金融市場(chǎng)習(xí)題

1、金融市場(chǎng)習(xí)題Moralhazard:Theriskthatonepartytoatransactionwillengageinbehaviorthatisundesirablefromtheotherpartyspointofview.Yieldtomaturity:Theinterestratethatequatesthepresentvalueofpaymentsreceivedfromacreditmarketinstrumentwithitsvaluetoday.Optioncontracts:Contractsthatgivethepurchasertheoptiontobuyors

2、elltheunderlyingfinancialinstrumentataspecifiedprice,calledtheexercisepriceorstrikeprice,withinaspecificperiodoftime.Capitalmarket:Afinancialmarketinwhichlonger-termdebt(maturityofgreaterthanoneyear)andequityinstrumentsaretraded.Ifthereisadeclineininterestrates,whichwouldyouratherbeholding,long-term

3、bondsorshort-termbonds?Why?Whichtypeofbondhasthegreaterinterest-raterisk?Youwouldratherbeholdinglong-termbondsbecausetheirpricewouldincreasemorethanthepriceoftheshort-termbonds,givingthemahigherreturn.Whateffectwillasuddenincreaseinthevolatilityofgoldpriceshaveoninterestrates?Interestrateswouldrise.

4、Asuddenincreaseinpeoplesexpectationsoffuturerealestatepricestheraisesexpectedreturnonrealestaterelativetobonds,sothedemandforbondsfalls.ThedemandcurveBdshiftstotheleft,andtheequilibriuminterestraterises.Whatcharacteristicsdefinethemoneymarkets?Themoneymarketscanbecharacterizedashavingsecuritiesthatt

5、radeinoneyearorless,areoflargedenomination,andareveryliquid.Whyarefinancemarketsimportanttothehealthoftheeconomy?Becausetheychannelfundsfromthosewhodonothaveaproductiveuseforthemtothosewhodo,therebyresultinginhighereconomicefficiency.Wheninterestraterise,howmightbusinessesandconsumerschangetheirecon

6、omicbehavior?Businesseswouldcutinvestmentspendingbecausethecostoffinancingthisspendingisnowhigher,andconsumerswouldbelesslikelytopurchaseahouseoracarbecausethecostoffinancingtheirpurchaseishigher.Howcanachangeininterestratesaffecttheprofitabilityoffinancialinstitutions?Achangeininterestratesaffectst

7、hecostofacquiringfundsforfinancialinstitutionsaswellaschangestheincomeonassetssuchasloans,bothofwhichaffectprofits.Inaddition,changesininterestratesaffectthepriceofassetssuchasstockandbondsthatthefinancialinstitutionownswhichcanleadtoprofitsorlosses.Iseverybodyworseoffwheninterestratesrise?No.People

8、whoborrowtopurchaseahouseoracarareworseoffbecauseitcoststhemmoretofinancetheirpurchase;however,saversbenefitbecausetheycanearnhigherinterestratesontheirsavings.Whateffectmightafallinstockpriceshaveonbusinessinvestment?Thelowerpriceforafirmssharesmeansthatitcanraiseasmalleramountoffunds,andsoinvestme

9、ntinplantandequipmentwillfall.6.Whateffectmightariseinstockpriceshaveonconsumersdecisionstospend?Higherstockpricesmeanthatconsumerswealthishigherandsotheywillbemorelikelytoincreasetheirspending.HowdoesadeclineinthevalueofthepoundsterlingaffectBritishconsumers?ItmakesforeigngoodsmoreexpensiveandsoBri

10、tishconsumerswillbuylessforeigngoodsandmoredomesticgoods.HowdoesadeclineinthevalueofthepoundsterlingaffectAmericanbusinesses?ItmakesBritishgoodsmoreexpensiverelativetoAmericangoods.AmericabusinesseswillfinditeasiertoselltheirgoodsintheUnitedStatesandabroad,andthedemandfortheirproductswillrise.Howcan

11、changesinforeignexchangeratesaffecttheprofitabilityoffinancialinstitutions?Changesinforeignexchangerateschangethevalueofassetsheldbyfinancialandthusleadtogainsandlossesontheseassets.Alsochangesinforeignexchangeratesaffecttheprofitsmadebytradersinforeignexchangewhoworkforfinancialinstitutions.Looking

12、atFigure3.inwhatyearswouldyouhavechosentovisittheGrandCanyoninArizonaratherthantheTowerofLondon?Inthemid-tolate1970sandthelate1980sandearly1990s,thevalueofthedollarwaslow,makingtravelabroadrelativelymoreexpensive;thatwouldhavebeenagoodtimetovacationintheUnitedStatesandseetheGrandCanyon.Asthedollarsv

