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economics of money banking and financial markets

Questions and Answers of Economics Of Money Banking And Financial Markets

15. Why might it be better to lean against credit-driven bubbles rather than just clean up after asset bubbles burst?
14. Why might macroprudential regulation be more effective in managing asset-price bubbles than monetary policy?
11. What are the key advantages and disadvantages of the monetary strategy recently used by the Federal Reserve, in which the nominal anchor is only implicit?
2. Refer to Figure 16-1 . Go to www.bankofcanada.ca, click on“Statistics,” and then on “Key Interest Rate Lookup.” What is the current overnight rate target? What is the overnight rate? Is
1. Go to www.bankofcanada.ca and click on “Press.” Scroll down and click on the release regarding recent changes in the overnight rate of interest. Summarize the statement in one paragraph. Be
2. Go to the St. Louis Federal Reserve FRED database, and find data on nonborrowed reserves (NONBORRES) and the federal funds rate (FEDFUNDS).a. Calculate the percent change in nonborrowed reserves
1. Go to the CANSIM database, and download daily data, from January 2, 1996, to October 12, 2017, for the bank rate (series V39078) and the target overnight rate (series V39079).a. What is the
24. Using the supply and demand analysis of the market for reserves in the United States, indicate what happens to the federal funds rate, borrowed reserves, and nonborrowed reserves, holding
22. In early 2016, as the Bank of Japan began to push policy interest rates negative, there was a sharp increase in home sales in Japan.Why might this be, and what does it mean for the effectiveness
20. How do the monetary policy tools of the European System of Central Banks compare to the monetary policy tools of the Fed?Does the European Central Bank have a discount lending facility?Does the
13. Explain how SPRAs and SRAs affect the overnight rate.
10. The benefits of using last-resort lending to prevent bank panics are straightforward. What are the costs?
2. Go to www.bankofcanada.ca and click on “Statistics,” then“Indicators,” and then choose “Summary of Key Monetary Policy Variables.”a. What is the 12-month growth rate of M1+ (gross),
1. Go to the CANSIM webpage, and find monthly data (from January 1968 to August 2017) on the monetary base (series V37145), M1++ gross (series V37152), and M2++ gross (series V41552801).a. What is
22. If reserves in the banking system increase by $1 billion as a result of Bank of Canada lending to financial institutions of $1 billion, and chequable deposits increase by $9 billion, why isn’t
15. The money multiplier declined significantly during the period 1930–1933 and also during the 2008 financial crisis of 2008–2010.Yet the M1 money supply decreased by 25% in the Depression
11. “The money multiplier is necessarily greater than one.” Is this statement true, false, or uncertain? Explain your answer.
1. Classify each of these transactions as either an asset, a liability, or neither, for each of the “players” in the money supply process—the Bank of Canada, banks, and depositors.a. You get a
3. Go to the site listed in Web Exercise 2 and click on “Monetary Policy.” Then click on “Monetary Policy” and click on the “Beige Book” under “Reports.” According to the summary of
2. Go to www.federalreserve.gov and click on “About the Fed.”Next, click on “Structure of the Federal Reserve System” and then on “Federal Reserve Board”. According to the Federal
1. Go to www.bankofcanada.ca and click on “About the Bank”, then click on “Board of Directors.” Write a short essay about the diversity of the 12 outside directors of the Bank of Canada’s
2. Go to the Bank of Canada’s website, and find data on the overnight interest rate target. When was the last time the overnight interest rate target was changed? Did the rate increase or decrease?
1. Go to the CANSIM database, and find data on the unemployment rate in New Brunswick (series V2063760), Ontario (series V2063949), and British Columbia (series V2064705). For the most recent month
20. Why did the Bank of England up until 1997 have a low degree of independence?
19. Which is more independent, the Federal Reserve or the European Central Bank? Why?
17. Should the Federal Reserve be subject to periodic auditing of its policies, procedures, and finances? Why or why not?
16. What is the primary tool that the U.S. Congress uses to exercise control over the Fed?
14. “The independence of the Bank of Canada means that it takes the long view and not the short view.” Is this statement true, false, or uncertain? Explain your answer.
