金融英语第十三章答案
商英Unit 13 ,14答案
Unit 13 Accounting and financial statements1a Vocabulary:Match up the terms on the left with the definitions on the right.1 B2 C3 D4 G5 A6 E7 F1.Bookkeeping: B) writing down the details of transactions (debits and credits)2.Accounting: C) keeping financial records, recording income and expenditure, valuing assets andliabilities, and so on3.Managerial accounting: D) preparing budgets and other financial reports necessary formanagement4.Cost accounting: G) working out the unit costs of products, including materials, labor and allother expenses5.Tax accounting: A) calculating an individual’s or a company’s liability for tax6.Auditing: E) inspection and evaluation of accounts by a second set of accountants7.‘Creative accounting’: F) using all available accounting procedures and tricks to disguise thetrue financial position of a company1b ListeningYou will hear Sarah Brandston, an accountant in New York, talking about bookkeeping and tax accounting. Read the following question and then listen to the interview.1.In which fields do most of Sarah Brandston’s clients work? She mentions graphic designers,media people, writers, film makers, architects, people who consult in the computer field, and people who work in music.2.Why do they need an accountant? She says that her clients are generally talented in their field,but they don’t necessarily know how to run a business, how to do bookkeeping, or how to keep accounting records that will allow them to file tax returns.3.What does Sarah Brandston describe as ‘the basic rule for accounting? Keeping records thatreflect the financial life in the business accurately enough to enable one to file a tax return. 4.An individual can do business as a self-proprietorship. Sarah Brandston mentions two othertypes of business. What are they? Corporations and partnerships.5.Sarah Brandston says ‘bookkeeping is really a common sense way of keeping track of the incomeand expenses’. What does she mean by common sense in relation to recording expe nses? She means that businesses should set up bookkeeping categories that allow them to record theirbelow.Assets, liabilities, turnover, depreciation (GB) or amortization (US)creditors (GB) or accounts payable (US), debtors (GB) or accounts receivable (US)overheads (GB) or overhead (US), earnings or incomeshareholders (GB) or stockholders (US), stock (GB) or inventory (US)1. A company’s owners: shareholders or stockholders2.The revenues received by a company during a given period, minus the cost ofsales, operating expenses, and taxes: earnings or income3.All the money that a company will have to pay to someone else in the future,including taxes, debts, and interest and mortgage payments: liabilities4.The amount of business done by a company over a year: turnover5.Anything owned by a business (cash investments, buildings, machines, andso on) that can be used to produce goods or pay liabilities: assets6.The reduction in value of a fixed asset during the years it is in use (chargedagainst profits): depreciation or amortization7.Sums of money owed by customers for goods or services purchased on credit:debtors or accounts receivable8.Sums of money owed to suppliers for purchases made on credit: creditors oraccounts payable9.(The value of ) raw materials, work in progress, and finished products storedready for sale: stock or inventory10.The various expenses of operating a business that cannot be charged to anyone product, process or department: overheads or overhead2b ReadingInsert the words in the box 2a in the gaps in the text.1 assets2 stock or inventory3 depreciation or amortization4 shareholders or stockholders5 earning or income6 turnover7 overheads or overhead8 liabilities9 debtors or accounts receivable 10 creditors or accounts payable 2c Summarizing Complete the following sentences.panies record their fixed assets at historical cost because they do notneed to know their real value: if the company is a going concern they are not for sale.2.Historical cost accounting usually underestimates the value of assets thatappreciate (gain value), such as land and buildings (US: real estate)3.Countries with a regularly high rate of inflation generally use a system ofcurrent cost or replacement cost accounting, which records assets at the price that would have to be paid to replace them.pany profits are usually split three ways: into tax (corporation tax inBritain, income tax in the US), dividends, and retained earnings.5.Double-entry bookkeeping requires that every transaction is recorded in oneaccount as a sum received and another as a sum paid.6. A company’s net assets consist of its assets minus liabilities.7. A company’s stock market capitalization is usually more than the value of itsnet assets, because this figure does not include intangible elements such as goodwill.8.Flows of cash both in and out of the company are recorded in the source andapplication of funds statement.3 Financial statements1. Costs and expenses2. Income tax3. Net profit4. Intangible assets5. Inventories6. Retained earnings7. Long-terms liabilities8. Accrued expenses cash from operatingactivities10.Cash and cash equivalents atbeginning of periodNew words in this unit 13Accountancy, Accountant, Accounting, Accounting equation, Accrued expenses, Annual report, Assets, Auditing, Balance sheet, Bookkeeping, Cash flow, Cost accounting, Creative accounting, Credit, Creditors (GB) accounts payable (US), Debit, Debt, Debtors (GB) accounts receivable (US), Depreciation (GB) amortization (US), Dividend, Double-entry bookkeeping, Earnings, Expenses, Financial statement, Financial year, Finished products, Fixed asset, Funds flow statement, Going concern, Goodwill, Historical cost accounting, Income, Intangible assets, Interest, Liabilities, Managerial accounting, Market capitalization, Market value, Net book value, Nominal value, Overheads (GB) overhead (US), Partnership, Profit and loss account (GB) income statement, Reserves, Retained earnings, Revenue, Self proprietorship, Share capital, Share premium (GB) paid-in surplus (US), Shareholders (GB) stockholders (US), Source and application of funds statement, Statement of changes in financial position, Stock (GB) inventory (US), Tax accounting, Work in progressUnit 14 Banking1a Vocabulary1.Overdraft: an arrangement by which a customer can withdraw more from abank account than has been deposited in it, up to an agreed limit; interest on the debt is calculated daily.2.Credit card: a card which guarantees payment for goods and servicespurchased by the cardholder, who pays back the bank or finance company at a later date.3.Cash dispenser or ATM: a computerized machine that allows bank customersto withdraw money, check their balance, and so on4.Loan: a fixed sum of money on which interest is paid, lent for a fixed period,and usually for a specific purpose5.Standing order or direct debit: an instruction to a bank to pay fixed sums ofmoney to certain people or organizations at stated times.6.Mortgage: a loan, usually to buy property, which serves as a security for theloan7.Cash card: a plastic card issued to bank customers for use in cash dispensers8.Home bank ing: doing banking transactions by telephone or from one’s ownpersonal computer9.Current or checking account: one that generally pays little or no interest, butallows the holder to withdraw his or her cash without any restrictions10.Deposit or time or notice account: one that pays interest, but usuallycannot be used for paying cheques (GB) or checks (US), and on which notice is often required to withdraw money2b ComprehensionWhich of the following three paragraphs most accurately and concisely summarizes the text, and what is wrong with the others?First SummaryCommercial banks hold customers’ deposits and make loans. Investment banks raise funds for industry. Deregulation in Britain and the US has led to thecreation of financial conglomerates similar to the universal banks that have always existed in German-speaking countries. A country’s minimum interest rate is usually fixed; banks charge progressively higher rates to less secure borrowers. Many banks also do Eurocurrency business – lending foreign currencies, notably dollars, at lower rates than in the currencies’ home countries.2c Vocabulary:1.Deposit: to place money in a bank; or money placed in a bank2.Foreign currencies: the money used in countries other than one’s own3.Yield: how much money a loan pays, expressed as a percentage4.Liquidity: available cash, and how easily other assets can be turned into cash5.Maturity: the date when a loan becomes repayable6.Underwrite: to guarantee to buy all the new shares that a company issues, ifthey cannot be sold to the public7.Takeover: when a company buys or acquires another8.Merger: when a company combines with another one9.Stockbroking: buying and selling stocks or shares for clients10.Portfolio management: taking care of all a client’s investments11.Deregulation: the ending or relaxing of legal restrictions12.Conglomerate: a group of companies, operating in different fields, that havejoined together13.Blue chip: a company considered to be without risk14.Solvency: ability to pay liabilities when they become due15.Collateral: anything that acts as a security or a guarantee for a loan2d Vocabulary verb-noun partnership1.charge interest2.pay interest3.do business4.exchange currencies5.issue bonds6.make loans7.make profits8.offer loans9.offer advice10.raise interest11.receive deposits12.underwrite security issuesNew words in this unit 14Balance, bank account, bank transfer, base rate or prime rate, blue chip, bonds, borrow, cash dispenser or ATM, cashcard, central bank, cheque (GB) or check (US), collateral, commercial or retail bank, commission, conglomerate, credit card, credit standing or credit rating or creditworthiness, current account (GB) or checking account (US), deposit, deposit account (GB) or time or notice account (US), direct debit or standing order, discount rate, Eurocurrency, fee, financial markets, foreign currency, funds, interest rate, international trade, investment,investment bank, issue, lend, liquidity, loan, maturity, merchant bank, merger, mortgage, overdraft, portfolio, profit, property, risk, securities, share, solvency, spread or margin, stockbroking, takeovers, undertwrite, universal bank, withdraw, yield。
货币金融学chapter 13英文习题
Economics of Money, Banking, and Financial Markets, 11e, Global Edition (Mishkin) Chapter 13 Financial Crises in Emerging Market Economies13.1 Dynamics of Financial Crises in Emerging Market Economies1) Financial crises generally develop along two basic pathsA) mismanagement of financial liberalization/globalization and severe fiscal imbalances.B) stock market declines and severe fiscal imbalances.C) mismanagement of financial liberalization/globalization and stock market declines.D) stock market declines and unanticipated declines in the value of the domestic currency. Answer: AAACSB: Reflective Thinking2) In emerging market countries, the deterioration in bank's balance sheets has more ________ effects on lending and economic activity than in advanced countries.A) negativeB) positiveC) affirmingD) advancingAnswer: AAACSB: Reflective Thinking3) All of the following might create problems from financial liberalization in emerging countries EXCEPTA) ineffective screening of borrowers.B) limits on risk-taking.C) lax government supervision of banks.D) lenders failure to monitor borrowers.Answer: BAACSB: Reflective Thinking4) The mismanagement of financial liberalization in emerging market countries can be understood as a severeA) principal/agent problem.B) asymmetric information problem.C) lemons problem.D) free-rider problem.Answer: AAACSB: Reflective Thinking5) Factors likely to cause a financial crisis in emerging market countries includeA) severe fiscal imbalances.B) decreases in foreign interest rates.C) a foreign exchange crisis.D) too strong oversight of the financial industry.Answer: AAACSB: Reflective Thinking6) The two key factors that trigger speculative attacks on emerging market currencies areA) deterioration in bank balance sheets and severe fiscal imbalances.B) deterioration in bank balance sheets and low interest rates abroad.C) low interest rates abroad and severe fiscal imbalances.D) low interest rates abroad and rising asset prices.Answer: AAACSB: Reflective Thinking7) Severe fiscal imbalances can directly trigger a currency crisis sinceA) investors fear that the government may not be able to pay back the debt and so begin to sell domestic currency.B) the government may stop printing money.C) the government may have to cut back on spending.D) the currency must surely increase in value.Answer: AAACSB: Reflective Thinking8) In emerging market countries, many firms have debt denominated in foreign currency like the dollar or yen. A depreciation of the domestic currencyA) results in increases in the firm's indebtedness in domestic currency terms, even though the value of their assets remains unchanged.B) results in an increase in the value of the firm's assets.C) means that the firm does not owe as much on their foreign debt.D) strengthens their balance sheet in terms of the domestic currency.Answer: AAACSB: Reflective Thinking9) A sharp depreciation of the domestic currency after a currency crisis leads toA) higher inflation.B) lower import prices.C) lower interest rates.D) decrease in the value of foreign currency-denominated liabilities.Answer: AAACSB: Reflective Thinking10) The key factor leading to the financial crises in Mexico and the East Asian countries wasA) a deterioration in banks' balance sheets because of increasing loan losses.B) severe fiscal imbalances.C) a sharp increase in the stock market.D) a sharp decline in interest rates.Answer: AAACSB: Application of Knowledge11) Factors that led to worsening conditions in Mexico's 1994-1995 financial markets includeA) failure of the Mexican oil monopoly.B) the ratification of