13、aluerosehinearlyt1980s,travelabroadbecamerelativelycheaper,makingitagoodtimetovisittheTowerofLondon.11.Whatisthebasicactivityofbanks?Whataretheotherimportantfinancialintermediariesintheeconomybesidesbanks?Savingsandloanassociations,mutualsavingsbanks,creditunions,insurancecompanies,mutualfunds,pensi

14、onfunds,andfinancecompanies.Canyouthinkofanyfinancialinnovationinthepasttenyearsthathasaffectedyoupersonally?Hasitmadeyoubetterorworseoff?Inwhatway?Answerswillvary.14.Whattypesofrisksdofinancialinstitutionsface?Theprofitabilityoffinancialinstitutionsisaffectedbychangesininterestrates,stockprices,and

15、foreignexchangerates;fluctuationsinthesevariablesexposetheseinstitutionstorisk.WhydomanagersoffinancialinstitutionscaresomuchabouttheactivitiesoftheFederalReserveSystem?BecausetheFederalReserveaffectsinterestrates,inflation,andbusinesscycles,allofwhichhaveanimportantimpactontheprofitabilityoffinanci

16、alinstitutions.WhyisashareofIBMcommonstockanassetforitsownerandaliabilityforIBM?TheshareofIBMstockisanassetforitsownerbecauseitentitlestheownertoashareoftheearningsandassetsofIBM.TheshareisaliabilityforIBMbecauseitisaclaimonitsearningsandassetsbytheowneroftheshare.2.IFIcanbuyacartodayfor$5000anditis

17、worth$10000nextyearinextraincometomebecauseitenablesmetogetajobasatravelinganvilseller,shouldItakeoutaloanfromLarrytheLoanSharkata90%interestrateifnooneelsewillgivemealoan?WillIbebetterorworseoffasaresultoftakingoutthisloan?Canyoumakeacaseforlegalizingloan-sharking?Yes,Ishouldtakeouttheloan,becauseI

18、willbebetteroffasaresultofdoingso.Myinterestpaymentwillbe$4,500(90%of$5,000),butasaresult,Iwillearnanadditional$10,000,soIwillbeaheadofthegameby$5,500.SinceLarry-ssharkingloanbusinesscanmakesomepeoplebetteroff,asinthisexample,loansharkingmayhavesocialbenefits.(Oneargumentagainstlegalizingloansharkin

19、g,however,isthatitisfrequentlyaviolentactivity.)Someeconomistssuspectthatoneofthereasonsthateconomiesindevelopingcountriesgrowsoslowlyisthattheydonothavewell-developedfinancialmarkets.Doesthisargumentmakesense?Yes,becausetheabsenceoffinancialmarketsmeansthatfundscannotbechanneledtopeoplewhohavethemo

20、stproductiveuseforthem.Entrepreneursthencannotacquirefundstosetupbusinessesthatwouldhelptheeconomygrowrapidly.InthenineteenthcenturytheU.S.economyborrowedheavilyfromtheBritishtobuildarailroadsystem.Whatwastheprincipaldebtinstrumentused?Whydidthismakebothcountriesbetteroff?Theprincipaldebtinstruments

21、usedwereforeignbondswhichweresoldinBritainanddenominatedinpounds.TheBritishgainedbecausetheywereabletoearnhigherinterestratesasaresultoflendingtoAmericans,whiletheAmericansgainedbecausetheynowhadaccesstocapitaltostartupprofitablebusinessessuchasrailroads.“Becausecorporationsdonotactuallyraiseanyfund

22、sinsecondarymarkets,theyarelessimportanttotheeconomythanprimarymarkets.”Comment.Thisstatementisfalse.Pricesinsecondarymarketsdeterminethepricesthatfirmsissuingsecuritiesreceiveinprimarymarkets.Inaddition,secondarymarketsmakesecuritiesmoreliquidandthuseasiertosellintheprimarymarkets.Therefore,seconda

23、rymarketsare,ifanything,moreimportantthanprimarymarkets.Ifyoususpectthatacompanywillgobankruptnextyear,whichwouldyouratherhold-bondsissuedbythecompanyorequitiesissuedbythecompany?Why?Youwouldratherholdbonds,becausebondholdersarepaidoffbeforeequityholders,whoaretheresidualclaimants.Howcantheadversese

24、lectionproblemexplainwhyyouaremorelikelytomakealoantoafamilymemberthantoastranger?Becauseyouknowyourfamilymemberbetterthanastranger,youknowmoreabouttheborrowershonesty,propensityforrisktaking,andothertraits.Thereislessasymmetricinformationthanwithastrangerandlesslikelihoodofanadverseselectionproblem

