宏观金融

V. Discussion Question （共20分）Process of multiple deposit creationSimple Model: Holding cash stops the process-currency has no multiple deposit expansion. Banks may not use all of their excess reserves to buy securities of make loans. Depositors’ decisions (how much currency to hold) and bank’s decisions (account of reserves to hold) also causes money supply to change. Determinants of money multiplier;Changes in the required reserves ratio: The money multiplier and the money supply is negatively related to the required reserve ratio.Changes in the Currency Ratio c: negativelyChanges in Excess Reserves Ratio e: negativelyMarket Interest rate: The banking system’s excess reserves ratio e is negatively related to the market interest rate iExpected Deposit Outflows: The excess reserves ratio e is positively related to expected deposited outflows.Additional factorsChanges in the nonborrowed monetary base MBn: The money supply is positively related to the non-borrowed monetary base MBn.Changes in borrowed reserves from the Fed: The money supply is positively related to the level of borrowed reserves, BR, from the Fed.Central bank's monetary policy tools and their advantages and disadvantages 1.Open Market Operations: which affect the quantity of reserves and themonetary base. It is the most important monetary policy tool (dynamic open market operations, defensive open market operation)Advantage: The Fed has complete control over the volume. Being flexible and precise, Being easily reversed, Being implemented quickly.2.Discount Policy: primary credit, secondary credit, seasonal credit.Advantage: the Fed can use it perform its role of lender of last resort.Disadvantage: not completely controlled by the Fed3.Reserve Requirements: which affects the money multiplier.Disadvantage: No longer binding for most banks. Can cause liquidityproblems. Increases uncertainty for banks.IV. Short Answer Questions （共30分）1. Asymmetric information in the financial market (adverse selection and moral hazard); tools to solve adverse selection and moral hazard problems and how they workAsymmetric information: is the situation that arises when one party’s insufficient knowledge about the other party involved in a transaction makes it possible to make accurate decision when conducting the transaction—is an important aspect of financial market.Adverse selection: is an asymmetric information problem that occurs before the transaction: Potential bed credit risks are the ones who most actively seek out loans. Thus the parties who are the most likely to produce an undesirable outcome are the ones most likely to want to engage in the transaction.Moral hazard: arises after the transaction occurs: the lender runs the risk that the borrower will engage in activities that are undesirable from the lender’s point of view because they make it less likely that the loan will be paid back.Moral hazard in equity contracts: called the principal-agent problem(principal (less information for stockholders)) (agent (more information for manager)).when managers own only a small fraction of the firm they work for, the stockholders who own most of the firm’s equity(called the principals) ar e not the same people as the managers of the firm, who are the agents of owners. This separation of ownership and control involves moral hazard, in that the managers in control(the agents) may act in their own interest rather than in the interest of the stockholder—owners because the managers have less incentive to maximize profits than the stockholder—owners do.Moral hazard in Debt market: borrowers have incentives to take on projects that are risker than the lender would like （this prevents the borrower from paying back the loan.）Adverse selection solution: 1.Private production and sale of information(free-rider problem). ernment regulation to increase information (Not always work to solve the adverse selection problem). 3.Financial intermediation.4.Collateral and net worth. Asset=L+E(equity capital)Principal-agent problem solution: 1. Production of Information: Monitoring (Costly State Verification) (free-rider problem) 2. Government regulation to increase information 3. Financial intermediation (Venture capital firm) 4. Debt ContractsMoral hazard solution in debt contracts: 1. Net worth and collateral (incentive compatible). 2. Monitoring and Enforcement of Restrictive Covenants (Discourage undesirable behavior, Encourage undesirable behavior, Keep collateral valuable, Provide information). 3. Financial intermediation2. Capital adequacy management of commercial banks.Bank capital helps prevent bank failure. The amount of capital affects return for the owners (equity holders) of the bank. Regulatory requirement. Benefits the owners of a bank by making their investment safe. Costly to owners of a bank because the higher the bank capital, the lower the return on equity. Choice depends on the state of the economy and levels of confidence.3.Why are American banks losing both cost advantages and incomeadvantages in recent decades?When a bank holds a smaller amount of capital for a given amount of assets, As we have seen, the High Capital Bank initially has 100 million of assets and 10 million of equity, which gives it an equity multiplier of 10. The Low Capital Bank, by contrast,has only 4 million of equity, so its equity multiplier is higher, equaling 25. Suppose that these banks have been equally well run so that both have the same return on asset, 1%. The return on equity for the High Capital Bank equals1%*10=10%. While the return on equity for the Low Capital Bankequals1%*25=25%.Low Capital Banks are earning twice as high a return. Given the return on assets, the lower the bank capital, the higher the return for the owners of the bank.Bank failures and no deposit insurance determined: Increase in deposit outflows and holding of currency (depositors). An increase in the amount of excess reserves (bank).4.OptionsA call option is a contract that gives the owner he right to buy a financial instrument at the exercise price within a specific period time.A put option is a contract that gives the owner the right to sell a financial instrument at the exercise price within a specific period of time.5.Managing Credit RiskLong-term customer relationships:Loan commitmentCollateral and compensating balanceCredit rationingIII. Calculation Questions（共10分）1. Computing the price of common stock.2. Computing the price of coupon bonds.II. Multiple Choice Questions1. Gordon growth model of stock price determination.2. Calculations using duration analysis.3. What rights/obligations does stock put/call option give the seller/buyer of the option?True/False Questions1. Definition of GDPGDP = consumption + investment + (government spending) + (exports − imports) is the market value of all final goods and service produced in a country during the course of the year.2. Definition of financial derivativeA Derivatives is a financial instrument whose value depends on (is derived from) the value of some other financial instrument, called underlying asset3. Definition of interest-rate swapInterest-rate swaps involve the exchange of one set of interest payments for another set of interest payments, all denominated in the same currency.。