12. Why might eliminating the Bank of Canada’s independence lead to a more pronounced political business cycle?
10. How is the responsibility for monetary policy shared in the Eurosystem?
3. Who is responsible for monetary policy in Canada?
2. The Chicago Mercantile Exchange houses the U.S. fed funds futures market as well as a number of other interest rate options and futures. Go to
2. Go to the St. Louis Federal Reserve FRED database, and find data on crude oil prices (DCOILWTICO). Suppose that one month ago you entered into a forward contract to sell 1 million barrels of oil
1. Go to the St. Louis Federal Reserve FRED database, and find data on the U.S. dollar/euro exchange rate (DEXUSEU). Suppose that one month ago you entered into a forward contract to sell 10 million
25. A swap agreement calls for Durbin Industries to pay interest annually, based on the one-year T-bill rate, currently 6%, plus 1.5%. In return, Durbin receives interest at a rate of 6% on a
24. Consider a put contract on a Canada bond with an exercise price of 101.38. The contract represents $100 000 of bond principal and has a premium of $750. The actual Canada bond price falls to
22. Futures are available on three-month T-bills with a contract size of $1 million. If you take a long position at 96.22 and later sell the contracts at 96.87, what is the total net gain or loss on
21. Calgary Bank and Trust has $100 million in assets and $83 million in liabilities. The duration of the assets is 5.9 years, and the duration of the liabilities is 1.8 years. How many futures
20. Suppose that you buy a call option on a $100 000 Canada bond futures contract with an exercise price of 110 for a premium of$1500. If, upon expiration, the futures contract has a price of 111,
18. Suppose the pension fund you are managing is expecting an inflow of funds of $100 million next year, and you want to make sure that you will earn the current interest rate of 8% when you invest
17. Suppose your company will be receiving 30 million euros six months from now, and the euro is currently selling for one euro per dollar. If you want to hedge the foreign exchange risk in this
14. Jason bought a put option on a $100 000 Canada bond futures contract with an exercise price of 105 for a premium of $2000. If on expiration the futures contract sells for 110, determine Jason’s
13. Suppose you buy a call option on a $100 000 Canada bond futures contract with an exercise price of 105. If the price of the Canada bond is 115 at expiration, is the option at the money, in the
12. If the portfolio you manage is holding $25 million of 6s of 2038 Canada bonds with a price of 110, what forward contract would you enter into to hedge the interest-rate risk on these bonds over
10. How can financial derivatives create excessive risk in the financial system?
9. If the savings and loan you manage has a gap of describe an interest-rate swap that would eliminate the S&L’s income risk from changes in interest rates.
8. If the finance company you manage has a gap of (ratesensitive assets greater than rate-sensitive liabilities by $5 million), describe an interest-rate swap that would eliminate the company’s gap.
3. Suppose that the Bank of Canada did not increase the overnight interest rate target but somewhat let the markets know that there could be a rise in the near future. How do you think that financial
2. Table 12-1 reports the balance sheet of all commercial banks based on aggregate data found in the OSFI’s website. Compare this table to the balance sheet information reported by CIBC in its 2016
1. It is relatively easy to find up-to-date information on banks because of their extensive reporting requirements. Go to the OSFI website and find balance sheet data on domestic banks as well as on
2. Go to the OSFI website and find data for all domestic banks on total assets, reserves, securities held, commercial and industrial loans, and other assets. Use the data for August 31, 2017, across
1. Go to the Office of the Superintendent of Financial Institutions(OSFI) website and find data (as of August 31, 2017) for all domestic banks on total liabilities, total deposits, and residual of
29. Suppose you are the manager of a bank that has $15 million of fixed-rate assets, $30 million of rate-sensitive assets, $25 million of fixed-rate liabilities, and $20 million of rate-sensitive
26. Excess reserves act as insurance against deposit outflows.Suppose that on a yearly basis Malcom Bank holds $12 million in excess reserves and $88 million in desired reserves. Suppose that Malcom
25. Angus Bank holds no excess reserves. The desired reserves ratio is 9%, and reserves are currently $27 million. Determine the amount of deposits, the reserve shortage created by a deposit outflow
24. To avoid insolvency, regulators decide to provide the bank with$25 million in bank capital. However, the bad news about the mortgages is featured in the local newspaper, causing a bank run.As a
22. Oldhat Financial started its first day of operations with $9 million in capital. A total of $130 million in chequable deposits is received. The bank makes a $25 million commercial loan and
21. Consider a bank with the following balance sheet:The bank makes a loan commitment for $10 million to a commercial customer. Calculate the bank’s capital ratio before and after the agreement.