the North American Free Trade Agreement.C) increased uncertainty from political shocks.D) decline in interest rates.Answer: CAACSB: Application of Knowledge12) Factors that led to worsening financial market conditions in East Asia in 1997-1998 includeA) weak supervision by bank regulators.B) a rise in interest rates abroad.C) unanticipated increases in the price level.D) increased uncertainty from political shocks.Answer: AAACSB: Application of Knowledge13) Factors that led to worsening conditions in Mexico's 1994-1995 financial markets, but did not lead to worsening financial market conditions in East Asia in 1997-1998 includeA) rise in interest rates abroad.B) bankers' lack of expertise in screening and monitoring borrowers.C) deterioration of banks' balance sheets because of increasing loan losses.D) stock market decline.Answer: AAACSB: Application of Knowledge14) Argentina's financial crisis was due toA) poor supervision of the banking system.B) a lending boom prior to the crisis.C) fiscal imbalances.D) lack of expertise in screening and monitoring borrowers at banking institutions.Answer: CAACSB: Application of Knowledge15) A feature of debt markets in emerging-market countries is that debt contracts are typicallyA) very short term.B) long term.C) intermediate term.D) perpetual.Answer: AAACSB: Analytical Thinking16) The economic hardship resulting from a financial crises is severe, however, there are also social consequences such asA) increased crime.B) difficulty getting a loan.C) currency devaluations.D) loss of output.Answer: AAACSB: Reflective Thinking17) Before the South Korean financial crisis, sales by the top five chaebols (family-owned conglomerates) wereA) nearly 50% of GDP.B) about 10% of GDP.C) almost 90% of GDP.D) nearly 25% of GDP.Answer: AAACSB: Application of Knowledge18) The chaebols encouraged the Korean government to open up Korean financial markets to foreign capital. The Korean government responded byA) allowing unlimited short-term foreign borrowing but maintained quantity restrictions on long-term foreign borrowing by financial institutions.B) allowing unlimited short-term and long-term foreign borrowing by financial institutions.C) maintaining quantity restrictions on short-term foreign borrowing but allowing unlimited long-term foreign borrowing by financial institutions.D) not allowing any foreign borrowing by financial institutions.Answer: AAACSB: Application of Knowledge19) At the time of the South Korean financial crisis, the government allowed many chaebol owned finance companies to convert to merchant banks. Finance companies ________ allowed to borrow abroad and merchant banks ________.A) were not; could borrow abroadB) were not; could not borrow abroadC) were; could borrow abroadD) were; could not borrow abroadAnswer: AAACSB: Application of Knowledge20) At the time of the South Korean financial crisis, the merchant banks wereA) almost virtually unregulated.B) subject to heavy government regulation.C) engaged in long-term lending to the corporate sector.D) restricted to long-term foreign borrowing.Answer: AAACSB: Application of Knowledge21) What two key factors trigger speculative attacks leading to currency cries in emerging market countries?Answer: The deterioration in bank balance sheets and severe fiscal imbalances are the key factors. To counter a speculative attack, a country might try to raise interest rates. Raising interest rates, however, would worsen the problem of banks that are already in trouble. Speculators recognize this and seize the opportunity. When their are severe fiscal imbalances, there is concern that government debt will not be paid back. Funds are pulled out of the country and domestic currency is sold leading to a decline in the value of the domestic currency. Speculators will once again seize the opportunity.AACSB: Reflective Thinking。
货币金融学(第十二版)英文版题库及答案chapter 13
Economics of Money, Banking, and Financial Markets, 12e (Mishkin)Chapter 13 Central Banks and the Federal Reserve System13.1 Origins of the Federal Reserve System1) The First Bank of the United StatesA) was disbanded in 1811 when its charter was not renewed.B) had its charter renewal vetoed in 1832.C) was fundamental in helping the Federal Government finance the War of 1812.D) None of the above.Answer: AQues Status: Previous EditionAACSB: Reflective Thinking2) The Second Bank of the United StatesA) was disbanded in 1811 when its charter was not renewed.B) had its charter renewal vetoed in 1832.C) is considered to be the primary cause of the bank panic of 1907.D) None of the above.Answer: BQues Status: Previous EditionAACSB: Reflective Thinking3) The public's fear of centralized power and distrust of moneyed interests led to the demise of the first two experiments in central banking, otherwise known asA) the First Bank of the United States and the Second Bank of the United States.B) the First Bank of the United States and the Central Bank of the United States.C) the First Central Bank of the United States and the Second Central Bank of the United States.D) the First Bank of North America and the Second Bank of North America.Answer: AQues Status: Previous EditionAACSB: Reflective Thinking4) The financial panic of 1907 resulted in such widespread bank failures and substantial losses to depositors that the American public finally became convinced thatA) the First Bank of the United States had failed to serve as a lender of last resort.B) the Second Bank of the United States had failed to serve as a lender of last resort.C) the Federal Reserve System had failed to serve as a lender of last resort.D) a central bank was needed to prevent future panics.Answer: DQues Status: Previous EditionAACSB: Reflective Thinking5) What makes the Federal Reserve so unique compared to other central banks around the world is itsA) centralized structure.B) decentralized structure.C) regulatory functions.D) monetary policy functions.Answer: BQues Status: Previous EditionAACSB: Reflective Thinking13.2 Structure of the Federal Reserve System1) Which of the following is NOT an entity of the Federal Reserve System?A) Federal Reserve BanksB) the Comptroller of the CurrencyC) the Board of GovernorsD) the Federal Open Market CommitteeAnswer: BQues Status: Previous EditionAACSB: Reflective Thinking2) Which of the following is an entity of the Federal Reserve System?A) the U.S. Treasury SecretaryB) the FOMCC) the Comptroller of the CurrencyD) the FDICAnswer: BQues Status: Previous EditionAACSB: Reflective Thinking3) The three largest Federal Reserve banks (New York, Chicago, and San Francisco) combined hold more than ________ percent of the assets of the Federal Reserve System.A) 25B) 33C) 50D) 67Answer: CQues Status: Previous EditionAACSB: Analytical Thinking4) The Federal Reserve Banks are ________ institutions since they are owned by the ________.A) quasi-public; private commercial banks in the district where the Reserve Bank is locatedB) public; private commercial banks in the district where the Reserve Bank is locatedC) quasi-public; Board of GovernorsD) public; Board of GovernorsAnswer: AQues Status: Previous EditionAACSB: Reflective Thinking5) Each Federal Reserve bank has nine directors. Of these ________ are appointed by the member banks and ________ are appointed by the Board of Governors.A) three; sixB) four; fiveC) five; fourD) six; threeAnswer: DQues Status: Previous EditionAACSB: Reflective Thinking6) The nine directors of the Federal Reserve Banks are split into three categories: ________ are professional bankers, ________ are leaders from industry, and ________ are to represent the public interest and are not allowed to be officers, employees, or stockholders of banks.A) 5; 2; 2B) 2; 5; 2C) 4; 2; 3D) 3; 3; 3Answer: DQues Status: Previous EditionAACSB: Reflective Thinking7) Member commercial banks have purchased stock in their district Fed banks; the dividend paid by that stock is limited by law to ________ percent annually.A) fourB) fiveC) sixD) eightAnswer: CQues Status: Previous EditionAACSB: Reflective Thinking8) The Federal Reserve Bank of ________ houses the open market desk.A) BostonB) New YorkC) ChicagoD) San FranciscoAnswer: BQues Status: Previous EditionAACSB: Reflective Thinking9) The president from which Federal Reserve Bank always has a vote in the Federal Open Market Committee?A) PhiladelphiaB) BostonC) San FranciscoD) New YorkAnswer: DQues Status: Previous EditionAACSB: Reflective Thinking10) An important function of the regional Federal Reserve Banks isA) setting reserve requirements.B) clearing checks.C) determining monetary policy.D) setting margin requirements.Answer: BQues Status: Previous EditionAACSB: Reflective Thinking11) Which of the following functions is NOT performed by any of the twelve regional Federal Reserve Banks?A) check clearingB) conducting economic researchC) setting interest rates payable on time depositsD) issuing new currencyAnswer: CQues Status: Previous EditionAACSB: Reflective Thinking12) All ________ are required to be members of the Fed.A) state chartered banksB) national banks chartered by the Office of the Comptroller of the CurrencyC) banks with assets less than $100 millionD) banks with assets less than $500 millionAnswer: BQues Status: Previous EditionAACSB: Reflective Thinking13) Of all commercial banks, about ________ belong to the Federal Reserve System.A) 10%B) one halfC) one thirdD) 90%Answer: CQues Status: Previous EditionAACSB: Reflective Thinking14) Prior to 1980, member banks left the Federal Reserve System due toA) the high cost of discount loans.B) the high cost of required reserves.C) a desire to avoid interest rate regulations.D) a desire to avoid credit controls.Answer: BQues Status: Previous EditionAACSB: Reflective Thinking15) The Fed's support of the Depository Institutions Deregulation and Monetary Control Act of 1980 stemmed in part from itsA) concern over declining Fed membership.B) belief that all banking regulations should be eliminated.C) belief that interest rate ceilings were too high.D) belief that depositors had to become more knowledgeable of banking operations. Answer: AQues Status: Previous EditionAACSB: Reflective Thinking16) Banks subject to reserve requirements set by the Federal Reserve System includeA) only nationally chartered banks.B) only banks with assets less than $100 million.C) only banks with assets less than $500 million.D) all banks whether or not they are members of the Federal Reserve System.Answer: DQues Status: Previous EditionAACSB: Reflective Thinking17) The Depository Institutions Deregulation and Monetary Control Act of 1980A) established higher reserve requirements for nonmember than for member banks.B) established higher reserve requirements for member than for nonmember banks.C) abolished reserve requirements.D) established uniform reserve requirements for all banks.Answer: DQues Status: Previous EditionAACSB: Reflective Thinking18) There are ________ members of the Board of Governors of the Federal Reserve System.A) 5B) 7C) 12D) 19Answer: BQues Status: Previous EditionAACSB: Reflective Thinking19) Members of the Board of Governors areA) chosen by the Federal Reserve Bank presidents.B) appointed by the newly elected president of the United States, as are cabinet positions.C) appointed by the president of the United States and confirmed by the Senate.D) never allowed to serve more than 7-year terms.Answer: CQues Status: Previous EditionAACSB: Reflective Thinking20) Each governor on the Board of Governors can serveA) only one nonrenewable fourteen-year term.B) one full nonrenewable fourteen-year term plus part of another term.C) only one nonrenewable eight-year term.D) one full nonrenewable eight-year term plus part of another term.Answer: BQues Status: Previous EditionAACSB: Reflective Thinking21) The Chairman of the Board of Governors is chosen from among the seven governors and serves a ________, renewable term.A) one-yearB) two-yearC) four-yearD) eight-yearAnswer: CQues Status: Previous EditionAACSB: Reflective Thinking22) While the discount rate is "established" by the regional Federal Reserve Banks, in truth, the rate is determined byA) Congress.B) the president of the United States.C) the Senate.D) the Board of Governors.Answer: DQues Status: Previous EditionAACSB: Reflective Thinking23) Which of the followings is a duty of the Board of Governors of the Federal Reserve System?A) setting margin requirements, the fraction of the purchase price of the securities that has to be paid for with cashB) setting the maximum interest rates payable on certain types of time deposits under Regulation QC) regulating credit with the approval of the president under the Credit Control Act of 1969D) All governors advise the president of the United States on economic policy.Answer: AQues Status: Previous EditionAACSB: Reflective Thinking24) Which of the followings is NOT a current duty of the Board of Governors of the Federal Reserve System?A) setting margin requirements, the fraction of the purchase price of the securities that has to be paid for with cashB) setting the maximum interest rates payable on certain types of time deposits under Regulation QC) approving the discount rate "established" by the Federal Reserve banksD) voting on the conduct of open market operationsAnswer: BQues Status: Previous EditionAACSB: Reflective Thinking25) The Federal Open Market Committee usually meets ________ times a year.A) fourB) sixC) eightD) twelveAnswer: CQues Status: Previous EditionAACSB: Reflective Thinking26) The Federal Reserve entity that makes decisions regarding the conduct of open market operations is theA) Board of Governors.B) chairman of the Board of Governors.C) Federal Open Market Committee.D) Open Market Advisory Council.Answer: CQues Status: Previous EditionAACSB: Reflective Thinking27) The Federal Open Market Committee consists of theA) five senior members of the seven-member Board of Governors.B) seven members of the Board of Governors