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financial markets institutions

Questions and Answers of Financial Markets Institutions

LG 4-1. Understand the major functions of the Federal Reserve System.
LG 4-2. Identify the structure of the Federal Reserve System.
LG 4-3. Identify the monetary policy tools used by the Federal Reserve.
LG 4-4. Appreciate how monetary policy changes affect key economic variables.
LG 4-5. Understand how central banks around the world adjusted their monetary policy during the recent financial crisis.
1. What the main functions of Federal Reserve Banks are?
2. What the main responsibilities of the Federal Reserve Board are?
3. How the FOMC implements monetary policy?
4. What the main assets and liabilities in the Federal Reserve System are?
5. What the major policy tools used by the Federal Reserve to influence the economy are?
6. What the impact is on credit availability and the money supply if the Federal Reserve purchases securities?
7. Why the Federal Reserve is unique in its ability to change the money supply through monetary policy tools?
8. What actions the Federal Reserve can take to promote economic expansion? Describe how each affects credit availability, interest rates, money supply, and security prices.
9. What actions the Federal Reserve can take to contract the U.S. economy? Describe how each affects credit availability, interest rates, money supply, and security prices.
10. Why the simultaneous targeting of the money supply and interest rates is sometimes impossible to achieve?
11. The monetary policy measures taken by central banks to address the recent worldwide financial crisis?What were they?
2. Define the discount window and the discount rate. ( LG 4-2 )
9. Why did U.S. government agency securities go from nothing to being the largest asset account on the Federal Reserve’s balance sheet in the late 2000s? ( LG 4-2 )
10. What are the tools used by the Federal Reserve to implement monetary policy? ( LG 4-3 )
11. Explain how a decrease in the discount rate affects credit availability and the money supply. ( LG 4-3 )
12. Why does the Federal Reserve rarely use the discount rate to implement its monetary policy? ( LG 4-3 )
13. What changes did the Fed implement to its discount window lending policy in the early 2000s? in the late 2000s?( LG 4-3 )
14. Which of the monetary tools available to the Federal Reserve is most often used? Why? ( LG 4-3 )
16. Summarize the monetary policy measures taken by central banks to address the worldwide financial crisis. ( LG 4-5 )
1. What are the current levels for each of these interest rates?Go to the Federal Reserve Board Web site and find the latest information available on the prime rate, the three-month CD rate, the
2. Calculate the percentage change in each of these rates since July 2010.Go to the Federal Reserve Board Web site and find the latest information available on the prime rate, the three-month CD
file on your computer screen.
LG 5-1. Define money markets.
LG 5-2. Identify the major types of money market securities.
LG 5-3. Examine the process used to issue Treasury securities.
LG 5-4. List the main participants in money markets.
LG 5-5. Examine the extent to which foreign investors participate in U.S. money markets.
LG 5-6. Understand the major developments in Euro money markets.
1. What the three characteristics common to money market securities are?
2. Why it is difficult for individual investors to be involved in the initial sale of a money market security?
3. What characteristics of a discount yield prevent it from being directly compared to a bond equivalent yield?
4. How Treasury bills are first issued?
5. What federal funds are?
6. What the two types of federal funds transactions are?Describe each.
7. What securities are mainly used as collateral in repurchase agreements?
8. Why the negotiable CD market was created?
9. What the process is by which a banker’s acceptance is created?
10. Who the major money market participants are?
11. Which money market securities commercial banks issue?
12. What services brokers and dealers provide for money market participants?
13. What the major U.S. money market securities held by foreign investors are?
14. Which currencies most international money market instruments are issued in?
15. What the differences are between a Eurodollar CD and Eurocommercial paper?
16. What the relation is between the federal funds rate and the LIBOR?
2. What is the difference between a discount yield and a bond equivalent yield? Which yield is used for Treasury bill quotes? (LG 5-1)
5. Describe the T-bill auction process. (LG 5-3)
8. Describe the two types of fed funds transactions. (LG 5-2)
