货币银行学章节知识点及问题答案

货币银行学章节知识点及问题答案

Chapter 1 Why Study Money, Banking ,and Financial Markets? 1.Financial markets: markets in which funds are transferred from people who have

an excess of available funds Lo people who have a shortage.

2.Interest rate: an interest rate is the cost of borrowing or the price paid for the

rental of funds

3.Stock :A common stock (typically just called a stock) represents a share of

ownership in a corporation.

4.Money : Money is defined as anything that is generally accepted in payment for

goods or services or in the repayment of debts.

5.Foreign exchange market :The foreign exchange market is where this conversion

takes place, so it is instrumental in moving funds between countries.

6.Foreign exchange rate :the price of one country's currency in terms of another's. Questions and answers

Num.1:Why study money ,banking and financial markets?

A: 1.To examine how financial markets such as bond ,stock and foreign exchange markets work.

2.To examine how financial institutions such as banks and insurance companies work.

3.To examine the role of money in the economy.

Num.2:What is the banking and financial institution?

A: 1. financial intermediaries, institutions that borrow funds from people who have saved and in turn make loans to others.

2.Banks are financial institutions that accept deposits and make loans.

3.Other financial institutions—insurance companies, finance companies, pension funds, mutual funds and investment banks.

Num.3:How we will study money ,banking and financial markets?

A: 1. Exploring the Web

2.Collecting and Graphing Data.

Chapter 2 An overview of the Financial System

1.Capital(资本) : wealth, either financial or physical, that is employed to produce

more wealth.

2.Primary market : A primary market is a financial market in which new issues of a

security, such as a bond or a stock, are sold to initial buyers by the corporation or government agency borrowing the funds.

3.Secondary market: A secondary market is a financial market in which

securities that have been previously issued can be resold.

4.Exchanges (证券交易所):where buyers and sellers of securities (or their agents

or brokers) meet in one central location to conduct trades.

5.Capital market : The capital market is the market in which longer-term debt and

equity instruments are traded.

Questions and answers

Num.1:How couldSecondary markets be organized?

A: Secondary markets can be organized in two ways. One method is to organize exchanges, where buyers and sellers of securities (or their agents or brokers) meet in one central location to conduct trades.

The other method of organizing a secondary market is to have an over-the-counter (OTC) market.

Num.2:How to distinguish between money and capital market?

A:Money market securities are usually more widely traded than longer-term securities and so tend to be more liquid.short-term securities have smaller fluctuations in prices than long-term securities, making them safer investments. As a result, corporations and banks actively use the money market to earn interest on surplus funds that they expect to have only temporarily. Capital market securities, such as stocks and long-term bonds, are often held by financial intermediaries such as insurance companies and pension funds, which have little uncertainty about the amount of funds they will have available in the future.

Num. 3:What’s the International Bond Market, Eurobonds, and Eurocurrencies?

A:The traditional instruments in the international bond market are known as foreign bonds. Foreign bonds are sold in a foreign country and are denominated in that country's currency.

The Eurobond is a bond denominated in a currency other than that of the country in which it is sold.

Eurocurrencies, which are foreign currencies deposited in banks outside the home country. The most important of the Eurocurrencies are Eurodollars.

Chapter 3 What Is Money?

1.Wealth: The total collection of pieces of property that serve to store value.

2.Income :Income is a flow of earnings per unit of Lime.

3.Medium of exchange :promotes economic efficiency by minimizing the time

spent in exchanging goods and services.

4.Store of value : It is a repository of purchasing power over time. A store of value

is used to save purchasing power from the time income is received until the time it is spent.

5.Electronic money (or e-money):money that exists only in electronic form.

6.Ml : which includes the most liquid assets: currency, checking account deposits,

and travelers checks.

Questions and answers

Num.1:Example the evolution of the Payments System.

A:Commodity Money

Fiat Money

Checks

Electronic Payment

E-Money

Num.2:Explain M1 and M2.

A:The narrowest measure of money that the Fed reports is Ml, which includes the most liquid assets: currency, checking account deposits, and traveler’s

checks.

The M2 monetary aggregate adds to M l other assets that are not quite as

liquid as those included in M l: assets that have check-writing features

(money market deposit accounts and money market mutual fund shares)

and other assets (savings deposits and small-denomination time deposits)

that can be turned into cash quickly at very little cost.