and seven presidents of the regional Fed banks.C) seven members of the Board of Governors and five presidents of the regional Fed banks.D) twelve regional Fed bank presidents and the chairman of the Board of Governors. Answer: CQues Status: Previous EditionAACSB: Reflective Thinking28) The majority of members of the Federal Open Market Committee areA) Federal Reserve Bank presidents.B) members of the Federal Advisory Council.C) presidents of member banks.D) the seven members of the Board of Governors.Answer: DQues Status: Previous EditionAACSB: Reflective Thinking29) Each Fed bank president attends FOMC meetings; although only ________ Fed bank presidents vote on policy, all ________ provide input.A) three; tenB) five; tenC) three; twelveD) five; twelveAnswer: DQues Status: Previous EditionAACSB: Reflective Thinking30) Although reserve requirements and the discount rate are not actually set by the ________, decisions concerning these policy tools are effectively made there.A) Federal Reserve Bank of New YorkB) Board of GovernorsC) Federal Open Market CommitteeD) Federal Reserve BanksAnswer: CQues Status: Previous EditionAACSB: Reflective Thinking31) The research document given to the Federal Open Market Committee that contains information on the state of the economy in each Federal Reserve district is called theA) beige book.B) green book.C) blue book.D) black book.Answer: AQues Status: Previous EditionAACSB: Reflective Thinking32) The teal book is the Fed research document containingA) the forecast of national economic variables for the next three years.B) forecasts of the money aggregates conditional on different monetary policy stances.C) information on the state of the economy in each Federal Reserve district.D) both A and B.E) A, B and C.Answer: DQues Status: Previous EditionAACSB: Reflective Thinking33) The Federal Open Market Committee's "balance of risks" is an assessment of whether, in the future, its primary concern will beA) higher exchange rates or higher unemployment.B) higher inflation or a stronger economy.C) higher inflation or a weaker economy.D) lower inflation or a stronger economy.Answer: CQues Status: Previous EditionAACSB: Reflective Thinking34) Subject to the approval of the Board of Governors, the decision of choosing the president ofa district Federal Reserve Bank is made byA) all nine district bank directors.B) the six district bank directors elected by the member banks.C) three district bank directors who are professional bankers.D) district bank directors who are not professional bankers.E) class A and class B directors.Answer: DQues Status: Previous EditionAACSB: Ethical Understanding and Reasoning Abilities35) Why does the Federal Reserve Bank of New York play a special role within the Federal Reserve System?Answer: The New York district contains the largest banks in the country. The New York Fed supervises and examines these banks to insure their soundness and the safety of the nation's financial system. The New York Fed conducts open market operations and foreign exchange transactions for the Fed and Treasury. The New York Fed belongs to the Bank for International Settlements, so its president and the chairman of the Board of Governors represent the U.S. at the monthly meetings of the world's central banks. The New York Fed president is the only president of a regional Fed who is a permanent voting member of the FOMC.Ques Status: Previous EditionAACSB: Reflective Thinking36) Who are the voting members of the Federal Open Market Committee and why is this committee important? Where does the power lie within this committee?Answer: The FOMC determines the monetary policy of the United States through its decisions about open market operations. It also effectively determines the discount rate and reserve requirements. The seven members of the Board of Governors, the president of the New York Fed, and four of the other eleven regional bank presidents are voting members on a rotating basis. Within the FOMC, the chairman of the Board of Governors wields the power.Ques Status: Previous EditionAACSB: Reflective Thinking13.3 How Independent is the Fed?1) Instrument independence is the ability of ________ to set monetary policy ________.A) the central bank; goalsB) Congress; goalsC) Congress; instrumentsD) the central bank; instrumentsAnswer: DQues Status: Previous EditionAACSB: Reflective Thinking2) The ability of a central bank to set monetary policy instruments isA) political independence.B) goal independence.C) policy independence.D) instrument independence.Answer: DQues Status: Previous EditionAACSB: Reflective Thinking3) Goal independence is the ability of ________ to set monetary policy ________.A) the central bank; goalsB) Congress; goalsC) Congress; instrumentsD) the central bank; instrumentsAnswer: AQues Status: Previous EditionAACSB: Reflective Thinking4) The ability of a central bank to set monetary policy goals isA) political independence.B) goal independence.C) policy independence.D) instrument independence.Answer: BQues Status: Previous EditionAACSB: Reflective Thinking5) Members of Congress are able to influence monetary policy, albeit indirectly, through their ability toA) withhold appropriations from the Board of Governors.B) withhold appropriations from the Federal Open Market Committee.C) propose legislation that would force the Fed to submit budget requests to Congress, as must other government agencies.D) instruct the General Accounting Office to audit the foreign exchange market functions of the Federal Reserve.Answer: CQues Status: Previous EditionAACSB: Reflective Thinking6) Explain two concepts of central bank independence. Is the Fed politically independent? Why do economists think central bank independence is important?Answer: Instrument independence is the ability of the central bank to set its instruments, and goal independence is the ability of a central bank to set its goals. The Fed enjoys both types of independence. The Fed is largely independent of political pressure due to its earnings and the conditions of appointment of the Board of Governors and its chairman. However, some political pressure can be applied through the threat or enactment of legislation affecting the Fed. Independence is important because there is some evidence that independent central banks pursue lower rates of inflation without harming overall economic performance.Ques Status: Previous EditionAACSB: Reflective Thinking13.4 Should the Fed Be Independent?1) The case for Federal Reserve independence does NOT include the idea thatA) political pressure would impart an inflationary bias to monetary policy.B) a politically insulated Fed would be more concerned with long-run objectives and thus be a defender of a sound dollar and a stable price level.C) policy is always performed better by an elite group such as the Fed.D) a Federal Reserve under the control of Congress or the president might make the so-called political business cycle more pronounced.Answer: CQues Status: Previous EditionAACSB: Reflective Thinking2) The political business cycle refers to the phenomenon that just before elections, politicians enact ________ policies. After the elections, the bad effects of these policies (for example,________ ) have to be counteracted with ________ policies.A) expansionary; higher unemployment; contractionaryB) expansionary; a higher inflation rate; contractionaryC) contractionary; higher unemployment; expansionaryD) contractionary; a higher inflation rate; expansionaryAnswer: BQues Status: Previous EditionAACSB: Analytical Thinking3) The strongest argument for an independent Federal Reserve rests on the view that subjecting the Fed to more political pressures would impartA) an inflationary bias to monetary policy.B) a deflationary bias to monetary policy.C) a disinflationary bias to monetary policy.D) a countercyclical bias to monetary policy.Answer: AQues Status: Previous EditionAACSB: Ethical Understanding and Reasoning Abilities4) Critics of the current system of Fed independence contend thatA) the current system is undemocratic.B) voters have too much say about monetary policy.C) the president has too much control over monetary policy on a day-to-day basis.D) the Board of Governors is held responsible for policy missteps.Answer: AQues Status: Previous EditionAACSB: Diverse and Multicultural Work Environments5) Recent research indicates that inflation performance (low inflation) has been found to be best in countries withA) the most independent central banks.B) political control of monetary policy.C) money financing of budget deficits.D) a policy of always keeping interest rates low.Answer: AQues Status: Previous EditionAACSB: Reflective Thinking6) Make the case for and against an independent Federal Reserve.Answer: Case for: 1. An independent Federal Reserve can shield the economy from the political business cycle, and it will be less likely to have an inflationary bias to monetary policy. 2. Control of the money supply is too important to leave to inexperienced politicians.Case against: 1. It is undemocratic to have monetary policy be controlled by a small number of individuals that are not accountable. 2. In the past, an independent Fed has not used its freedom wisely. 3. Its independence may encourage it to pursue its own self-interest rather than the public's interest.Ques Status: Previous EditionAACSB: Ethical Understanding and Reasoning Abilities13.5 Explaining Central Bank Behavior1) The theory of bureaucratic behavior suggests that the objective of a bureaucracy is to maximizeA) the public's welfare.B) profits.C) its own welfare.D) conflict with the executive and legislative branches of government.Answer: CQues Status: Previous EditionAACSB: Reflective Thinking2) The theory of bureaucratic behavior when applied to the Fed helps to explain why the FedA) was supportive of congressional attempts to limit the central bank's autonomy.B) was so secretive about the conduct of future monetary policy.C) sought less control over banks in the 1980s.D) was willing to take on powerful groups that may threaten its autonomy.Answer: BQues Status: Previous EditionAACSB: Reflective Thinking3) What is the theory of bureaucratic behavior and how can it be used to explain the behavior of the Federal Reserve?Answer: The theory of bureaucratic behavior concludes that the main objective of any bureaucracy is to maximize its own welfare, which is related to power and prestige. This can explain why the Federal Reserve has defended its autonomy, avoids conflict with Congress and the president, and its push to gain more control over banks.Ques Status: Previous EditionAACSB: Analytical Thinking13.6 Structure and Independence of the European Central Bank1) Under the European System of Central Banks, the Executive Board is similar in structure to the ________ of the Federal Reserve System.A) Board of GovernorsB) Federal Open Market CommitteeC) Federal Reserve BanksD) Federal Advisory CouncilAnswer: AQues Status: Previous EditionAACSB: Reflective Thinking2) Under the European System of Central Banks, the Governing Council is similar in structure to the ________ of the Federal Reserve System.A) Board of GovernorsB) Federal Open Market CommitteeC) Federal Reserve BanksD) Federal Advisory CouncilAnswer: BQues Status: Previous EditionAACSB: Reflective Thinking3) Under the European System of Central Banks, the National Central Banks have the same role as the ________ of the Federal Reserve System.A) Board of GovernorsB) Federal Open Market CommitteeC) Federal Reserve BanksD) Federal Advisory CouncilAnswer: CQues Status: Previous EditionAACSB: Reflective Thinking4) Members of the Executive Board of the European System of Central Banks are appointed to ________ year, nonrenewable terms.A) fourB) eightC) tenD) fourteenAnswer: BQues Status: Previous EditionAACSB: Reflective Thinking5) Which of the following statements comparing the European System of Central Banks and the Federal Reserve System is TRUE?A) The budgets of the Federal Reserve Banks are controlled by the Board of Governors, while the National Central Banks control their own budgets and the budget of the European Central Bank.B) The European Central Bank has similar power over the National Central Banks when compared to the level of power the Board of Governors has over the Federal Reserve Banks. C) Just like the Federal Reserve System, monetary operations are centralized in the European System of Central Banks with the European Central Bank.D) None of the above.Answer: AQues Status: RevisedAACSB: Reflective Thinking6) The Governing Council usually meets ________ times a year.A) fourB) sixC) eightD) twelveAnswer: DQues Status: Previous EditionAACSB: Reflective Thinking7) In the Governing Council, the decision of what policy to implement is made byA) majority vote of the Executive Board members.B) majority vote of the heads of the National Banks.C) consensus.D) majority vote of all members of the Governing Council.Answer: CQues Status: Previous EditionAACSB: Reflective Thinking8) The central bank which is generally regarded as the most independent in the world because its charter cannot be changed by legislation is theA) Bank of England.B) Bank of Canada.C) European Central Bank.D) Bank of Japan.Answer: CQues Status: Previous EditionAACSB: Reflective Thinking9) Explain the similarities and differences between the European System of Central Banks and the Federal Reserve System.Answer: The similarities between the two are in their structure. The National Central Banks of the member countries of the Eurosystem have the same role as the Federal Reserve Banks in the Federal Reserve System. The Executive Board and the Governing Council of the Eurosystem resemble the Board of Governors and the Federal Open Market Committee of the Federal Reserve System, respectively. There are three major differences between the two. The first difference is concerning the control of the budgets. In the