EC 370 Money and Banking assignment

EC 370 Money and Banking assignment

Instructions/Descriptions

EC 370 Money and Banking assignment

EC 370 Money and Banking                                                                                         Summer 2019

MTWR 14:30-15:50, MCK 240C                                                                                               GE: Hoa Duong

Lecture 1-3 STUDY GUIDE

Lecture 1

Definition of GDP: meaning of key words. What goods are counted to GDP? What are not? Know how to calculate GDP deflator and inflation from the GDP deflator

Definition of Business Cycle: expansion phase and contraction phase or recession

Investment options: an MCQ question on which investment option is most profitable to you

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Lecture 2

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Financial markets role and importance: channeling funds, increasing economic efficiency

Interest rates are rental rates of funds: cost to borrowers but gain to lenders. Higher interest rate encourages agents to save and discourage agents to borrow.

Interest rates influence GDP in two ways: capital investment of firms e.g. machinery, and spending on durable goods of households e.g. housing, car, etc.

Direct/indirect finance: indirect finance involves financial intermediaries. Examples?

Debt/equity markets: two ways a corporation can raise funds from financial markets. Debt instruments come in a variety of short to long-term, but equity is only long term

Bonds/stocks differ by priority of claimant, periodic payment, maturity, and other benefits. When someone would prefer bonds to stocks? Stocks to bonds?

Primary/secondary markets: investment banks underwrite newly issued securities in primary markets, brokers and dealers facilitate trading in secondary market. Firms only raise funds from primary market, but secondary market is no less important. Why?

Money/capital markets: instruments in money market is short-term. Most liquid asset on money market: US T-bill, on capital market: US T-bond. Definition of federal funds.

Information asymmetry: Moral hazard (occuring after transaction) and adverse selection (before transaction). How financial intermediaries reduce these problems?

Assets and liabilities of depository institution, insurance companies, pension funds

Main roles of the Federal Reserves, SEC, FDIC: Fed set reserve requirement and fed funds rate, SEC prevents insider trading, FDIC provides deposit insurance

Lecture 3

Money: Three functions of money. Which one is unique to money? Which not? What is the disadvantage of money over other assets?

Criteria for a commodity to function as money, two conditions for a fiat money to be accepted, definition of legal tender. Is check a legal tender?

Liquidity concept definition. Rank asset by liquidity level “>>” denoting higher liquidity

General rule: Money >> Financial assets >> Real or physical assets

Money: M1 (currency, checking accounts) >> M2 (savings, time deposit)

Financial assets: short-term >> long-term, safe >> risky

Real or physical assets: movable >> immovable

Measure of money stock: Venn diagram of M1 and M2, how M1 and M2 change (increase or decrease) following an action

EC 370 Money and Banking assignment

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