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Financial instruments are different from money because they can act as a store of value and money cannot. can't be a means of payment but
- Financial instruments are different from money because they
- can act as a store of value and money cannot.
- can't be a means of payment but money can.
- can allow for the transfer of risk.
- have greater liquidity.
- Considering the value of a financial instrument, the circumstances under which the payment is to be made influence the value because
- we like uncertain payoffs because this adds to the return.
- payments that are made when we need them the most are more valuable.
- the sooner the payment is to be made the better.
- we know when certain events are going to occur and that is when we want the payment.
- Bond rating agencies rate bonds based on characteristics of the borrower. These agencies are an example of a financial market response designed to
- increase information asymmetry.
- decrease the real return to bondholders.
- provide a lower cost solution to the high cost of information.
- transfer risk from the buyer to the rating agency.
- Financial instruments can transfer
- neither resources nor risk between people.
- resources between people but not risk.
- both resources and risk between people.
- risk but not resources between people.
- In comparing money to a U.S. Treasury bond held by an individual,
- the Treasury bond is an asset but money is not.
- money is an asset but the U.S. Treasury bond is a liability of the individual.
- both are stores of value.
- money is a store of value but the U.S. Treasury bond is not.
- The Consumer Price Index (CPI)
- is calculated using a basket of goods and services adjusted annually by government statisticians.
- answers the question, "How much more does it cost today to buy the same basket of goods and services that were purchased at some fixed time in the past?"
- does not suffer from substitution bias because the basket used to measure prices changes every year.
- understates the impact of price changes.
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