Fed, the Board of Governors controls the budgets of the Reserve Banks while in the Eurosystem, the National Banks control the budget of the European Central Bank. The second difference is the monetary operations of the Eurosystem are conducted by the National Banks, so they are not as centralized as the monetary operations in the Federal Reserve System.Ques Status: RevisedAACSB: Reflective Thinking13.7 Structure and Independence of Other Foreign Central Banks1) On paper, the Bank of Canada has ________ instrument independence and ________ goal independence when compared to the Federal Reserve System.A) less; lessB) less; moreC) more; lessD) more; moreAnswer: AQues Status: Previous EditionAACSB: Reflective Thinking2) The oldest central bank, having been founded in 1694, is theA) Bank of England.B) Deutsche Bundesbank.C) Bank of Japan.D) Federal Reserve System.Answer: AQues Status: Previous EditionAACSB: Reflective Thinking3) While legislation enacted in 1998 granted the Bank of Japan new powers and greater autonomy, its critics contend that its independence isA) limited by the Ministry of Finance's veto power over a portion of its budget.B) too great because it need not pursue a policy of price stability even if that is the popular will of the people.C) too great since the Ministry of Finance no longer has veto power over the bank's budget.D) limited since the Ministry of Finance can dismiss senior bank officials.Answer: AQues Status: Previous EditionAACSB: Reflective Thinking4) Regarding central bank independenceA) the Fed is more independent than the European Central Bank.B) the European Central Bank is more independent than the Fed.C) the trend in industrialized nations has been to reduce central bank independence.D) the Bank of England has the longest tradition of independence of any central bank in the world.Answer: BQues Status: Previous EditionAACSB: Reflective Thinking5) The trend in recent years is that more and more governmentsA) have been granting greater independence to their central banks.B) have been reducing the independence of their central banks to make them more accountable for poor economic performance.C) have mandated that their central banks focus on controlling inflation.D) have required their central banks to cooperate more with their Ministers of Finance. Answer: AQues Status: Previous EditionAACSB: Reflective Thinking6) Which of the following statements about central bank structure and independence is TRUE?A) In recent years, with the exception of the Bank of England and the Bank of Japan, most countries have reduced the independence of their central banks, subjecting them to greater democratic control.B) Before the Bank of England was granted greater independence, the Federal Reserve was the most independent of the world's central banks.C) Both theory and experience suggest that more independent central banks produce better monetary policy.D) While the European Central Bank is independent, it is not as independent as the Federal Reserve.Answer: CQues Status: Previous EditionAACSB: Reflective Thinking。
金融英语_刘文国第二版课后练习Exercises 13
Exercises 17Ⅰ. Answer the following in English1.Carefully describe a futures contract.A futures contract is a binding agreement between a seller and abuyer to make (seller) and to take (buyer) delivery of the underlying commodity (or financial instrument) at a specified future date with agreed upon payment terms.2.Explain how futures contracts are valued daily.It is possible to calculate a theoretical fair value for a futures contract. The fair value of a futures contract should approximately equal the current value of the underlying shares or index, plus an amount referred to as the 'cost of carry'3.Describe the role of the clearinghouse in futures trading.The clearinghouse, an agency or separate corporation of a futures exchange, is responsible for settling trading accounts, collecting and maintaining margin monies, regulating delivery and reporting trade data. The clearinghouse becomes the buyer to each seller (and the seller to each buyer) and assumes responsibility for protecting buyers and sellers from financial loss by assuring performance on each contract.4.Explain the differences between a hedger and a speculator.Hedgers are interested in the products of the futures contracts.They can be producers, like farmers, mining companies and oil drillers. Or they can be users, like bankers, paper mills and oil distributors. In general, producers sell futures contracts while users buy them. Speculators, trade futures strictly to make money.Typically, speculators trade futures contracts, but never use the commodity itself.5.Give a brief description of the history of futures.The history of futures trading is, in a sense, two histories, both focused on how people have tried to improve the effectiveness of the commercial marketplace. The early story is a tale of how people in an agrarian society used forward contracts (agreements to buy now, but pay and deliver later) as a means of getting farm commodities efficiently from producers to consumers, at established prices and delivery terms, and how those forward contracts evolved into futures contracts. The present day story explains how the futures industry reinvented itself in the latter part of the twentieth century, essentially by redefining the meaning of “commodity,” so that it could accommodate the needs of complex financial markets in a society whose economy was no longer based primarily on agriculture.6.What is key difference between forward and futures?Basically, forward and futures contracts operate in a similar mannerby allowing people to buy or sell a particular type of asset at aspecific time at a specified price. However, the particular detailsof these contracts are quite different.One of the key differences is that futures contracts are traded onthe exchange and are based on standard criteria. Forward contracts,on the other hand, are agreements made privately between two parties.Because of this, there is more flexibility in the terms andconditions.Another issue surrounding these differences is that of security.Because of the private nature of the agreement in forward contracts,there is no guarantee that a party will not default. However, becausefutures contracts have clearing houses, the agreement is guaranteed.A clearing house is a third party who guarantees the transaction.To understand the differences, it is necessary to clarify the exactnature of both futures contracts and forward contracts.Essentially, a futures contract is a contractual agreement made tobuy or sell a specific product or service at a pre-determined pricein the future. The contract specifies the quality and quantity of theproduct or service and are standardized to allow trading on a futuresexchange.A forward contract is a cash market transaction where the contract ismade but the delivery of the specific product or service is postponed.The price is agreed upon at the time the contract is made. Often, afarmer may use a forward contract to ensure a good price for hisproduce.Ⅱ. Fill in the each blank with an appropriate word or expression1.Futures are contractual agreements made between two parties through aregulated futures exchange. Each futures contract specifies the and quality of the item, expiration month, the time of delivery and virtually all the details of the transaction except price whichthe two parties negotiate based on current market conditions.2. The clearinghouse, an agency or separate corporation of a futuresexchange, is responsible for settling trading accounts, collecting and maintaining margin monies, regulating delivery and reportingtrade data.3. A futures contract is an agreement to purchase or sell a commodityfor delivery in the future: (1) at a price that is determined at of the contract; (2) which obligates each party to the contract tothe contract at the specified price; (3) which is used to assume orshift price risk; and (4) which may be satisfied by delivery oroffset.4. The key to any hedge is that a futures position is taken oppositeto the position in the cash market. That is, the nature of market position determines the hedge in the futures market.5. Currency futures are standardized contracts that trade likeconventional commodity futures on the floor of a futures exchange.6. These orders, from companies, individuals, and even market-makingcommercial banks, are communicated to the floor of the futuresexchange.Ⅲ. Translate the following sentences into English1.商品生产者和经营者在生产和经营过程中，时刻面临着价格波动的风险。
金融英语第十三章答案
金融英语第十三章答案Chapter13 (exercises)I .Answer the following questions in English.1.Carefully describe a futures contract.A future contract is a blinding agreement between a seller and a buyer to make and to take delivery of the underlying commodity at a specified future date with agreed upon payment terms.Futures contracts are standardized with respect to the delivery month.2.Explain how futures contracts are valued daily,It is possible to calculate a theoretical fair value for a futures contract.The fair value of a futures contract should approximately equal the current value of the underlying shares or index,plus an amount referred to as the “cost of carry”.The full value of the contract is not paid or received when the contract is established-instead both buyer and seller pay a small initialmargin.3.Describe the role of the clearinghouse in futures trading.The clearinghouse,an agency or separate corporation of a futures exchange.The clearinghouse becomes the buyer to each seller and assumes responsibility for protecting buyers and sellers from financial loss by assuring performance on each contract.4. Explain the differences between a hedger and a speculator.The difference between hedgers an speculators is the risk.Hedgers are parties at risk with a commodity or an asset,but speculators trads futures with the objective of making a profit by being on the right side of a price move.5. Give a brief description of the history of futures.Both the histories of futures are focused on that how people have tried to improve the effectiveness of the commercial marketplace. 6. What is key difference between forward and futures?Forward contracts and futures comparison: the former is a standardized contract, OTC, flexible and high transaction cost, risk is big. The latter are standardized contracts, exchange as a medium, investors and unlike forward contracts as the direct trading, risk is small.Options and futures comparison: futures trading both sides has rights and obligations. While the option buyer the right to sell only, only obligation. In addition from the gains and losses, the futures of profit and loss is uncertain, but the option buyer 's loss is the option premium.Ⅱ. Fill in the e ach blank with an appropriate word or expression.1. Futures are binding agreements made between two partiesthrough a regulated futures exchange. Each futures contract specifies the quantity and quality of the item, expirationmonth, the time of delivery and virtually all the detailsof the transaction except price , which the two partiesnegotiate based on current market conditions.2. The clearinghouse, an agency or separate corporation of afutures exchange, is responsible for settlingtrading accounts, collecting and margin monies,regulating delivery and reporting trade data.3. A futures contract is an agreement to purchase or sell acommodity for delivery in the future: ( 1 ) at a price thatis determined at initiation of the contract; (2) whichobligates each party to the contract to the contract at thespecified price; (3) which is used to assume or shift pricerisk ; and(4) which may be satisfied by delivery or offset４. The key to any hedge is that a futures position is taken opposite to the position in the cash market. That is, the nature of cash market position determines the hedge in the futures market.5. Currency futures are standardized contracts that tradelike conventional commodity futures on the floor of a futures exchange.6. These orders,from companies,individuals,and evenmarket-making commercial banks, are happened to the floor ofthe futures exchange.Ⅲ. Translate the following sentences into English.1．商品生产者和经营者在生产和经营过程中，时刻面临着价格波动的风险。
Principles of Corporate Finance 英文第十版习题解答Chap013
