Help please,

Questions and Applications Page 20

1. Surplus and Deficit Units Explain the meaning of surplus units and deficit units. Provide an example of each. Which types of financial institutions do you deal with? Explain whether you are acting as a surplus unit or a deficit unit in your relationship with each financial institution.

2. Types of Markets Distinguish between primary and secondary markets. Distinguish between money and capital markets.

Primary markets are used to issue new securities and secondary markets are used for trading existing securities. Money markets are short-term and capital markets are used for long-term in the facilitating trading.

3. Imperfect Markets Distinguish between perfect and imperfect security markets. Explain why the existence of imperfect markets creates a need for financial intermediaries.

4. Efficient Markets Explain the meaning of efficient markets. Why might we expect markets to be efficient most of the time? In recent years, several securities firms have been guilty of using inside information when purchasing securities, thereby achieving returns well above the norm (even when accounting for risk). Does this suggest that the security markets are not efficient? Explain.

5. Securities Laws What was the purpose of the Securities Act of 1933? What was the purpose of the Securities Exchange Act of 1934? Do these laws prevent investors from making poor investment decisions? Explain.

9. Standardized Securities Why do you think securities are commonly standardized? Explain why some financial flows of funds cannot occur through the sale of standardized securities. If securities were not standardized, how would this affect the volume of financial transactions conducted by brokers?

11. Depository Institutions Explain the primary use of funds by commercial banks versus savings institutions.

14. Mutual Funds What is the function of a mutual fund? Why are mutual funds popular among investors? How does a money market mutual fund differ from a stock or bond mutual fund?

Page 71

7. Forward Rate

a. Determine the forward rate for various one-year interest rate scenarios if the two-year interest rate is 8 percent, assuming no liquidity premium. Explain the relationship between the one-year interest rate and the one-year forward rate while holding the two-year interest rate constant.

b. Determine the one-year forward rate for the same one-year interest rate scenarios described in question (a) while assuming a liquidity premium of 0.4 percent. Does the relationship between the one-year interest rate and the forward rate change when considering the liquidity premium is considered?

c. Determine how the one-year forward rate would be affected if the quoted two-year interest rate rises; hold constant the quoted one-year interest rate as well as the liquidity premium. Explain the logic of this relationship.

d. Determine how the one-year forward rate would be affected if the liquidity premium rises and if the quoted one-year interest rate is held constant. What if the quoted two-year interest rate is held constant? Explain the logic of this relationship.

9. Debt Security Yield

a. Determine how the appropriate yield to be offered on a security is affected by a higher risk-free rate. Explain the logic of this relationship.

b. Determine how the appropriate yield to be offered on a security is affected by a higher default risk premium. Explain the logic of this relationship.

Pages 93 94

1. The Fed Briefly describe the origin of the Federal Reserve System. Describe the functions of the Fed district banks.

2. FOMC What are the main goals of the Federal Open Market Committee (FOMC)? How does it attempt to achieve these goals?

3. Open Market Operations Explain how the Fed increases the money supply through open market operations.

7. Control of Money Supply Describe the characteristics that a measure of money should have if it is to be manipulated by the Fed.

9. Open Market Operations Explain how the Fed can use open market operations to reduce the money supply.

11. Discount Window Lending during Credit Crisis Explain how and why the Fed extended its discount window lending to nonbank financial institutions during the credit crisis.

13. Bailouts by the Fed Do you think that the Fed should have bailed out large financial institutions during the credit crisis?

18. Fed Facility Programs during the Credit Crisis Explain how the Fed's facility programs improved liquidity in some debt markets.

Textbook Reference:

Madura, Jeff (2012). Financial Markets & Institutions (10th ed.). United States: South-Western, Cengage Learning. ISBN: 9781285204291

This is checked for plagiarism.

Thanks