Num.3:What the function of money?

A:1.Medium of Exchange

In almost all market transactions in our economy, money in the form of

currency or checks is a medium of exchange; it is used to pay for goods

and services. The use of money as a medium of exchange promotes

economic efficiency by minimizing the time spent in exchanging goods

and services.

2. Unit of Account

Unit of account, that is, it is used to measure value in the economy. We

measure the value of goods and services in terms of money, just as we

measure weight in terms of pounds or distance in terms of miles.

3.Store of Value

Store of value it is a repository of purchasing power over time. A store of

value is used to save purchasing power from the time income is received

until the time it is spent. This function of money is useful, because most

of us do not want to spend our income immediately upon receiving it,

but rather prefer to wait until we have the time or the desire to shop.

Chapter 4 Understanding Interest Rates

1.Present value (or Present discounted value): a dollar paid to you one year from

now is less valuable to you than a dollar paid to you today.

2.Yield to Maturity(到期收益率)：the interest rate that equates the present value

of cash flow payments received from a debt instrument with its value today.

3.Coupon bond(息票债券)：A coupon bond pays the owner of the bond a fixed

interest payment every year until the maturity date, when a specified final amount is repaid.

4.Consol(有蓄) or perpetuity（永久债券）:it is a perpetual bond with no maturity

date and no repayment of principal that makes fixed coupon payments of $C forever.

5.Nominal interest rate :The interest rate makes no allowance for inflation

6.Real interest rate: The interest rate that is adjusted by subtracting expected

changes in the price level (inflation) so that it more accurately reflects the true cost of borrowing.

Questions and answers

Num.1:Distinguish between Fixed-Payment and Coupon Bond.

A:1)When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate.

2) The price of a coupon bond and the yield to maturity are negatively

related; that is, as the yield to maturity rises, the price of the bond falls As the yield to maturity falls, the price of the bond rises.

3) The yield to maturity is greater than the coupon rate when the bond price

is below its face value.

Num.2:The distinction between real and nominal interest rates.

A:The interest rate makes no allowance for inflation, and it is more precisely referred to as the nominal interest rate. We distinguish it from the real interest rate, the interest rate that is adjusted by subtracting expected changes in the price level (inflation) so that it more accurately reflects the true cost of borrowing. This interest rate is more precisely referred to as the ex ante real interest rate because it is adjusted for expected changes in the price level. The ex ante real interest rate that is most important to economic decisions, and typically it is what economists mean when they make reference to the "real" interest rate.

ir=i-π

i = nominal interest rate

π= expected inflation rate

Num.3: The distinction between interest rates and returns

A: the return on a bond will not necessarily equal the yield to maturity on that bond.

RET=i + g

●The only bond whose return equals the initial yield to maturity is one

whose time to maturity is the same as the holding period

● A rise in interest rates is associated with a fall in bond prices, resulting in

capital losses on bonds whose terms to maturity are longer than the

holding period.

●The more distant a bond's maturity, the greater the size of the

percentage price change associated with an interest -rate change.

●The more distant a bond's maturity, the lower the rate of return that

occurs as a result of the increase in the interest rate.

●Even though a bond has a substantial initial interest rate, its return can

turn out to be negative if interest rates rise.

Chapter 5 The Behavior of Interest Rates

1.Liquidity :The ease and speed with which an asset can be turned into cash.

2.market equilibrium : market equilibrium occurs when the amount that people

are willing to buy (demand) equals the amount that people are willing to sell (supply) at a given price.

3.liquidity preference framework: determines the equilibrium interest rate in

terms of the supply of and demand for money.

4.opportunity cost: The amount of interest (expected return) sacrificed by not

holding the alternative asset.

5.excess supply: The quantity of bonds supplied exceeds the quantity of bonds

demanded, is called a condition of excess supply.

6.excess demand : the quantity demanded is greater than the quantity supplied. Questions and answers

Num.1 :Determining the quantity demanded of an asset.

A:1)Wealth, the total resources owned by the individual, including all assets

2)Expected return (the return expected over the next period) on one asset

relative to alternative assets 91.

3)Risk(the degree of uncertainty associated with the return) on one asset

relative to alternative assets

4) Liquidity (the ease and speed with which an asset can be turned into cash)

relative to alternative assets

Num.2 :What’s the Theory of Asset Demand?