CHAPTER 13Efficient Markets and Behavioral FinanceAnswers to Problem Sets1. c2. Weak, semistrong, strong, strong, weak.3. a. Falseb. Falsec. Trued. Falsee. Falsef. True4. a. Falseb. Falsec. Trued. False5. 6 - (-.2 + 1.45 X 5) = -1.05%.6. a. Trueb. Falsec. Trued. True7. D ecrease. The stock price already reflects an expected 25% increase. The 20%increase conveys bad news relative to expectations.8. a. An investor should not buy or sell shares based on apparent trends orcycles in returns.b. A CFO should not speculate on changes in interest rates or foreignexchange rates. There is no reason to think that the CFO has superiorinformation.c. A financial manager evaluating the creditworthiness of a large customercould check the cus tomer’s stock price and the yield on its debt. A fallingstock price or a high yield could indicate trouble ahead.d. Don’t assume that accounting choices that increase or decrease earningswill have any effect on stock price.e. The company should not seek diversification just to reduce risk. Investorscan diversify on their own.f. Stock issues do not depress price if investors believe the issuer has noprivate information.9. a. Evidence that two securities with identical cash flows (e.g. Royal DutchShell and Shell Transport & Trading) can sell at different prices.b. Small-cap stocks and high book-to-market stocks appear to have givenabove-average returns for their level of risk.c. IPOs provide relatively low returns after their first few days of trading.d. Stocks of firms that announce unexpectedly good earnings perform wellover the coming months.In each case there appear to have been opportunities for earning superior profits.10. a. An individual can do crazy things, but still not affect the efficiency ofmarkets. The price of the asset in an efficient market is a consensus priceas well as a marginal price. A nutty person can give assets away for freeor offer to pay twice the market value. However, when the person’ssupply of assets or money runs out, the price will adjust back to its priorlevel (assuming there is no new, relevant information released by hisaction). If you are lucky enough to know such a person, you will receive apositive gain at the nutty investor’s expense. You had better not count onthis happening very often, though. Fortunately, an efficient marketprotects crazy investors in cases less extreme than the above. Even ifthey trade in the market in an “irrational” manner, they can be assured of getting a fair price since the price reflects all information.b. Yes, and how many people have dropped a bundle? Or, more to the point,how many people have made a bundle only to lose it later? People canbe lucky and some people can be very lucky; efficient markets do notpreclude this possibility.c. Investor psychology is a slippery concept, more often than not used toexplain price movements that the individual invoking it cannot personallyexplain. Even if it exists, is there any way to make money from it? Ifinvestor psychology drives up the price one day, will it do so the next dayalso? Or will the price drop to a ‘true’ level? Almost no one can tell youbeforehand what ‘investor psychology’ will do. Theories based on it haveno content.d. What good is a stable value when you can’t buy or sell at that valuebecause new conditions or information have developed which make thestable price obsolete? It is the market price, the price at which you canbuy or sell today, which determines value.11. a. There is risk in almost everything you do in daily life. You could lose yourjob or your spouse, or suffer damage to your house from a storm. Thatdoesn’t necessarily mean you should quit your job, get a divorce, or sellyour house. If we accept that our world is risky, then we must accept thatasset values fluctuate as new information emerges. Moreover, if capitalmarkets are functioning properly, then stock price changes will follow arandom walk. The random walk of values is the result of rational investorscoping with an uncertain world.b. To make the example clearer, assume that everyone believes in the samechart. What happens when the chart shows a downward movement? Areinvestors going to be willing to hold the stock when it has an expected loss?Of course not. They start selling, and the price will decline until the stockis expected to give a positive return. The trend will ‘self-destruct.’c. Random-walk theory as applied to efficient markets means thatfluctuations from the expected outcome are random. Suppose there is an80 percent chance of rain tomorrow (because it rained today). Then thelocal umbrella store’s stock price will respond today to the prospect of highsales tomorrow. The store’s sales will not follow a random walk, but itsstock price will, because each day the stock price reflects all that investorsknow about future weather and future sales.12. One of the ways to think about market inefficiency is that it implies there is easymoney to be made. The following appear to suggest market inefficiency:(b) strong form(d) weak form(f) semi-strong form13. The estimates are first substituted in the market model. Then the result from thisexpected return equation is subtracted from the actual return for the month toobtain the abnormal return.Abnormal return (Intel) = Actual return – [(−0.57) + (1.08 ⨯ Market return)]A bnormal return (Conagra) = Actual return – [(-0.46) + (0.65 ⨯ Market return)]14. The efficient market hypothesis does not imply that portfolio selection should bedone with a pin. The manager still has three important jobs to do. First, shemust make sure that the portfolio is well diversified. It should be noted that alarge number of stocks is not enough to ensure diversification. Second, shemust make sure that the risk of the diversified portfolio is appropriate for themanager’s clients. Third, she might want to tailor the portfolio to take advantageof special tax laws for pension funds. These laws may make it possible toincrease the expected return of the portfolio without increasing risk.15. They are both under the illusion that markets are predictable and they arewasting their time trying to guess the market’s direction. Remember the firstlesson of market efficiency: Markets have no memory. The decision as to whento issue stock should be made witho ut reference to ‘market cycles.’16. The efficient-market hypothesis says that there is no easy way to make money.Thus, when such an opportunity seems to present itself, we should be veryskeptical. For example:▪In the case of short- versus long-term rates, and borrowing short-term versus long-term, there are different risks involved. For example, suppose that weneed the money long-term but we borrow short-term. When the short-termnote is due, we must somehow refinance. However; this may not be possible,or may be possible only at a very high interest rate.▪In the case of Japanese versus United States interest rates, there is the risk that the Japanese yen - U.S. dollar exchange rate will change during theperiod of time for which we have borrowed.17. This does present some evidence against the efficient capital market hypothesis.One key to market efficiency is the high level of competition among participantsin the market. For small stocks, the level of competition is relatively low because major market participants (e.g., mutual funds and pension funds) are biasedtoward holding the securities of larger, well-known companies. Thus, it isplausible that the market for small stocks is fundamentally different from themarket for larger stocks and, hence, that the small-firm effect is simply areflection of market inefficiency.But there are at least two alternative possibilities. First, this difference might just be coincidental. In statistical inference, we never prove an affirmative fact. Thebest we can do is to accept or reject a specified hypothesis with a given degreeof confidence. Thus, no matter what the outcome of a statistical test, there isalways a possibility, however slight, that the small-firm effect is simply the result of statistical chance.Second, firms with small market capitalization may contain some type ofadditional risk that is not measured in the studies. Given the information available and the number of participants, it is hard to believe that any securities market in the U.S is not very efficient. Thus, the most likely explanation for the small-firmeffect is that the model used to estimate expected returns is incorrect, and thatthere is some as-yet-unidentified risk factor.18. There are several ways to approach this problem, but all (when done correctly!)should give approximately the same answer. We have chosen to use theregression analysis function of an electronic spreadsheet program to calculatethe alpha and beta for each security. The regressions are in the following form: Security return = alpha + (beta ⨯ market return) + error term The results are:Alpha BetaExecutive Cheese 0.803 0.956Paddington Beer -0.834 0.730The abnormal return for Executive Cheese in February 2007 was:–2.1 – [0.803 + 0.956 ⨯ (–7.7)] = 4.31%For Paddington Beer, the abnormal return was:–9.4 – [-0.834 + 0.73 ⨯ (–7.7)] = –2.95%Thus, the average abnormal return of the two stocks during the month of theearnings announcement was –0.68%.19. The market is most likely efficient. The government of Kuwait is not likely to havenon-public information about the BP shares. Goldman Sachs is providing anintermediary service for which they should be remunerated. Stocks are bought by investors at (higher) ask prices and sold at (lower) bid prices. The spreadbetween the two ($0.11) is revenue for the broker. In the U.S., at that time, a bid-ask spread of 1/8 ($0.125) was not uncommon. The ‘profit’ of $15 million reflects the size of the order more than any mispricing.20. Any time there is a separation of ownership and control, it is possible that theresulting agency costs will lead to market distortions. Many people hire others(explicitly or implicitly) to manage their money, and these managers may nothave the same incentives to push for the best price. Over large markets, wemight expect many of these distortions to have less impact, but someimperfections may remain.As described in the text, one example of this is mortgage securitization market.Because banks were paid a fee for packaging the securities and did not retainthe risks of ownership, they may not have pushed for adequate underwriting.This may have lead to easy credit terms and a housing market bubble.21. Opinion question; answers will vary. Some of the blame may indeed rest withborrowers who held overly-optimistic views of housing market appreciation and of their ability to repay mortgages. Similarly, purchasers of mortgage backedsecurities may have unwisely believed that these instruments offered anadequate return. Alternative explanations include inaccurate ratings, agency cost problems (where loan originators lacked incentives to underwrite the loanseffectively, the purchase activity and implicit government backing of Fannie Mae and Freddie Mac, and other information asymmetry problems.22. a. The probability that mutual fund X achieved superior performance in anyone year is 0.50. The probability that mutual fund X achieved superiorperformance in each of the past ten years is:0.510 = 0.00097656b. The probability that, out of 10,000 mutual funds, none of them obtainedten successive years of superior performance is:(1 – 0.00097656)10,000 = 0.00005712Therefore, the probability that at least one of the 10,000 mutual fundsobtained ten successive years of superior performance is:1 – 0.00005712 = 0.9999428823. It is difficult to define ex ante rules for identifying bubbles where prices differ fromsome measure of intrinsic value. Research in this area focuses on excessive。
曼昆经济学原理英文版文案加习题答案13章
221WHAT’S NEW IN THE S EVENTH EDITION:There are no major changes to this chapter.LEARNING OBJECTIVES:By the end of this chapter, students should understand:➢ what items are included in a firm’s costs of production.➢ the link between a f irm’s production process and its total costs.➢ the meaning of average total cost and marginal cost and how they are related.➢ the shape of a typical firm’s cost curves.➢ the relationship between short-run and long-run costs.CONTEXT AND PURPOSE:Chapter 13 is the first chapter in a five-chapter sequence dealing with firm behavior and the organization of industry. It is important that students become comfortable with the material in Chapter 13 because Chapters 14 through 17 are based on the concepts developed in Chapter 13. To be more specific, Chapter 13 develops the cost curves on which firm behavior is based. The remaining chapters in thissection (Chapters 14-17) utilize these cost curves to develop the behavior of firms in a variety of different market structures —competitive, monopolistic, monopolistically competitive, and oligopolistic.The purpose of Chapter 13 is to address the costs of production and develop the firm’s cost curves. These cost curves underlie the firm’s supply curve. In previous chapters, we summarized the firm’s production decisions by starting with the supply curve. While this is suitable for answering manyquestions, it is now necessary to address the costs that underlie the supply curve in order to address the part of economics known as industrial organization —the study of how firms’ decisions about prices and quantities depend on the market conditions they face.KEY POINTS:•The goal of firms is to maximize profit, which equals total revenue minus total cost.THE COSTS OF PRODUCTION13222 ❖Chapter 13/The Costs of Production• When analyzing a firm’s behavior, it is important to include all the opportunity costs of production.Some of the opportunity costs, such as the wages a firm pays its workers, are explicit. Otheropportunity costs, such as the wages the firm owner gives up by working at the firm rather than taking another job, are implicit. Economic profit takes both explicit and implicit costs into account, whereas accounting profits consider only explicit costs.• A firm’s costs reflect its production process. A typical firm’s production function gets flatter as the quantity of an input increases, displaying the property of diminishing marginal product. As a result, a firm’s total-cost curve gets steeper as the quantity produced rises.• A firm’s total costs can be divided between fixed costs and variable costs. Fixed costs are costs that do not change when the firm alters the quantity of output produced. Variable costs are costs that change when the firm alters the quantity of output produced.• From a firm’s total cost, two related measures of cost are derived. Average total cost is total cost divided by the quantity of output. Marginal cost is the amount by which total cost rises if output increases by one unit.• When analyzing firm behavior, it is often useful to graph average total cost and marginal cost. For a typical firm, marginal cost rises with the quantity of output. Average total cost first falls as output increases and then rises as output increases further. The marginal-cost curve always crosses the average-total-cost curve at the minimum of average total cost.• A firm’s costs often depend on the time horizon considered. In particular, many costs are fixed in the short run but variable in the long run. As a result, when the firm changes its level of production, average total cost may rise more in the short run than in the long run.CHAPTER OUTLINE:I. What Are Costs?A. Total Revenue, Total Cost, and Profit1. The goal of a firm is to maximize profit.Chapter 13/The Costs of Production ❖ 2232. Definition of total revenue: the amount a firm receives for the sale of its output.3. Definition of total cost: the market value of the inputs a firm uses in production.4. Definition of profit: total revenue minus total cost.B. Costs as Opportunity Costs1. Principle #2: The cost of something is what you give up to get it.2. The costs of producing an item must include all of the opportunity costs of inputs used inproduction. 