reports
Chapter 4
Why Do Interest Rates Change?
Determinants of Asset Demand
Wealth
Expected Returns
Risk
Liquidity
Summary
Supply and Demand in the Bond Market
Demand Curve
Supply Curve
Market Equilibrium
Supply and Demand Analysis
Loanable Funds Framework
Changes in Equilibrium Interest Rates
Shifts in the Demand for Bonds
Shifts in the Supply of Bonds
Case: Changes in the Equilibrium Interest Rate Due to Expected Inflation
Or Business Cycle Expansions
Case: Explaining Low Japanese Interest Rates
Case: Reading the Wall Street Journal: The “Credit Markets” Column
The Wall Street Journa l: Following the News: The “Credit Markets” Column
The Practicing Financial Institutions Manager: Profiting from Interest-Rate Forecasts
The Wall Street Journal: Following the News: Forecasting Interest Rates
Appendix 1: Models of Asset Pricing
Appendix 2: Applying the Asset Market Approach to a Commodity Market: The Case of Gold
Appendix 3: Supply and Demand in the Market for Money: The Liquidity Preference Framework
T Overview and Teaching Tips
As is clear in the Preface to the textbook, I believe that financial markets and institutions is taught effectively by emphasizing a few analytic principles and then applying them over and over again to the subject matter of this exciting field. Chapter 4 introduces one of these basic principles: the determinants of asset demand. It indicates that there are four primary factors that influence people’s decisions to hold assets: wealth, expected returns, risk, and liquidity. The simple idea that these four factors explain the demand for assets is, in fact, an extremely powerful one. It is used continually throughout the study of financial markets and institutions and makes it much easier for the student to understand how interest rates are determined, how financial institutions manage their assets and liabilities, why financial innovation takes place, how prices are determined in the stock market and the foreign
Why Do Interest Rates Change?
Determinants of Asset Demand
Wealth
Expected Returns
Risk
Liquidity
Summary
Supply and Demand in the Bond Market
Demand Curve
Supply Curve
Market Equilibrium
Supply and Demand Analysis
Loanable Funds Framework
Changes in Equilibrium Interest Rates
Shifts in the Demand for Bonds
Shifts in the Supply of Bonds
Case: Changes in the Equilibrium Interest Rate Due to Expected Inflation
Or Business Cycle Expansions
Case: Explaining Low Japanese Interest Rates
Case: Reading the Wall Street Journal: The “Credit Markets” Column
The Wall Street Journa l: Following the News: The “Credit Markets” Column
The Practicing Financial Institutions Manager: Profiting from Interest-Rate Forecasts
The Wall Street Journal: Following the News: Forecasting Interest Rates
Appendix 1: Models of Asset Pricing
Appendix 2: Applying the Asset Market Approach to a Commodity Market: The Case of Gold
Appendix 3: Supply and Demand in the Market for Money: The Liquidity Preference Framework
T Overview and Teaching Tips
As is clear in the Preface to the textbook, I believe that financial markets and institutions is taught effectively by emphasizing a few analytic principles and then applying them over and over again to the subject matter of this exciting field. Chapter 4 introduces one of these basic principles: the determinants of asset demand. It indicates that there are four primary factors that influence people’s decisions to hold assets: wealth, expected returns, risk, and liquidity. The simple idea that these four factors explain the demand for assets is, in fact, an extremely powerful one. It is used continually throughout the study of financial markets and institutions and makes it much easier for the student to understand how interest rates are determined, how financial institutions manage their assets and liabilities, why financial innovation takes place, how prices are determined in the stock market and the foreign