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ECON 2035 : Econ Test 1

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azuremammoth471
15 Mar 2019
School
LSU
Department
Economics
Course
ECON 2035
Professor
All

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Document Summary

Special attention should be given on the bond market, determinants of demand and supply of bond market and equilibrium bond price and interest rates. Direct- funds transferred from lenders to borrowers directly by sale of securities in the financial market. Ex a corporation issues new shares of stock, people buy shares of common stock in the primary markets. Indirect finance- the funds are channeled from lenders to borrow through financial intermediaries such as banks and credit unions. Ex when you make a deposit at a bank, you buy shares in a mutual fund. In the bond market, the bond demanders are the lenders and the bond suppliers are the. Financial markets important; promotes economic activity, efficiently, and wellbeing of consumers. Money market-short term, less risky, least price locations. Fed fund (overnight loans made by banks to one another out of their deposits at the.

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Related Questions

part 1

1. Why are bond markets important?

2. Why are stock markets important?

3. Why are banks important?

4. What aspects of the economy are affected by the money supply?

5. What are the four phases of a business cycle? How does money supply affect business

cycles?

6. What is the relationship between money supply growth and inflation?

7. What is monetary policy? What is fiscal policy?

8. What is the foreign exchange market?

9. How does an appreciation of a currency affect the economy?

10. How does a depreciation of a currency affect an economy?

part 2

1. What are the two components of a financial system? What is direct finance? Indirect

finance?

2. What is the role of financial markets?

3. Explain the following classifications of financial markets

a. Debt and. equity markets

b. Primary and secondary markets

c. Exchanges and over-the-counter markets

d. Money and capital markets

4. List and briefly explain each money market instrument.

5. List the capital market instruments.

6. Explain why financial intermediaries play an important role in the economy (address the

following: transactions costs, risk sharing, information costs, and economies of scope).

7. What is asymmetric information? What are the two problems that arise when there is

asymmetric information in the financial system?

8. Explain the adverse selection and moral hazard problems that are a result of asymmetric

information.

9. What are the different types of financial intermediaries in the U.S. economy?

10. Which financial intermediaries are classified as depository institutions (or banks)?

11. What are the two main reasons why the government regulates the financial system?

12. What are the different types of financial regulations implemented by the government in

the U.S.?


Categorize each transaction below according to whether it: (1) relies on financial markets (direct finance) or financial intermediaries (indirect finance), AND, (2) occurs in the primary or secondary market, AND, (3) is carried out in the money or capital market.

(a) Commerce Bank makes a 15-year loan to a real estate developer.

(b) XYZ Corporation opens for business by selling shares of common stock to 10 private investors.

(c) One of the investors in XYZ Corporation sells her shares to someone else on Nasdaq.

(d) A mutual fund manager purchases $100,000 of three-month Treasury bills from a commercial bank

(e) A mutual fund manager purchases $100,000 of commercial paper issued by Lehman Brothers.

Categorize each transaction below according to whether it: (1) relies on financial markets (direct finance) or financial intermediaries (indirect finance), AND, (2) occurs in the primary or secondary market, AND, (3) is carried out in the money or capital market.

(a) Commerce Bank makes a 15-year loan to a real estate developer.
(b) XYZ Corporation opens for business by selling shares of common stock to 10 private investors.
(c) One of the investors in XYZ Corporation sells her shares to someone else on Nasdaq. (d) A mutual fund manager purchases $100,000 of three-month Treasury bills from a commercial bank
(e) A mutual fund manager purchases $100,000 of commercial paper issued by Lehman Brothers.