3. Total opportunity costs include both implicit and explicit costs.a. Definition of explicit costs: input costs that require an outlay of money by thefirm .b. Definition of implicit costs: input costs that do not require an outlay of moneyby the firm .c. The total cost of a business is the sum of explicit costs and implicit costs.d. This is the major way in which accountants and economists differ in analyzing theperformance of a business. e. Accountants focus on explicit costs, while economists examine both explicit and implicitcosts.C. The Cost of Capital as an Opportunity Cost 1. The opportunity cost of financial capital is an important cost to include in any analysis of firmperformance. 2. Example: Caroline uses $300,000 of her savings to start her firm. It was in a savings accountpaying 5% interest.3. Because Caroline could have earned $15,000 per year on this savings, we must include thisopportunity cost. (Note that an accountant would not count this $15,000 as part of the firm's costs.)224 ❖ Chapter 13/The Costs of Production4. If Caroline had instead borrowed $200,000 from a bank and used $100,000 from her savings,the opportunity cost would not change if the interest rate stayed the same (according to the economist). But the accountant would now count the $10,000 in interest paid for the bank loan.D. Economic Profit versus Accounting Profit1. Figure 1 highlights the differences in the ways in which economists and accountants calculateprofit. 2. Definition of economic profit: total revenue minus total cost, including both explicitand implicit costs .a. Economic profit is what motivates firms to supply goods and services.b. To understand how industries evolve, we need to examine economic profit. 3. Definition of accounting profit: total revenue minus total explicit cost .4. If implicit costs are greater than zero, accounting profit will always exceed economic profit.II. Production and CostsA. The Production Function1. Definition of production function: the relationship between quantity of inputs usedto make a good and the quantity of output of that good.2. Example: Caroline's cookie factory. The size of the factory is assumed to be fixed; Carolinecan vary her output (cookies) only by varying the labor used.Chapter 13/The Costs of Production ❖ 2253. Definition of marginal product: the increase in output that arises from an additionalunit of input.a. As the amount of labor used increases, the marginal product of labor falls.b. Definition of diminishing marginal product: the property whereby the marginalproduct of an input declines as the quantity of the input increases.4. We can draw a graph of the firm's production function by plotting the level of labor (x -axis)against the level of output (y -axis).226 ❖Chapter 13/The Costs of ProductionFigure 2a. The slope of the production function measures marginal product.b. Diminishing marginal product can be seen from the fact that the slope falls as theamount of labor used increases.B. From the Production Function to the Total-Cost Curve1. We can draw a graph of the firm's total cost curve by plotting the level of output (x-axis)against the total cost of producing that output (y-axis).a. The total cost curve gets steeper and steeper as output rises.b. This increase in the slope of the total cost curve is also due to diminishing marginalproduct: As Caroline increases the production of cookies, her kitchen becomesovercrowded, and she needs a lot more labor.Chapter 13/The Costs of Production ❖227III. The Various Measures of CostA. Example: Conrad’s Coffee Shop228 ❖Chapter 13/The Costs of ProductionB. Fixed and Variable Costs1. Definition of fixed costs: costs that do not vary with the quantity of outputproduced.2. Definition of variable costs: costs that do vary with the quantity of output produced.3. Total cost is equal to fixed cost plus variable cost.C. Average and Marginal Cost1. Definition of average total cost: total cost divided by the quantity of output.2. Definition of average fixed cost: fixed costs divided by the quantity of output.3. Definition of average variable cost: variable costs divided by the quantity of output.4. Definition of marginal cost: the increase in total cost that arises from an extra unitof production.Chapter 13/The Costs of Production ❖ 2295. Average total cost tells us the cost of a typical unit of output and marginal cost tells us thecost of an additional unit of output.D. Cost Curves and Their Shapes1. Rising Marginal Costa. This occurs because of diminishing marginal product.b. At a low level of output, there are few workers and a lot of idle equipment. But as outputincreases, the coffee shop gets crowded and the cost of producing another unit of output becomes high.2. U-Shaped Average Total Costa. Average total cost is the sum of average fixed cost and average variable cost.b. AFC declines as output expands and AVC typically increases as output expands. AFC ishigh when output levels are low. As output expands, AFC declines pulling ATC down. As fixed costs get spread over a large number of units, the effect of AFC on ATC falls and ATC begins to rise because of diminishing marginal product. c. Definition of efficient scale: the quantity of output that minimizes average totalcost. 3. The Relationship between Marginal Cost and Average Total Costa. Whenever marginal cost is less than average total cost, average total cost is falling.Whenever marginal cost is greater than average total cost, average total cost is rising.b. The marginal-cost curve crosses the average-total-cost curve at minimum average totalcost (the efficient scale).230 ❖ Chapter 13/The Costs of Production4. Typical Cost Curvesa. Marginal cost eventually rises with output.b. The average-total-cost curve is U-shaped.c. Marginal cost crosses average total cost at the minimum of average total cost.Activity 2—Average and Marginal GradesType: In-class demonstration Topics: Relationship between marginal and average cost Materials needed: None Time: 5 minutes Class limitations: Works in any size classPurposeThis quick exercise uses an analogy to illustrate to students that they already know the relation between marginal values and averages.InstructionsTell the class that two twins (Miley and Hannah) are enrolled in Principles of Economics. They each had a “B” average (GPA = 3.0) before taking the class.Miley gets a “C” in the course. What happens to her GPA?Hannah gets an “A” in the class. What happens to her GPA?Common Answers and Points for DiscussionStudents will likely know that Miley will have a lower GPA and Hannah a higher GPA. A “marginal” grade lower than the average will pull down the average. A “marginal” grade higher than the average will increase the average.The same is true of marginal cost and average costs. If marginal cost is less than average cost, average cost will fall. If marginal cost is higher than average cost, average cost will rise. Figure 5IV. Costs in the Short Run and in the Long RunA. The division of total costs into fixed and variable costs will vary from firm to firm.B. Some costs are fixed in the short run, but all are variable in the long run.1. For example, in the long run a firm could choose the size of its factory.2. Once a factory is chosen, the firm must deal with the short-run costs associated with thatplant size.C. The long-run average-total-cost curve lies along the lowest points of the short-run average-total-cost curves because the firm has more flexibility in the long run to deal with changes in production.D. The long-run average-total-cost curve is typically U-shaped, but is much flatter than a typicalshort-run average-total-cost curve.E. The length of time for a firm to get to the long run will depend on the firm involved.F. Economies and Diseconomies of Scale1. Definition of economies of scale: the property whereby long-run average total costfalls as the quantity of output increases.2. Definition of diseconomies of scale: the property whereby long-run average totalcost rises as the quantity of output increases.3. Definition of constant returns to scale: the property whereby long-run average totalcost stays the same as the quantity of output changes.Figure 6 Emphasize that these cost curves include ALL costs for the resources needed toproduce the good. Thus, both explicit costs and implicit costs are included.4. FYI: Lessons from a Pin Factorya. In The Wealth of Nations, Adam Smith described how specialization in a pin factoryallowed output to be greater than it would have been if each worker attempted toperform many different tasks.b. The use of specialization allows firms to achieve economies of scale.V. Table 3 provides a summary of all of the various cost definitions used throughout this chapter.Table 3SOLUTIONS TO TEXT PROBLEMS:Quick Quizzes1. Farmer McDonald’s opportunity c ost is $300, consisting of 10 hours of lessons at $20 an hourthat he could have been earning plus $100 in seeds. His accountant would only count theexplicit cost of the seeds ($100). If McDonald earns $200 from selling the crops, thenMcDonald earns a $100 accounting profit ($200 sales minus $100 cost of seeds) but incursan economic loss of $100 ($200 sales minus $300 opportunity cost).2. Farmer Jones’s production function is shown in Figure 1 and his total-cost curve is shown inFigure 2. The production function becomes flatter as the number of bags of seeds increasesbecause of the diminishing marginal product of seeds. The total-cost curve gets steeper asthe amount of production increases. This feature is also due to the diminishing marginalproduct of seeds, since each additional bag of seeds generates a lower marginal product, andthus, the cost of producing additional bushels of wheat rises.Figure 1 Figure 23. The average total cost of producing 5 cars is $250,000/5 = $50,000. Since total cost rosefrom $225,000 to $250,000 when output increased from 4 to 5, the marginal cost of the fifthcar is $25,000.The marginal-cost curve and the average-total-cost curve for a typical firm are shown inFigure 3. They cross at the efficient scale because at low levels of output, marginal cost isbelow average total cost, so average total cost is falling. But after the two curves cross,marginal cost rises above average total cost, and average total cost starts to rise. So thepoint of intersection must be the minimum of average total cost.Figure 34. The long-run average total cost of producing 9 planes is $9 million/9 = $1 million. The long-run average total cost of producing 10 planes is $9.5 million/10 = $0.95 million. Since thelong-run average total cost declines as the number of planes increases, Boeing exhibitseconomies of scale.Questions for Review1. The relationship between a firm's total revenue, profit, and total cost is profit equals totalrevenue minus total costs.2. An accountant would not count the owner’s opportunity cost of alternative employment as anaccounting cost. An example is given in the text in which Caroline runs a cookie business, butshe could instead work as a computer programmer. Because she's working in her cookiefactory, she gives up the opportunity to earn $100 per hour as a computer programmer. Theaccountant ignores this opportunity cost because money does not flow into or out of the firm.But the cost is relevant to Caroline’s decision to run the cookie factory.3. Marginal product is the increase in output that arises from an additional unit of input.Diminishing marginal product means that the marginal product of an input declines as thequantity of the input increases.4. Figure 4 shows a production function that exhibits diminishing marginal product of labor.Figure 5 shows the associated total-cost curve. The production function is concave becauseof diminishing marginal product, while the total-cost curve is convex for the same reason.Figure 4 Figure 55. Total cost consists of the costs of all inputs needed to produce a given quantity of output. Itincludes fixed costs and variable costs. Average total cost is the cost of a typical unit ofoutput and is equal to total cost divided by the quantity produced. Marginal cost is the cost of producing an additional unit of output and is equal to the change in total cost divided by the change in quantity. An additional relation between average total cost and marginal cost is that whenever marginal cost is less than average total cost, average total cost is declining;whenever marginal cost is greater than average total cost, average total cost is rising.Figure 66. Figure 6 shows the marginal-cost curve and the average-total-cost curve for a typical firm.There are three main features of these curves: (1) marginal cost is U-shaped but risessharply as output increases; (2) average total cost is U-shaped; and (3) whenever marginal cost is less than average total cost, average total cost is declining; whenever marginal cost is greater than average total cost, average total cost is rising. Marginal cost is increasing for output greater than a certain quantity because of diminishing returns. The average-total-cost curve is downward-sloping initially because the firm is able to spread out fixed costs over additional units. The average-total-cost curve is increasing beyond some output levelbecause as quantity increases, the demand for important variable inputs increases; therefore, the cost of these inputs increases. The marginal-cost and average-total-cost curves intersect at the minimum of average total cost; that quantity is the efficient scale.7. In the long run, a firm can adjust the factors of production that are fixed in the short run; forexample, it can increase the size of its factory. As