rank the following assets from most liquid to least liquid:a. Chequing account depositsb. Housesc. Currencyd. Automobilese. Savings depositsf. Common stock
9. Why were people in Canada in the nineteenth century sometimes willing to be paid by cheque rather than with gold, even though they knew there was a possibility that the cheque might bounce?
7. Was money a better store of value in Canada in the 1950s than in the 1970s? Why or why not? In which period would you have been more willing to hold money?
5. Most of the time it is quite difficult to separate the three functions of money. Money performs its three functions at all times, but sometimes we can stress one in particular. For each of the
3. Three goods are produced in an economy by three individuals:Good Producer Apples Orchard owner Bananas Banana grower Chocolate Chocolatier If the orchard owner likes only bananas, the banana
2. The most famous financial market in the world is the New York Stock Exchange. Go to www.nyse.com.a. What is the mission of the NYSE?b. Firms must pay a fee to list their shares for sale on the
1. One of the single best sources of information about financial institutions is the financial data produced by the Office of the Superintendent of Financial Institutions (OSFI). Go to
2. Go to the St. Louis Federal Reserve FRED database, and find data on the total assets of all U.S. commercial banks(TLAACBM027SBOG) and the total assets of U.S. money market mutual funds
1. Go to the CANSIM database, and find data on the total Canadian dollar assets held by chartered banks in Canada (series V36852).What is the percent increase in growth of assets from January 2000 to
24. Suppose you have just inherited $10 000 and are considering the following options for investing the money to maximize your return:Option 1: Put the money in an interest-bearing chequing account
1. If I can buy a car today for $5000, and it is worth $10 000 in extra income to me next year because it enables me to get a job as a travelling salesperson, should I take out a loan from Larry the
2. In Web Exercise 1, you collected data on and then graphed the Canadian dollar per U.S. dollar exchange rate. This same site reports forecast values of the Canadian dollar per U.S. dollar exchange
1. In this exercise, we will practise collecting data from the Web and graphing it using Excel. Go to www.forecasts.org/data/index.htm, click on Currency Exchange Rate Data at the top of the page,
2. Go to the Bank of Canada website and find data (from January 1981 to October 2017) on the three-month Treasury bill rate(CANSIM series V122541), the three-month prime corporate paper rate (CANSIM
1. Go to the Statistics Canada CANSIM database and find data on the M2++ (gross) money supply and the 10-year Canada bond rate from January 2000 to September 2017. Add the two series into a single
21. The following table lists the foreign exchange rate between U.S.dollars and British pounds (GBP) during May 2017. Which day would have been the best for converting $200 into British pounds? Which
20. Much of the Canadian government debt is held by foreign investors as Canada bonds and bills. How do fluctuations in the dollar exchange rate affect the value of that debt held by foreigners?
16. How would an increase in the value of the pound sterling affect Canadian businesses?
13. Why do managers of financial institutions care so much about the activities of the Bank of Canada?
9. Has the inflation rate in Canada increased or decreased in the past few years? What about interest rates?10. If history repeats itself and we see a decline in the rate of money growth, what might
Summarize and apply the four lessons outlined in this chapter for the conduct of monetary policy.
List and summarize the transmission mechanisms through which monetary policy can affect the real economy.
Identify the ways in which central banks can establish and maintain credibility.
Summarize and illustrate the benefits of a credible central bank.
Compare and contrast the use of policy rules versus discretionary policy.
Summarize the Lucas critique.
Explain the unique challenges that monetary policymakers face at the zero lower bound, and illustrate how nonconventional monetary policy can be effective under such conditions.
Identify the sources of inflation and the role of monetary policy in propagating inflation.
Explain why monetary policymakers can target any inflation rate in the long run but cannot target a level of aggregate output in the long run.
Identify the lags in the policy process, and summarize why they weaken the case for an activist policy approach.
Illustrate and explain the policy choices that monetary policymakers face under the conditions of aggregate demand shocks, temporary supply shocks, and permanent supply shocks.
Explain business cycle fluctuations in major economies during the 2007–2009 financial crisis.
Illustrate and interpret the short-run and long-run effects of temporary and permanent supply shocks.
Illustrate and interpret the short-run and long-run effects of a shock to aggregate demand.
Illustrate and interpret the short-run and long-run equilibria and the role of the self-correcting mechanism.
Illustrate and interpret shifts in the short-run and long-run aggregate supply curves.
Illustrate and interpret the short-run and long-run aggregate supply curves.
Summarize and illustrate the aggregate demand curve and the factors that shift it.
Explain why the aggregate demand (AD) curve slopes downward, and explain shifts in the AD curve.
Define and illustrate the monetary policy (MP) curve, and explain shifts in the MP curve.
Recognize the impact of changes in the nominal overnight interest rate on short-term real interest rates.
List the factors that shift the IS curve, and describe how they shift the IS curve.
Describe why the IS curve slopes downward and why the economy heads to a goods market equilibrium.
Solve for the goods market equilibrium.
List and describe the factors that determine the four components of aggregate demand (or planned expenditure).
List the four components of aggregate demand (or planned expenditure).
Assess and interpret the empirical evidence on the validity of the liquidity preference and portfolio theories of money demand.
Identify the factors underlying the portfolio choice theory of money demand.
Summarize the three motives underlying the liquidity preference theory of money demand.
Identify the circumstances under which budget deficits can lead to inflationary monetary policy.
Assess the relationship between money growth and inflation in the short run and the long run, as implied by the quantity theory of money.
Summarize the advantages and disadvantages of exchange rate targeting.
Identify the ways in which international monetary policy and exchange rate arrangements can affect domestic monetary policy operations.
Summarize the advantages and disadvantages of capital controls.Assess the role of the IMF as an international lender of last resort.
Identify the mechanisms for maintaining a fixed exchange rate, and assess the challenges faced by fixed exchange rate regimes.
Interpret the relationships among the current account and the financial account in the balance of payments.

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