A :l) The quantity demanded of an asset is positively related to wealth.

2) The quantity demanded of an asset is positively related to its expected

return relative to alternative assets.

3) The quantity demanded of an asset is negatively related to the risk of its

returns relative to alternative assets.

4)The quantity demanded of an asset is positively related to its liquidity

relative to alternative assets.

Num.3 :Shifts in the Demand for Money

1）Income Effecta higher level of income causes the demand for money at each interest rate to increase and the demand curve to shift to the right.

2）Price-Level Effecta rise in the price level causes the demand for money at each interest rate to increase and the demand curve to shift to the right.

Chapter6 The Risk and Term Structure of Interest Rates

1.Default-free bond :U.S. Treasury bonds have usually been considered to have

no default risk because the federal government can always increase taxes to pay of[ its obligations. Bonds like these with no default risk are called default-free bonds.

2.Yield curve :A plot of the yields on bonds with differing terms to maturity but

the same risk, liquidity, and Lax considerations is called a yield curve.

3.Credit-rating agency: investment advisory firms that rate the quality of

corporate and municipal bonds in terms of the probability of default.

4.Preferred habitat theory:It assumes that investors have a preference for

bonds of one maturity over another, a particular bond maturity (preferred habitat) in which they prefer to invest. Because they prefer bonds of one maturity over another, they will be willing to buy bonds that do not have the preferred maturity (habitat) only if they earn a somewhat higher expected return. Because investors are likely to prefer the habitat of short-term bonds

over that of longer-term bonds.

5.Liquidity premium theory:the interest rate on a long-term bond will equal an

average of short-term interest rates expected to occur over the life of the long-term bond plus a liquidity premium (also referred to as a term premium) that responds to supply and demand conditions for that bond.

6.Risk premium :The spread between the interest rates on bonds with default

risk and default-free bonds, both of the same maturity, called the risk premium.

Questions and answers

Num.1:What is the Facts Theory of the Term Structure of Interest Rates Must Explain?

A: 1) Interest rates on bonds of different maturities move together over time.

2) When short-term interest rates are low, yield curves are more likely to have an upward slope; when short-term rates are high, yield curves are more likely to slope downward and be inverted .

3)Yield curves almost always slope upward

Num.2:What is the three theories to explain the three facts?

A: 1)Expectations theory explains the first two facts but not the third.

2)Segmented markets theory explains fact three but not the first two.

3) Liquidity premium theory combines the two theories to explain all three facts.

Num.3:What is thepreferred habitat Theory?

A: 1) Investors have a preference for bonds of one maturity over another.

2)They will be willing to buy bonds of different maturities only if they earn a somewhat higher expected return.

3)Investors are likely to prefer short-term bonds over longer-term bonds. Chapter 7 The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

1.Dividend :Dividends are payments made periodically, usually every quarter, to

stockholders.

2.Rational expectations :Expectations will be identical to optimal forecasts (the

best guess of the future) using all available information.

3.Adaptive expectations: Expectations of inflation, for example, were typically

viewed as being an average of past inflation rates. This view of expectation formation, called adaptive expectations.

4.The efficient market hypothesis :In these markets, people with better forecasts

of the future get rich. The application of the theory of rational expectations to financial markets (where it is called the efficient market hypothesis or the theory of efficient capital markets).

5.Market fundamentals: Items that have a direct impact on future income streams

of the securities

6.Bubble: A bubble is a situation in which the price of an asset differs from its

fundamental market value.

Questions and answers

Num.1: How the Market Sets Prices?

A: 1)The price is set by the buyer willing to pay the highest price.

2)The market price will be set by the buyer who can take best advantage of the asset

3)Superior information about an asset can increase its value by reducing its risk.

Num.2:What is theEfficient Markets ?

A: 1)Current prices in a financial market will be set so that the optimal forecast of a security’s return using all available information equals the security’s equilibrium return.

2)In an efficient market, a security’s price fully reflects all available information.

Num.3:What’s theevidence infavorof Market Efficiency ?

A:?Having performed well in the past does not indicate that an investment advisor or a mutual fund will perform well in the future

?If information is already publicly available, a positive announcement does not, on average, cause stock prices to rise

?Stock prices follow a random walk

?Technical analysis cannot successfully predict changes in stock prices