25、,withtheresultthatyouaremorelikelytolendtothefamilymember.Thinkofoneexampleinwhichyouhavehadtodealwiththeadverseselectionproblem.Whydoloansharksworrylessaboutmoralhazardinconnectionwiththeirborrowersthansomeotherlendersdo?Loansharkscanthreatentheirborrowerswithbodilyharmifborrowerstakeactionsthatmig

26、htjeopardizepayingofftheloan.Henceborrowersfromaloansharkarelesslikelytoengageinmoralhazard.Ifyouareanemployer,whatkindsofmoralhazardproblemsmightyouworryaboutwithyouremployees?Theymightnotworkhardenoughwhileyouarenotlookingormaystealorcommitfraud.11.Iftherewerenoasymmetryintheinformationthataborrow

27、andalenderhad,couldtherestillbemoralhazardproblem?Yes,becauseevenifyouknowthataborroweristakingactionsthatmightjeopardizepayingofftheloan,youmuststillstoptheborrowerfromdoingso.Becausethatmaybecostly,youmaynotspendthetimeandefforttoreducemoralhazard,andsomoralhazardremainsaproblem.12.“Inaworldwithou

28、tinformationandtransactioncosts,financialintermediarieswouldnotexist.”Isthisstatementtrue,false,oruncertain?Explainyouranswer.True.Iftherearenoinformationortransactionscosts,peoplecouldmakeloanstoeachotheratnocostandwouldthushavenoneedforfinancialintermediaries.Whymightyoubewillingtomakealoantoyourn

29、eighborbyputtingfundsinasavingsaccountearninga5%interestrateatthebankandhavingthebankloanherthefundsata10%interestrate,ratherthanloanherthefundsyourself?Becausethecostsofmakingtheloantoyourneighborarehigh(legalfees,feesforacreditcheck,andsoon),youwillprobablynotbeabletoearn5%ontheloanafteryourexpens

30、eseventhoughithasa10%interestrate.Youarebetteroffdepositingyoursavingswithafinancialintermediaryandearning5%interest.Inaddition,youarelikelytobearlessriskbydepositingyoursavingsatthebankratherthanlendingthemtoyourneighbor.14.Howdoesrisksharingbenefitbothfinancialintermediariesandprivateinvestors?Ris

31、ksharingenablingthemtoearnaprofitonthespreadbetweenthereturnstheyearnonriskyassetsandthepaymentstheymakeontheassetstheyhavesold,andhelpingindividualstodiversifyandtherebylowertheamountofrisktowhichtheyareexposed。Discusssomeofthemanifestationsoftheglobalizationofworldcapitalmarkets.Increaseddiscussio

32、nofforeignfinancialmarketsintheU.S.pressandthegrowthinmarketsforinternationalfinancialinstrumentssuchasEurodollarsandEurobonds.Writedowntheformulathatisusedtocalculatetheyieldtomaturityona20-year10%couponbondwith$1000facevaluethatsellsfor$2000.$2000=$100/(1+i)+$100/(1+i)2+.+$100/(1+i)20+$1000/(1+i)2

33、0.Ifthereisadeclineininterestrates,whichwouldyouratherbeholding,long-termbondsorshort-termbonds?Why?Whichtypeofbondhasthegreaterinterest-raterisk?Youwouldratherbeholdinglong-termbondsbecausetheirpricewouldincreasemorethanthepriceoftheshort-termbonds,givingthemahigherreturn.3.Afinancialadviserhasjust

34、givenyouthefollowingadvice:“Long-termbondsareagreatinvestmentbecausetheirinterestrateisover20%.”Isthefinancialadvisernecessarilyright?No.Ifinterestratesrisesharplyinthefuture,long-termbondsmaysuffersuchasharpfallinpricethattheirreturnmightbequitelow,possiblyevennegative.Ifmortgageratesrisefrom5%to10

35、%buttheexpectedrateofincreaseinhousingpricesfrom2%to9%,arepeoplemoreorlesslikelytobuyhouse?Peoplearemorelikelytobuyhousesbecausetherealinterestratewhenpurchasingahousehasfallenfrom3percent(=5percent2percent)to1percent(=10percent9percent).Therealcostoffinancingthehouseisthuslower,eventhoughmortgagera

36、teshaverisen.(Ifthetaxdeductibilityofinterestpaymentsisallowedfor,thenitbecomesevenmorelikelythatpeoplewillbuyhouses.)1.ExplainwhyyouwouldbemoreorlesswillingtobuyashareofPolaroidstockinthefollowingsituations:Yourwealthfalls.Youexpectittoappreciateinvalue.Thebondmarketbecomesmoreliquid.Youexpectgoldt