10. Why do commercial paper issues have an original maturity of 270 days or less? (LG 5-2)
11. Why do commercial paper issuers almost always obtain a rating of their issues? (LG 5-2)
12. What is the process through which negotiable CDs are issued? (LG 5-2)
13. Describe the process by which a banker’s acceptance is created. (LG 5-2)
14. Who are the major issuers of and investors in money market securities? (LG 5-4)
15. What are Eurodollar CDs and Eurocommercial paper? (LG 5-6)
1. What are the high, low, and median prices on the most recent issues?Go to the Bureau of Public Debt Web site at www.treasurydirect.gov and find the latest information on 13-week and 26-week
2. What is the dollar value of tendered and accepted bids for the most recent issues?Go to the Bureau of Public Debt Web site at www.treasurydirect.gov and find the latest information on 13-week and
3. What is the dollar value of noncompetitive bids on the most recent issues?Go to the Bureau of Public Debt Web site at www.treasurydirect.gov and find the latest information on 13-week and 26-week
1. By how much have the prime rate and commercial paper rate changed since June 2010?Go to the Federal Reserve Web site at www.federalreserve.gov and find the most recent information on prime versus
2. Calculate the average spread between the prime rate and the commercial paper rate over the last year. How does this compare to the spread seen in the fall of 2008?Go to the Federal Reserve Web
LG 6-1. Describe the major bond markets.
LG 6-2. Identify the characteristics of the various bond market securities.
LG 6-3. List the major bond market participants.
LG 6-4. Describe the types of securities traded in international bond markets
1. What the different classifications of bonds are? Describe each.
2. What a STRIP security is?
3. What the process is through which Treasury notes and bonds are issued in the primary markets?
4. What the difference is between a general obligation bond and a revenue bond?
5. What the difference is between a firm commitment and a bestefforts bond issue offering?
6. What the characteristics are that differentiate corporate bonds?
7. What factors are used to determine a firm’s bond issue rating?
8. Who the major purchasers of bond market securities are?
9. What events can cause yield spreads on bond securities to change?
10. The major currencies in which international bonds are denominated?
11. What group of market participants is the major issuer of international debt?
12. What Eurobonds are?
13. What sovereign bonds are?
3. What is a STRIP? Who would invest in a STRIP? ( LG 6-2 )
8. What is a convertible bond? Is a convertible bond more or less attractive to a bond holder than a nonconvertible bond? ( LG 6-2 )
9. What is a callable bond? Is a call provision more or less attractive to a bond holder than a noncallable bond?( LG 6-2 )
10. Explain the meaning of a sinking fund provision on a bond issue. ( LG 6-2 )
11. What is the difference between an investment-grade bond and a junk bond? ( LG 6-2 )
12. What is the difference between a Eurobond and a foreign bond? ( LG 6-4 )
13. What are sovereign bonds? How did sovereign bonds perform during the 2000s? ( LG 6-4 )
1. Refer to the T-note and T-bond quotes in Table 6–1 . ( LG 6-2 )What is the asking price on the 4.375 percent November 2039 T-bond if the face value of the bond is $10,000?What is the bid price
10. Refer to Table 6–7. ( LG 6-2 )What was the closing price on the Bank of America 5.625 percent coupon bonds on July 16, 2010?What was the S&P bond rating on Morgan Stanley 5.500 percent coupon
14. Using a Spreadsheet to Calculate Bond Values:What is the bond quote for a $1,000 face value bond with an 8 percent coupon rate (paid semiannually) and a required return of 7.5 percent if the bond
1. How have these values changed since 2010 as reported in Tables 6–12 and 6–13 ?Go to the Bank for International Settlements Web site at www.bis.org and find the most recent data on the issue of
2. Calculate the percentage of floating-rate, straight fixed-rate, and equity-related bonds issued in U.S. dollars and euros.Go to the Bank for International Settlements Web site at www.bis.org and
LG 7-1. Distinguish between a mortgage and a mortgage - backed security.
LG 7-2. Describe the main types of mortgages issued by financial institutions.
LG 7-3. Identify the major characteristics of a mortgage.
LG 7-4. Examine how a mortgage amortization schedule is determined.
LG 7-5. Describe some of the new innovations in mortgage financing.
LG 7-6. Define a mortgage sale.
LG 7-7. Define a pass - through security .
LG 7-8. Define a collateralized mortgage obligation.

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