Financial Market

Topics: Federal Reserve System, Fractional-reserve banking, Monetary policy Pages: 3 (1227 words) Published: October 18, 2014
Financial Markets Essay Topics (Final)

1) Explain the difference between commercial banks and investment banks. Discuss their roles in our financial system, how each facilitates capital raising by firms, and how each earns profits. Discuss the potential conflict of interest when these two entities are housed under the same roof.

2) Explain how commercial banks ‘create money’ and what transactions lead to money creation. Discuss the impact on our financial system of a new 100,000 deposit (assuming a 10% reserve requirement), and in theory, how much this deposit will expand the total money supply. Discuss the ledger entries, and how exactly money is created.

3) Discuss why a sale of treasuries by the FED will contract the money supply, and why a purchase of treasuries will expand it. In doing so, first discuss the impact on bank reserves. Also, discuss why buying or selling reserves would have a ten-fold impact on the money supply with a 10% reserve requirement. Finally, discuss whether a higher or lower reserve requirement would have a greater effect on the money supply, and explain why. What is the impact of a zero-reserve requirement?

4) Discuss the difference between capital and reserve requirements. Explain what risks they are intended to control, and how they reduce these risks. Does either control Moral Hazard? Can either reduce Adverse Selection? Explain.

5) Discuss the benefits and risks stemming from off-balance sheet income sources; give examples that are commonly used by banks. Discuss why the specific sources are risky. Also, discuss indicators of bank health, and signs to look for in a failing bank.

6) Discuss the Federal Reserve Act of 1913; what exactly the act did, what the FED was supposed to do, and why it was passed. Did the FED act as anticipated in the stock market crash of 1929. If not, what did it not do that it should have?

7) What was the fundamental mission of the Glass-Steagall Act, and when and why...
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