a result, the long-run average-total-costcurve has a much flatter U-shape than the short-run average-total-cost curve. In addition,the long-run curve lies along the lower envelope of the short-run curves.8. Economies of scale exist when long-run average total cost decreases as the quantity ofoutput increases, which occurs because of specialization among workers. Diseconomies ofscale exist when long-run average total cost rises as the quantity of output increases, whichoccurs because of the coordination problems inherent in a large organization.Quick Check Multiple Choice1. a2. d3. d4. c5. b6. aProblems and Applications1. a. opportunity cost; b. average total cost; c. fixed cost; d. variable cost; e. total cost; f.marginal cost.2. a. The opportunity cost of something is what must be given up to acquire it.b. The opportunity cost of running the hardware store is $550,000, consisting of $500,000to rent the store and buy the stock and a $50,000 implicit cost, because your aunt wouldquit her job as an accountant to run the store. Because the total opportunity cost of$550,000 exceeds the projected revenue of $510,000, your aunt should not open thestore, as her economic profit would be negative.3. a. The following table shows the marginal product of each hour spent fishing:b. Figure 7 graphs the fisherman's production function. The production function becomesflatter as the number of hours spent fishing increases, illustrating diminishing marginalproduct.Figure 7c. The table shows the fixed cost, variable cost, and total cost of fishing. Figure 8 showsthe fisherman's total-cost curve. It has an upward slope because catching additional fish takes additional time. The curve is convex because there are diminishing returns tofishing time because each additional hour spent fishing yields fewer additional fish.Figure 84. Here is the completed table:Workers Output MarginalProduct TotalCostAverageTotal CostMarginalCost0 0 --- $200 --- ---1 20 20 300 $15.00 $5.002 50 30 400 8.00 3.333 90 40 500 5.56 2.504 120 30 600 5.00 3.335 140 20 700 5.00 5.006 150 10 800 5.33 10.007 155 5 900 5.81 20.00a. See the table for marginal product. Marginal product rises at first, then declines becauseof diminishing marginal product.b. See the table for total cost.c. See the table for average total cost. Average total cost is U-shaped. When quantity is low,average total cost declines as quantity rises; when quantity is high, average total costrises as quantity rises.d. See the table for marginal cost. Marginal cost is also U-shaped, but rises steeply asoutput increases. This is due to diminishing marginal product.e. When marginal product is rising, marginal cost is falling, and vice versa.f. When marginal cost is less than average total cost, average total cost is falling; the costof the last unit produced pulls the average down. When marginal cost is greater thanaverage total cost, average total cost is rising; the cost of the last unit produced pushesthe average up.5. At an output level of 600 players, total cost is $180,000 (600 × $300). The total cost ofproducing 601 players is $180,901. Therefore, you should not accept the offer of $550,because the marginal cost of the 601st player is $901.6. a. The fixed cost is $300, because fixed cost equals total cost minus variable cost. At anoutput of zero, the only costs are fixed cost.Marginal cost equals the change in total cost for each additional unit of output. It is also equal to the change in variable cost for each additional unit of output. This relationshipoccurs because total cost equals the sum of variable cost and fixed cost and fixed costdoes not change as the quantity changes. Thus, as quantity increases, the increase intotal cost equals the increase in variable cost.7. The following table illustrates average fixed cost (AFC), average variable cost (AVC), andaverage total cost (ATC) for each quantity. The efficient scale is 4 houses per month,because that minimizes average total cost.Quantity VariableCost FixedCostTotalCostAverageFixed CostAverageVariable CostAverageTotal Cost0 $0.00 $200.00 $200.00 --- --- ---1 10.00 200.00 210.00 $200.00 $10.00 $210.002 20.00 200.00 220.00 100.00 10.00 110.003 40.00 200.00 240.00 66.67 13.33 80.004 80.00 200.00 280.00 50.00 20.00 70.005 160.00 200.00 360.00 40.00 32.00 72.006 320.00 200.00 520.00 33.33 53.33 86.677 640.00 200.00 840.00 28.57 91.43 120.008. a. The lump-sum tax causes an increase in fixed cost. Therefore, as Figure 10 shows, onlyaverage fixed cost and average total cost will be affected.Figure 10b. Refer to Figure 11. Average variable cost, average total cost, and marginal cost will all begreater. Average fixed cost will be unaffected.Figure 119. a. The following table shows average variable cost (AVC), average total cost (ATC), andmarginal cost (MC) for each quantity.Quantity VariableCost TotalCostAverageVariable CostAverageTotal CostMarginalCost0 $0.00 $30.00 --- --- ---1 10.00 40.00 $10.00 $40.00 $10.002 25.00 55.00 12.50 27.50 15.003 45.00 75.00 15.00 25.00 20.004 70.00 100.00 17.50 25.00 25.005 100.00 130.00 20.00 26.00 30.006 135.00 165.00 22.50 27.50 35.00b. Figure 12 shows the three curves. The marginal-cost curve is below the average-total-cost curve when output is less than four and average total cost is declining. Themarginal-cost curve is above the average-total-cost curve when output is above four and average total cost is rising. The marginal-cost curve lies above the average-variable-cost curve.Figure 1210. The following table shows quantity (Q), total cost (TC), and average total cost (ATC) for thethree firms:Firm A Firm B Firm CQuantity TC ATC TC ATC TC ATC1 $60.00 $60.00 $11.00 $11.00 $21.00 $21.002 70.00 35.00 24.00 12.00 34.00 17.003 80.00 26.67 39.00 13.00 49.00 16.334 90.00 22.50 56.00 14.00 66.00 16.505 100.00 20.00 75.00 15.00 85.00 17.006 110.00 18.33 96.00 16.00 106.00 17.677 120.00 17.14 119.00 17.00 129.00 18.43Firm A has economies of scale because average total cost declines as output increases. Firm B has diseconomies of scale because average total cost rises as output rises. Firm C has economies of scale from one to three units of output and diseconomies of scale for levels of output beyond three units.。
英文版罗斯公司理财习题答案Chap013
CHAPTER 13CORPORATE FINANCING DECISIONS AND EFFICIENT CAPITAL MARKETS Answers to Concepts Review and Critical Thinking Questions1.To create value, firms should accept financing proposals with positive net present values. Firms cancreate valuable financing opportunities in three ways: 1) Fool investors. A firm can issue a complex security to receive more than the fair market value. Financial managers attempt to package securities to receive the greatest value. 2) Reduce costs or increase subsidies. A firm can package securities to reduce taxes. Such a security will increase the value of the firm. In addition, financing techniques involve many costs, such as accountants, lawyers, and investment bankers. Packaging securities in a way to reduce these costs will also increase the value of the firm. 3) Create a new security. A previously unsatisfied investor may pay extra for a specialized security catering to his or her needs.Corporations gain from developing unique securities by issuing these securities at premium prices.2.The three forms of the efficient markets hypothesis are: 1) Weak form. Market prices reflectinformation contained in historical prices. Investors are unable to earn abnormal returns using historical prices to predict future price movements. 2) Semi-strong form. In addition to historical data, market prices reflect all publicly-available information. Investors with insider, or private information, are able to earn abnormal returns. 3) Strong form. Market prices reflect all information, public or private. Investors are unable to earn abnormal returns using insider information or historical prices to predict future price movements.3. a.False. Market efficiency implies that prices reflect all available information, but it does notimply certain knowledge. Many pieces of information that are available and reflected in prices are fairly uncertain. Efficiency of markets does not eliminate that uncertainty and therefore does not imply perfect forecasting ability.b.True. Market efficiency exists when prices reflect all available information. To be efficient inthe weak form, the market must incorporate all historical data into prices. Under the semi-strong form of the hypothesis, the market incorporates all publicly-available information in addition to the historical data. In strong form efficient markets, prices reflect all publicly and privately available information.c.False. Market efficiency implies that market participants are rational. Rational people willimmediately act upon new information and will bid prices up or down to reflect that information.d. False. In efficient markets, prices reflect all available information. Thus, prices will fluctuatewhenever new information becomes available.e.True. Competition among investors results in the rapid transmission of new market information.In efficient markets, prices immediately reflect new information as investors bid the stock price up or down.B-2 SOLUTIONS4.On average, the only return that is earned is the required return—investors buy assets with returns inexcess of the required return (positive NPV), bidding up the price and thus causing the return to fall to the required return (zero NPV); investors sell assets with returns less than the required return (negative NPV), driving the price lower and thus causing the return to rise to the required return (zero NPV).5.The market is not weak form efficient.6.Yes, historical information is also public information; weak form efficiency is a subset of semi-strong form efficiency.7.Ignoring trading costs, on average, such investors merely earn what the market offers; the trades allhave zero NPV. If trading costs exist, then these investors lose by the amount of the costs.8.Unlike gambling, the stock market is a positive sum game; everybody can win. Also, speculatorsprovide liquidity to markets and thus help to promote efficiency.9.The EMH only says, within the bounds of increasingly strong assumptions about the informationprocessing of investors, that assets are fairly priced. An implication of this is that, on average, the typical market participant cannot earn excessive profits from a particular trading strategy. However, that does not mean that a few particular investors cannot outperform the market over a particular investment horizon. Certain investors who do well for a period of time get a lot of attention from the financial press, but the scores of investors who do not do well over the same period of time generally get considerably less attention from the financial press.10. a.If the market is not weak form efficient, then this information could be acted on and a profitearned from following the price trend. Under (2), (3), and (4), this information is fully impounded in the current price and no abnormal profit opportunity exists.b. Under (2), if the market is not semi-strong form efficient, then this information could be usedto buy the stock ―cheap‖ before the rest of the market discovers the financial statement anomaly. Since (2) is stronger than (1), both imply that a profit opportunity exists; under (3) and (4), this information is fully impounded in the current price and no profit opportunity exists.c.Under (3), if the market is not strong form efficient, then this information could be used as aprofitable trading strategy, by noting the buying activity of the insiders as a signal that the stock is underpriced or that good news is imminent. Since (1) and (2) are weaker than (3), all three imply that a profit opportunity exists. Under (4), this information does not signal any profit opportunity for traders; any pertinent information the manager-insiders may have is fully reflected in the current share price.11. A technical analyst would argue that the market is not efficient. Since a technical analyst examinespast prices, the market cannot be weak form efficient for technical analysis to work. If the market is not weak form efficient, it cannot be efficient under stronger assumptions about the information available.CHAPTER 13 B-3 12.Investor sentiment captures the mood of the investing public. If investors are bearish in general, itmay be that the market is headed down in the future since investors are less likely to invest. If the sentiment is bullish, it would be taken as a positive signal to the market. To use investor sentiment in technical analysis, you would probably want to construct a ratio such as a bulls/bears ratio. To use the ratio, simply compare the historical ratio to the market to determine if a certain level on the ratio indicates a market upturn or downturn.13.Taken at face value, this fact suggests that markets have become more efficient. The increasing easewith which information is available over the internet lends strength to this conclusion. On the other hand, during this particular period, large-capitalization growth stocks were the top performers.Value-weighted indexes such as the S&P 500 are naturally concentrated in such stocks, thus making them especially hard to beat during this period. So, it may be that the dismal record compiled by the pros is just a matter of bad luck or benchmark error.14.It is likely the market has a better estimate of the stock price, assuming it is semistrong formefficient. However, semistrong form efficiency only states that you cannot easily profit from publicly available information. If financial statements are not available, the market can still price stocks based upon the available public information, limited though it may be. Therefore, it may have been as difficult to examine the limited public information and make an extra return.15. a.Aerotech’s stock price should rise immediately after the announcement of the positive news.b. Only