37、oappreciateinvalue.Pricesinthebondmarketbecomemorevolatile.(a)Less,becauseyourwealthhasdeclined;more,becauseitsrelativeexpectedreturnhasrisen;less,becauseithasbecomelessliquidrelativetobonds;less,becauseitsexpectedreturnhasfallenrelativetogold;more,becauseithasbecomelessriskyrelativetobonds.Explainw

38、hyyouwouldbemoreorlesswillingtobuyahouseunderthefollowingcircumstances:Youjustinherited%100,000.Realestatecommissionsfallfrom6%ofthesalespriceto4%ofthesalesprice.YouexpectPolaroidstocktodoubleinvaluenextyear.Pricesinthestockmarketbecomemorevolatile.Youexpecthousingpricestofall.More,becauseyourwealth

39、hasincreased;more,becauseithasbecomemoreliquid;less,becauseitsexpectedreturnhasfallenrelativetoPolaroidstock;more,becauseithasbecomelessriskyrelativetostocks;less,becauseitsexpectedreturnhasfallen.3.“Themorerisk-aversepeopleare,themorelikelytheyaretodiversify.”Isthisstatementtrue,false,oruncertain?E

40、xplainyouranswer.True,becausethebenefitstodiversificationaregreaterforapersonwhocaresmoreaboutreducingrisk.4.Iownaprofessionalfootballteam,andIplantodiversifybypurchasingsharesineitheracompanythatownsaprobasketballteamorapharmaceuticalcompany.Whichofthesetwoinvestmentsismorelikelytoreducetheoverallr

41、iskIface?Why?Purchasingsharesinthepharmaceuticalcompanyismorelikelytoreducemyoverallriskbecausethecorrelationofreturnsonmyinvestmentinafootballteamwiththereturnsonthepharmaceuticalcompanysharesshouldbelow.Bycontrast,thecorrelationofreturnsonaninvestmentinafootballteamandaninvestmentinabasketballteam

42、areprobablyprettyhigh,sointhiscasetherewouldbelittleriskreductionifIinvestedinboth.“Noonewhoisrisk-aversewilleverbuyasecuritythathasalowerexpectedreturn,morerisk,andlessliquiditythananothersecurity.”Isthisstatementtrue,false,oruncertain?Explainyouranswer.True,becauseforariskaverseperson,morerisk,alo

43、werexpectedreturnandlessliquiditymakeasecuritylessdesirable.AnimportantwayinwhichtheFederalReservedecreasesthemoneysupplyisbysellingbondstothepublic.Usingasupplyanddemandanalysisforbonds,showwhateffectthisactionhasoninterestrates.WhentheFedsellsbondstothepublic,itincreasesthesupplyofbonds,thusshifti

44、ngthesupplycurveBstotheright.TheresultisthattheintersectionofthesupplyanddemandcurvesBsandBdoccursatahigherequilibriuminterestrate,andtheinterestraterises.Withtheliquiditypreferenceramework,thedecreaseinthemoneysupplyshiftsthemoneysupplycurveMstotheleft,andtheequilibriuminterestraterises.Theanswerfr

45、omtheloanablefundsframeworkisconsistentwiththeanswerfromtheliquiditypreferenceframework.Usingthesupplyanddemandforbondsframework,showwhyinterestratesareprocyclical(risingwhentheeconomyisexpandingandfallingduringrecessions).Whentheeconomybooms,thedemandforbondsincreases:thepublicsincomeandwealthrises

46、whilethesupplyofbondsalsoincreases,becausefirmshavemoreattractiveinvestmentopportunities.Boththesupplyanddemandcurves(BdandBs)shifttotheright,butasisindicatedinthetext,thedemandcurveprobablyshiftslessthanthesupplycurvesotheequilibriuminterestraterises.Similarly,whentheeconomyentersarecession,boththe

47、supplyanddemandcurvesshifttotheleft,butthedemandcurveshiftslessthanthesupplycurvesothattheinterestratefalls.Theconclusionishatinterestratesriseduringboomsandfallduringrecessions:thatis,interestratesareprocyclicalWhyshouldariseinthepricelevel(butnotinexpectedinflation)causeinterestratestotisewhenthen

48、ominalmoneysupplyisfixed?Whenthepricelevelrises,thequantityofmoneyinrealtermsfalls(holdingthenominalsupplyofmoneyconstant);torestoretheirholdingsofmoneyinrealtermstotheirformerlevel,peoplewillwanttoholdagreaternominalquantityofmoney.ThusthemoneydemandcurveMdshiftstotheright,andtheinterestraterises.F

