Financial Markets & Institutions ECN 324

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Presentation transcript:

Financial Markets & Institutions ECN 324 PHASE 1 REVIEW [Homework Questions]

TOPICS FOR CH 1 Financial Market Overview What is the difference between [Capital] Surplus and Deficit markets What is the difference between Primary and Secondary markets? What is the difference between Money and Capital markets? What are the three main functions of financial markets?

TOPICS FOR CH 2 Interest Rates Whom demands and supplies funds in the Loanable Funds Theory? How does the supply of and demand for money [credit] impact interest rates? What causes changes in interest rates? What is the Fisher Effect and why is it important?

TOPICS FOR CH 3 Term Structure What do the following theories say about the Term Structure? Pure Expectations (forward rates) Liquidity Premium (marketability) Segmented Markets (maturity preferences) What factors should be considered when investing in bonds? How does the taxability of interest payments affect investment decisions?

TOPICS FOR CH 4 Federal Reserve System What are the principal objectives of the Federal Reserve System? How is the Federal Reserve organized? What is the function of the Federal Open Market Committee (FOMC)? What are the goals of Monetary Policy? Fiscal Policy? How do changes in Monetary Policy affect business?

TOPICS FOR CH 5 Monetary Theory & Policy What are the Keynesians’ main prescription for spurring economic growth? What are the Monetarists man prescription for sustaining economic growth? Why is velocity important to monetarists? What does the Theory of Rational Expectations say about the effectiveness of government policy initiatives? What policy tools can the Federal Reserve use to control inflation?

TOPICS FOR CH 6 Money Markets What are the 4 main types of money market instruments? Who issues commercial paper? why? How does the Repurchase (repo) agreement work? Why are Fed Funds important to financial institutions? What are Eurodollar deposits?

TOPICS FOR CH 7 Bond Markets Who issues municipals? What is their principal attraction to an investor? What are zero-coupon bonds? Why might borrowers prefer them? What are the two principal sources of risk in a bond investment? What are the two sources of risk when investing in foreign bonds?

TOPICS FOR CH 8 Bond Valuation & Risk What cash flows are associated with bond investments? What effects do interest rate increases (decreases) have on; Market values of bonds? Current yields? Yields to maturity? What does it mean when a bond sells; at par, at a discount, at a premium? How do increases in expected inflation rates affect bond yields? What is Duration? How is it used?