12 May WHAT ARE SOME OF THE POTENTIAL CONFLICTS BETWEEN GOALS OF MONETARY POLICY? EXPLAIN.
What is the purpose of bank examinations? How do they differ from that of a CPA audit?
Discussion Question # 2
1. Explain why the FOMC is the key policy group within the Fed.
2. A bank has $3,000 in reserves, $9,000 in bank loans, and $12,000 of deposits. If the reserve requirement is 20% what is the bank’s reserve position? What is the maximum dollar amount of loans the bank could make? What would happen to the nation’s money supply if the Fed lowered the reserve requirement to 10 percent? Demonstrate your results with numerical examples and T-accounts.
Assuming reserve requirements apply to all the bank’s deposits, its $3,000 of reserves comprise required reserves of $2,400 (20% of total deposits of $12,000) and excess reserves of $600 (total reserves of $3,000 less required reserves of $2,400):
3. Explain how the Fed changes the money supply with an open market purchase of Treasury securities.
4. What are some of the potential conflicts between goals of monetary policy? Explain.
5. Bank regulation is considered to be in the public interest. Thus, the more regulation the better. Explain why you agree or disagree with this statement.
6. How do failing bank resolution policies differ between large and small banks? Why the difference?
7. How can an effective lender of last resort prevent financial panics from developing? Why was the Fed unable to prevent the great depression of the 1930’s?
Assignment (Individual) – The Role of Financial Institutions in Financial Markets Paper
WEEK 3
Discussion Question # 1
1. What are the major business activities of investment banks?
2. Why do commercial banks want to get into investment banking?
3. Explain why underwriting new securities issues can be a risky business.
4. What is a private placement? How does it differ from a deal underwritten by an investment bank?
5. In what ways do some security dealers and stockbrokers serve as financial intermediaries?
6. What is venture capital? What types of companies seek venture capital?
7. What are the differences between M1, M2, and MZM? Why are there different measures of money?
Discussion Question # 2
1. What is the essential difference between the Keynesian and the Monetarist view of how money affects the economy?
2. What are technical factors? How do they affect the implementation of monetary policy?
3. According to the law of large numbers, as the number of insureds increases, risk is reduced. However, as an insurance company writes more policies, it exposes itself to the potential for greater insured losses, which is riskier. Explain this apparent contradiction.
4. To what extent do (1) the risk of unemployment and (2) the risk of war satisfy the requirements of private insurance risks?
5. What are the primary sources of insurance regulation? What are the areas that are regulated?
6. Why are annuities and life insurance often described as opposites? If they are opposites, why do insurance companies marketing life insurance also commonly market life annuities?
7. Differentiate between defined benefit and defined contribution pension plans. Who bears the investment risk under each of these alternatives? Which type of plan is easier to fund and manage?
Assignment (Individual) – Federal Reserve Paper
Assignment (Team) – Financial Characteristics Paper
WEEK 4
Discussion Question # 1
1. What are the characteristics of money market instruments? Why must a financial claim possess these characteristics to function as a money market instrument?
2. What types of firms issue commercial paper? What are the characteristics critical to being able to issue commercial paper?
3. If a bond dealer bought a $100,000 municipal bond at 90% of par and sold it at 93% of par, how much money did the dealer make on the bid-ask spread?
4. Explain how securities are brought to market under (a) a competitive sale and (b) a negotiated sale. How do the two methods of sale differ?
5. Define the following terms as they relate to secondary markets: depth, breadth, and resiliency.
6. Briefly describe the role of the NYSE specialists. How does this role differ from that of a dealer?
7. Lance Garrison and Jennifer Stock have both decided to buy 100 shares of WWW.COM, a hot Internet stock. The market price is $240 per share when Lance places a market order and Jennifer places a limit order at $230 per share. One week later, the price of WWW.com is $305 per share after having increased steadily since Lance and Jennifer placed their orders. How much profit has Lance made? How much profit has Jennifer made?
Discussion Question # 2
1. Explain how repurchase agreement transactions provide short-term investments to businesses. In what sense is a repo a collateralized loan?
2. If a trust is established to securitize $100 million in auto loans that paid 13% interest and the average rate paid on the tranches issued was 10%, whereas financial guarantees to protect against default on the loans cost 1.5%, how much money would the creator of the trust have available to pay for loan servicing and profits if the financial guarantee was purchased?
3. What features make municipal bonds attractive to certain groups of investors? Why do other investors not want to hold municipal securities?
4. Describe the different forms of financial guarantees seen in the bond market.
5. Describe the major differences between common stock and preferred stock.
6. List and explain the factors affecting underwriter spreads.
7. Explain the difference between systematic and unsystematic risk. Explain how beta captures systematic risk.
Assignment (Individual) – Financial Transaction Risks
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