49、indthe“CreditMarkets”columnintheWallStreetJournal.Underlinethecolumnthatexplainbondpricemovements,anddrawtheappropriatesupplyanddemanddiagramsthatsupportthesestatements.Interestratesfall.Theincreasedvolatilityofgoldpricesmakesbondsrelativelylessriskyrelativetogoldandcausesthedemandforbondstoincrease

50、.Thedemandcurve,Bd,shiftstotherightandtheequilibriuminterestratefalls.10.Whateffectwillasuddenincreaseinthevolatilityofgoldpriceshaveoninterestrates?Interestrateswouldrise.Asuddenincreaseinpeoplesexpectationsoffuturerealestatepricestheraisesexpectedreturnonrealestaterelativetobonds,sothedemandforbon

51、dsfalls.ThedemandcurveBdshiftstotheleft,andtheequilibriuminterestraterises.Howmightasuddenincreaseinpeoplesexpectationsoffuturerealestatepriceaffectinterestrates?Interestratesmightrise.ThelargefederaldeficitsrequiretheTreasurytoissuemorebonds;thusthesupplyofbondsincreases.Thesupplycurve,Bs,shiftstot

52、herightandtheequilibriuminterestraterises.SomeeconomistsbelievethatwhentheTreasuryissuesmorebonds,thedemandforbondsincreasesbecausetheissueofbondsincreasesthepublicswealth.Inthiscase,thedemandcurve,alsoBd,shiftstotheright,anditisnolongerclearthattheequilibriuminterestratewillrise.Thusthereissomeambi

53、guityintheanswertothisquestion.12.Explainwhateffectalargefederaldeficitmighthaveoninterestrates.Theincreasedriskinessofbondslowersthedemandforbonds.Thedemandcurveshiftstotheleftandtheequilibriuminterestraterises.13.Usingasupplyanddemandanalysisforbonds,showwhattheeffectisoninterestrateswhentheriskin

54、essofbondsrises.Intheloanablefundsframework,theincreasedriskinessofbondslowersthedemandforbonds.ThedemandcurveBdshiftstotheleft,andtheequilibriuminterestraterises.Thesameanswerisfoundintheliquiditypreferenceframework.Theincreasedriskinessofbondsrelativetomoneyincreasesthedemandformoney.Themoneydeman

55、dcurveMdshiftstotheright,andtheequilibriuminterestraterises.Willtherebeaneffectoninterestratesifbrokeragecommissionsonstocksfall?Explainyouranswer.Yes,interestrateswillrise.Thelowercommissiononstocksmakesthemmoreliquidthanbonds,andthedemandforbondswillfall.ThedemandcurveBdwillthereforeshifttotheleft

56、,andtheequilibriuminterestratewillrise.Whydoesalowerstrikepriceimplythatacalloptionwillhaveahigherpremiumandaputoptionalowerpremium?Becauseforanygivenpriceatexpiration,alowerstrikepricemeansahigherprofitforacalloptionandalowerprofitforaputoption.Alowerstrikepricemakesacalloptionmoredesirableandraise

57、sitspremiumandmakesaputoptionlessdesirableandlowersitspremium.Ifthefinancecompanyyoumanagehasagapof+$5million(rate-sensitiveassetsgreaterthanrate-sensitiveliabilitiesby$5million),describeaninterest-rateswapthatwouldeliminatethecompanysincomegap.Itwouldswapintereston$5millionofvariable-rateassetsfort

58、heintereston$5millionoffixed-rateassets,therebyeliminatingitsincomeGAP.1.Whatcharacteristicsdefinethemoneymarkets?Themoneymarketscanbecharacterizedashavingsecuritiesthattradeinoneyearorless,areoflargedenomination,andareveryliquid.IsaTreasurybondissued29yearsagowithsixmonthsremainingbeforeitmaturesam

59、oneymarketinstrument?Moneymarketsecuritieshaveanoriginalmaturityoflessthanoneyear,sothebondwouldnotbeconsideredamoneymarketsecurity.3.Whydobanksnoteliminatetheneedformoneymarkets?Bankshavehighercoststhanthemoneymarketowingtotheneedtomaintainreserverequirements.Thelowercoststructureofthemoneymarkets,

60、coupledwiththeeconomiesofscaleresultingfromhighvolumeandlarge-denominationsecurities,allowsforhigherinterestrates.4.Distinguishbetweenatermsecurityandademandsecurity.Termsecuritieshaveaspecificmaturitydate.Demandsecuritiescanberedeemedatanytime.Asixmonthcertificateofdepositisatermsecurity.Acheckinga