scenario (ii) indicates market efficiency. In that case, the price of the stock risesimmediately to the level that reflects the new information, eliminating all possibility of abnormal returns. In the other two scenarios, there are periods of time during which an investor could trade on the information and earn abnormal returns.16. False. The stock price would h ave adjusted before the founder’s death only if investors had perfectforecasting ability. The 12.5 percent increase in the stock price after the founder’s death indicates that either the market did not anticipate the death or that the market had anticipated it imperfectly.However, the market reacted immediately to the new information, implying efficiency. It is interesting that the stock price rose after the announcement of the founder’s death.This price behavior indicates that the market felt he was a liability to the firm.17.The announcement should not deter investors from buying UPC’s stock. If the market is semi-strongform efficient, the stock price will have already reflected the present value of the payments that UPC must make. The expected return after the announcement should still be equal to the expected return before the announcement. UPC’s current stockholders bear the burden of the loss, since the stock price falls on the announcement. After the announcement, the expected return moves back to its original level.18.The market is generally considered to be efficient up to the semi-strong form. Therefore, nosystematic profit can be made by trading on publicly-available information. Although illegal, the lead engineer of the device can pr ofit from purchasing the firm’s stock before the news release on the implementation of the new technology. The price should immediately and fully adjust to the new information in the article. Thus, no abnormal return can be expected from purchasing after the publication of the article.B-4 SOLUTIONS19.Under the semi-strong form of market efficiency, the stock price should stay the same. Theaccounting system changes are publicly available information. Investors would identify no changes in either the firm’s current or its future cash flows. Thus, the stock price will not change after the announcement of increased earnings.20.Because the number of subscribers has increased dramatically, the time it takes for information inthe newsletter to be reflected in prices has shortened. With shorter adjustment periods, it becomes impossible to earn abnormal returns with the information provided by Durkin. If Durkin is using only publicly-available information in its newsletter, its ability to pick stocks is inconsistent with the efficient markets hypothesis. Under the semi-strong form of market efficiency, all publicly-available information should be reflected in stock prices. The use of private information for trading purposes is illegal.21.You should not agree with your broker. The performance ratings of the small manufacturing firmswere published and became public information. Prices should adjust immediately to the information, thus preventing future abnormal returns.22. Stock prices should immediately and fully rise to reflect the announcement. Thus, one cannot expectabnormal returns following the announcement.23. a.No. Earnings information is in the public domain and reflected in the current stock price.b. Possibly. If the rumors were publicly disseminated, the prices would have already adjusted forthe possibility of a merger. If the rumor is information that you received from an insider, you could earn excess returns, although trading on that information is illegal.c. No. The information is already public, and thus, already reflected in the stock price.24. Serial correlation occurs when the current value of a variable is related to the future value of thevariable. If the market is efficient, the information about the serial correlation in the macroeconomic variable and its relationship to net earnings should already be reflected in the stock price. In other words, although there is serial correlation in the variable, there will not be serial correlation in stock returns. Therefore, knowledge of the correlation in the macroeconomic variable will not lead to abnormal returns for investors.25. The statement is false because every investor has a different risk preference. Although the expectedreturn from every well-diversified portfolio is the same after adjusting for risk, investors still need to choose funds that are consistent with their particular risk level.26. The share price will decrease immediately to reflect the new information.At the time of theannouncement, the price of the stock should immediately decrease to reflect the negative information.CHAPTER 13 B-5 27. In an efficient market, the cumulative abnormal return (CAR) for Prospectors would risesubstantially at the announcement of a new discovery. The CAR falls slightly on any day when no discovery is announced. There is a small positive probability that there will be a discovery on any given day. If there is no discovery on a particular day, the price should fall slightly because the good event did not occur. The substantial price increases on the rare days of discovery should balance the small declines on the other days, leaving CARs that are horizontal over time. The substantial price increases on the rare days of discovery should balance the small declines on all the other days, leavings CARs that are horizontal over time.28.Behavioral finance attempts to explain both the 1987 stock market crash and the Internet bubble bychanges in investor sentiment and psychology. These changes can lead to non-random price behavior.Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basic1.To find the cumulative abnormal returns, we c hart the abnormal returns for each of the three airlinesfor the days preceding and following the announcement. The abnormal return is calculated by subtracting the market return from a stock’s return on a particular day, R i– R M. Group the returns by the number of days before or after the announcement for each respective airline. Calculate the cumulative average abnormal return by adding each abnormal return to the previous day’s abnormal return.Abnormal returns (R i– R M)Days fromannouncement Delta United American SumAverageabnormal returnCumulativeaverage residual–3 0.2 –0.1 0.2 0.3 0.1 –0.1 –2 0.2 –0.2 0.0 0.0 0.0 –0.1 –1 0.2 0.2 –0.4 0.0 0.0 –0.10 3.3 0.2 1.9 5.4 1.8 1.71 0.2 0.1 0.0 0.3 0.1 1.82 –0.1 0.0 0.1 0.0 0.0 1.83 –0.2 0.1 –0.2 –0.3 –0.1 1.74 –0.1 –0.1 –0.1 –0.3 –0.1 1.6B-6 SOLUTIONSThe market reacts favorably to the announcements. Moreover, the market reacts only on the day of the announcement. Before and after the event, the cumulative abnormal returns are relatively flat.This behavior is consistent with market efficiency.2. The diagram does not support the efficient markets hypothesis. The CAR should remain relativelyflat following the announcements. The diagram reveals that the CAR rose in the first month, only to drift down to lower levels during later months. Such movement violates the semi-strong form of the efficient markets hypothesis because an investor could earn abnormal profits while the stock price gradually decreased.3. a.Supports. The CAR remained constant after the event at time 0. This result is consistent withmarket efficiency, because prices adjust immediately to reflect the new information. Drops in CAR prior to an event can easily occur in an efficient capital market. For example, consider a sample of forced removals of the CEO. Since any CEO is more likely to be fired following bad rather than good stock performance, CARs are likely to be negative prior to removal. Because the firing of the CEO is announced at time 0, one cannot use this information to trade profitably before the announcement. Thus, price drops prior to an event are neither consistent nor inconsistent with the efficient markets hypothesis.b. Rejects. Because the CAR increases after the event date, one can profit by buying after theevent. This possibility is inconsistent with the efficient markets hypothesis.c.Supports. The CAR does not fluctuate after the announcement at time 0. While the CAR wasrising before the event, insider information would be needed for profitable trading. Thus, the graph is consistent with the semi-strong form of efficient markets.CHAPTER 13 B-7d.Supports. The diagram indicates that the information announced at time 0 was of no value.There appears to be a slight drop in the CAR prior to the event day. Similar to part a, such movement is neither consistent nor inconsistent with the efficient markets hypothesis (EMH).Movements at the event date are neither consistent nor inconsistent with the efficient markets hypothesis.4. Once the verdict is reached, the diagram shows that the CAR continues to decline after the courtdecision, allowing investors to earn abnormal returns. The CAR should remain constant on average, even if an appeal is in progress, because no new information about the company is being revealed.Thus, the diagram is not consistent with the efficient markets hypothesis (EMH).。
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Chapter13 (exercises)I .Answer the following questions in English.1.Carefully describe a futures contract.A future contract is a blinding agreement between a seller and a buyer to make and to take delivery of the underlying commodity at a specified future date with agreed upon payment terms.Futures contracts are standardized with respect to the delivery month.2.Explain how futures contracts are valued daily,It is possible to calculate a theoretical fair value for a futures contract.The fair value of a futures contract should approximately equal the current value of the underlying shares or index,plus an amount referred to as the “cost of carry”.The full value of the contract is not paid or received when the contract is established-instead both buyer and seller pay a small initialmargin.3.Describe the role of the clearinghouse in futures trading.The clearinghouse,an agency or separate corporation of a futures exchange.The clearinghouse becomes the buyer to each seller and assumes responsibility for protecting buyers and sellers from financial loss by assuring performance on each contract.4. Explain the differences between a hedger and a speculator.The difference between hedgers an speculators is the risk.Hedgers are parties at risk with a commodity or an asset,but speculators trads futures with the objective of making a profit by being on the right side of a price move.5. Give a brief description of the history of futures.Both the histories of futures are focused on that how peoplehave tried to improve the effectiveness of the commercial marketplace. 6. What is key difference between forward and futures?Forward contracts and futures comparison: the former is a standardized contract, OTC, flexible and high transaction cost, risk is big. The latter are standardized contracts, exchange as a medium, investors and unlike forward contracts as the direct trading, risk is small.Options and futures comparison: futures trading both sides has rights and obligations. While the option buyer the right to sell only, only obligation. In addition from the gains and losses, the futures of profit and loss is uncertain, but the option buyer 's loss is the option premium.Ⅱ. Fill in the each blank with an appropriate word or expression.1. Futures are binding agreements made between two partiesthrough a regulated futures exchange. Each futures contractspecifies the quantity and quality of the item, expirationmonth, the time of delivery and virtually all the detailsof the transaction except price , which the two partiesnegotiate based on current market conditions.2. The clearinghouse, an agency or separate corporation of afutures exchange, is responsible for settlingtrading accounts, collecting and margin monies,regulatingdelivery and reporting trade data.3. A futures contract is an agreement to purchase or sell acommodity for delivery in the future: ( 1 ) at a price thatis determined at initiation of the contract; (2) whichobligates each party to the contract to the contract at thespecified price; (3) which is used to assume or shift pricerisk ; and(4) which may be satisfied by delivery or offset４. The key to any hedge is that a futures position is taken opposite to the position in the cash market. That is, the natureof cash market position determines the hedge in the futuresmarket.5. Currency futures are standardized contracts that tradelike conventional commodity futures on the floor of a futures exchange.6. These orders,from companies,individuals,and evenmarket-making commercial banks, are happened to the floor ofthe futures exchange.Ⅲ. Translate the following sentences into English.1．商品生产者和经营者在生产和经营过程中，时刻面临着价格波动的风险。
Commodity producers and operators in the production and managementprocess, always faces the risk of price fluctuation.2．价格无论向哪个方向变动，都会给一部分商品生产者和经营者造成损失。
期货市场建立以后，他们可以在期货市场上按预期价格卖出商品和买进商品，锁住成本。
No matter which direction to change the price, will give a partial commodityproducer and operator caused loss. After establishing futures market, they canin the futures market according to the expected price of goods sold and buygoods, lock-in cost.3．期货市场以标准化的交易所交易的证券代替了不规范的远期合约。
The futures market to the standardization of exchange-traded securities instead of irregular forward contract.4．须特别注意的是，交割日的期货价格等于当时的现货价格。
Should special attention is paid on the delivery date, futures price is equal to the spot price5．产品期货交易还可以在一定程度上减少商品价格的波动。
Futures trading can also to some extent to reduce volatility in commodity prices.IV. Translate the following sentences into Chinese.1. Futures trading has a long history, both in the U.S. and around the world.Futures trading on a formal futures exchange in the U.S. originated with the formation of the Chicago Board of Trade (CBT) in the middle of the Nineteenth Century.期货交易有着悠久的历史，在美国和世界各地。