LECTURE NOTES FOR MONEY AND BANKING
Matthew Chambers 8/17/2005
PART I: MONEY AND THE FINANCIAL SYSTEM
Chapter 1: An Introduction to Money and the Financial System
The Five Parts of the Financial System
1. Money: Good which is used as a means of payment for exchanging goods. The US uses paper...
are in debt to you), come with a term, either short or long term. A term is the length of time until the bond matures. Credit risk: There is a possibility that the company who issues the bond may not pay interest, or may not return your initial principle payment. The risk comes in that if the company...
InterestRate Risk I
The Central Bank and InterestRate Risk
The Repricing Model
• Rate-Sensitive Assets
• Rate-Sensitive Liabilities
• Equal Changes in Rates on RSAs and RSLs
• Unequal Changes in Rates on RSAs and RSLs
account attracting interest at 5% per annum. When you retire after 40 years, you want to receive a pension equal to 50% of your ﬁnal salary and payable for 20 years. Your earnings are assumed to grow at 2% annually, and you want the pension payments to grow at the same rate.
2.1 Time Value of Money
Guideline Answers to the Concept Check Questions Chapter 5 Valuation
Concept Check 5.1 1. What is valuation? Valuation is the process that links risk and return to estimate the worth of an asset or a firm. 2. What are five types of value? How do they differ? The following are five types of value. • Going-concern...
American Finance Association
Optimal Capital Structure, Endogenous Bankruptcy, and the Term Structure of Credit Spreads Author(s): Hayne E. Leland and Klaus Bjerre Toft Source: The Journal of Finance, Vol. 51, No. 3, Papers and Proceedings of the Fifty-Sixth Annual Meeting of the American Finance...
occur. A probability distribution is a listing, chart or graph of all possible outcomes, such as expected rates of return, with a probability assigned to each outcome.
B) The expected rate of return () is the expected value of a probability distribution of expected returns.
C) A continuous...
a. What are the key features of a bond?
A bond is a long-term contract under which the borrower agrees to make payments of interest and principal, on specific dates, to the holders of the bond. Key features of the bond are the par value, coupon interestrate, maturity date, issue date...
than provided under short-answer questions)
Q1 Describe the role of interestrates in economic decision making. How does expected inflation matter in people's borrowing and investment decisions(See Ch 1, pages 5-6)
- The interestrate on a bank deposit tells you how many dollars you will earn. It does...
(b) affect the profits of businesses.
(c) affect the types of goods and services produced in an economy.
(d) do all of the above.
(e) do only (a) and (b) of the above.
2. Financial market activities affect
(a) personal wealth.
(b) spending decisions by individuals...
It is the government bond to pay for a rate of return in order to adjust for inflation. The purchasing power is maintained regardless of the future rate of inflation.
(b) (2 pts) Prime rate vs. Overnight rate
Prime rate: it is the interestrate that commercial banks charge customers who have...
collateralized mortgage obligations – derivative security that separates the cash flows of a mortgage pool into different classes with different maturities and risks). risk and return are the most important characteristics of financial assets. Another is tax. (high tax-bracket investors would, other...
represented cities. Black and Alvarez, who will make the presentation, have asked you to help them by answering the following questions. A. Answer: What are a bond’s key features? [Show S7-1 through S7-4 here.] If possible, begin this lecture by showing students an actual bond certificate. We show a...
Capital A – Total Assets E – Total Equity D – Total Debt ARE – Accumulated Retained Earnings (Balance Sheet) RE – Retained Earnings (Income Statement) CS – Common Stock NFA – Net Fixed Assets TFA – Total Fixed Assets AD – Accumulated Depreciation EBIT – Earnings before Interest and Taxes EBT – Earnings...
Special Repo Rates: An Introduction
The author is a senior economist in the financial section of the Atlanta Fed’s research department. He thanks Jerry Dwyer, Scott Frame, and Paula Tkac for their comments on an earlier version of the article and Christian Gilles for many helpful discussions...
of a bond with annual or semiannual interest payments.
• Explain why the market value of an outstanding fixed-rate bond will fall when interestrates rise on new bonds of equal risk, or vice versa.
• Calculate the current yield, the yield to maturity, and/or the yield to call on a bond...
FINS2624 S2 2012
FAMILY NAME OTHER NAMES STUDENT ID SIGNATURE
THE UNIVERSITY OF NEW SOUTH WALES SCHOOL OF BANKING AND FINANCE
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contracts. If the investor will gain when the price decreases and lose when the price increases, a long futures position will hedge the risk. If the investor will lose when the price decreases and gain when the price increases, a short futures position will hedge the risk. Thus either a long or a short futures...
Leonardo da Vinci programme project
„Development and Approbation of Applied Courses
Based on the Transfer of Teaching I nnovations
in Finance and Management for Further Education
of Entrepreneurs and Specialists in Latvia, Lithuania and Bulgaria”
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