18. After July 2010, bank customers in the United States using a debit card had to specifically opt in to the bank’s overdraft protection plan. Explain the effect of this regulation on a bank’s
13. A bank almost always insists that the firms it lends to keep compensating balances at the bank. Why?14. If the president of a bank told you that the bank was so well run that it has never had to
3. The bank you own has the following balance sheet:Assets LiabilitiesIf the bank suffers a deposit outflow of $50 million with a desired reserve ratio on deposits of 10%, what actions should you
2. One of the countries hardest hit by the global financial crisis of 2008 was Iceland. Go to en.wikipedia.org/wiki/2008–2011_Icelandic_financial_crisis, and summarize the causes and events that
1. Go to the CANSIM database, and find data (over the period from 2000 to 2017) on household final consumption expenditure(series V61989012), stock prices (series V122620), and house prices (series
23. What was the Canadian experience during the 2007–2009 global financial crisis?
21. How does the process of financial innovation affect the effectiveness of macroprudential regulation?
20. Why is it a good idea for macroprudential policies to require countercyclical capital requirements?
19. How did the global financial crisis promote a sovereign debt crisis in Europe?
17. What role did the shadow banking system play in the 2007–2009 financial crisis?
16. How did a decline in housing prices help trigger the subprime financial crisis in the United States that began in 2007?
12. Describe two similarities and two differences between the United States’ experiences during the Great Depression and the Great Recession financial crisis of 2007–2009.
10. Provide one argument in favour of and one against the idea that the Fed was responsible for the U.S. housing price bubble of the mid-2000s.
8. Some countries do not advertise that a system of deposit insurance like the CDIC in Canada exists in their banking system.Explain why some countries would want to do that.
2. Despite the regulations that protect banks from failure, some do fail. Go to www5.fdic.gov/hsob/SelectRpt.asp?EntryTyp=30.Select the tab labelled “Bank Failures. Failures and Assistance
2. Go to the CANSIM database, and find data on the level of money market investment fund assets (series V37245). Download the data into a spreadsheet.a. When did assets start entering money market
1. Go to the Canada Deposit Insurance Corporation website, and access the CDIC deposit insurance calculator.Use the calculator to find out if your savings are protected by CDIC in the event that your
19. Why has the number of bank holding companies in the United States dramatically increased?
18. What factors explain the rapid growth of international banking?
17. Why are there only 2 U.S. banks among the 10 largest banks in the world?
15. What technological innovations led to the development of the subprime mortgage market?
10. If the bank at which you keep your chequing account is owned by foreigners, should you worry that your deposits are less safe than if the bank was owned by Canadians?
1. Describe how the 2001 Bank Act reform attempted to introduce more competition into Canada’s financial services marketplace.
1. Go to www.cdic.ca and click on “How we protect depositors in a failure.” Write an essay summarizing how the CDIC assists failing member institutions.
1. Go to the CANSIM database, and find monthly data on total chartered bank assets (series V36883), total liabilities and shareholders’ equity (series V36936), and shareholders’ equity(series
18. Consider a failing bank. How much is a deposit of $350 000 worth if the CDIC uses the payoff method? The purchase and assumption method? Which method is more costly to taxpayers?
15. How do disclosure requirements help limit excessive risk taking by banks?
14. Why has the trend in bank supervision moved away from a focus on capital requirements to a focus on risk management?
13. How does bank chartering reduce adverse selection problems?Does it always work?
12. What are some of the limitations to the Basel and Basel II Accords? How does the Basel III Accord attempt to address these limitations?
11. What special problem do off-balance-sheet activities present to bank regulators, and what have they done about it?
7. What are the costs and benefits of a too-big-to-fail policy?
1. In this chapter, we discuss the lemons problem and its effect on the efficient functioning of a market. This theory was initially developed by George Akerlof. Go to
2. Go to the St. Louis Federal Reserve FRED database and find U.S.data on the percent of value of loans secured by collateral for all commercial and industrial loans (ESANQ) and the net percentage of
1. Go to the Statistics Canada CANSIM database and find the quarterly series (from 2000Q1 to 2017Q2) for the net new issues of securities by financial and nonfinancial corporations, series V122334
21. Refer to Problem 20 . Now you believe the dealer knows more about the car than you do. How much are you willing to pay?Why? How can this asymmetric information problem be resolved in a
20. You are in the market for a used car and decide to visit a used-car dealership. You know that the Blue Book value of the car you are looking at is between $20 000 and $24 000. If you believe the
18. Explain how the separation of ownership and control in Canadian corporations might lead to poor management.
14. How do standardized accounting principles help financial markets work more efficiently?
12. How does the free-rider problem aggravate adverse selection and moral hazard problems in financial markets?
5. Suppose you go to your local bank, intending to buy a certificate of deposit with your savings. Explain why you would prefer this to offering a loan, at an interest rate that is higher than the
3. Eugene Fama and Robert Shiller recently won the Nobel Prize in Economics. Go to nobelprize.org/nobel_prizes/economics and locate the press release on Eugene Fama and Robert Shiller. What was their

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