fabozzi_金融市场与金融机构基础课后答案.doc
《金融市场与金融机构》课后习题答案
《金融市场与金融机构》米什金第七版课后习题答案（请集中复习1-6、10-13、15章）
第一章为什么研究金融市场与金融机构
第二章金融体系概览
第三章利率的含义及其在定价中的作用
第四章为什么利率会变化
第五章利率的风险结构和期限结构如何影响利率
第六章金融市场是否有效
第十章货币政策传导：工具、目标战略和战术
第七版中的12题在第五六版中没有，此处的12-19题即为第七版的13-20题
第十一章货币市场
第十二章债券市场
第十三章股票市场
第十四章抵押贷款市场
第十五章外汇市场
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(完整word版)Fabozzi_金融市场与金融机构基础课后答案12
C H A P T E R12R I S K/R E T U R N A N D A S S E T P R I C I N G M O D E L S PORTFOLIO THEORYPortfolio theory proceeds from the axiom that investors seek to maximize returns given some risk level they are willing to accept. Portfolios that maximize the expected return from an investment subject to a given level of risk are said to be efficient. From among efficient portfolios, the one which risk-averse investors prefer, is said to be an optimal portfolio. To construct an efficient portfolio, it is necessary to understand what is meant by expected return and risk.Investment ReturnThe return on an investment portfolio during a given interval of time is equal to the change in value of the portfolio plus any distributions received from the assets in the portfolio. These returns are expressed as a fraction of the initial portfolio value.R = (V1– V0 + D) / V0where V1 = portfolio value at the end of intervalV0 = portfolio value at the beginning of intervalD = cash distribution during intervalFor purposes of comparison, returns are expressed per unit of time, usually a year. If several years of units are included in the time horizon, then the return can be computed by averaging the return over the several unit intervals. There are three averaging methods in use: (1) the arithmetic average return (simple average of total return divided by number of time units), (2) time-weighted rate of return (also referred to as the geometric average), (3) dollar weighted return. One measure of risk is the extent to which future portfolio values are likely to diverge from the expected value.Portfolio RiskPortfolio risk can be measured in terms of the dispersion of returns about the expected value or mean return. The variance of return is a weighted sum of the squared deviations from the expected return. The standard deviation is the square root of the variance.Expected Portfolio ReturnA particularly useful way to quantify the uncertainty about the portfolio return is to specify the probability associated with each of the possible future returns and calculate the expected value of the portfolio return. The expected value is the weighted average of the possible outcomes, where the weights are the relative chances of occurrence. The expected return on the portfolio isexpressed as:E(R) = P1 R1 + P2 R2 + . . . + P N R NProbability distributions can take various shapes. For a symmetrical distribution, the dispersion of returns on one side of the expected return is the same as the dispersion on the other side of the expected return. The risk of a portfolio is measured by the variance and standard deviation of returns.DiversificationDiversification results from combining securities whose returns are less than perfectly correlated in order to reduce portfolio risk. It smoothes out the variation of returns and reduces the variability. Much of the total risk is diversifiable. But not all risks can be eliminated via diversification. Unsystematic risk (that which relates uniquely to the security or issuing firm) can be substantially reduced with a large, well-diversified portfolio. Still some risks remain which affect all firms to some degree (e.g. business cycles and interest rate changes). This is the market or systematic risk.Mathematically, a security’s return is compos ed of: R =βrm + e where, beta is a market sensitivity index, indicating how sensitive the security return is to changes in the market level. The unsystematic return is independent of the market return and is represented by the epsilon e. The systematic risk of a security is equal to β times the standard deviation of the market return. The unsystematic risk equals the standard deviation of the residual return factor. Portfolio systematic risk is equal to the portfolio beta factor times the risk of the market index. The portfolio beta factor is simply the average of the individual security betas, weighted by the proportion of each security in the portfolio.The Risk of Individual SecuritiesThe systematic risk of an individual security is that portion of its total risk that cannot be eliminated by combining it with other securities in a well diversified portfolio. Thus, we have: Security Return = Systematic Return + Unsystematic ReturnThe security return may be expressed as:R = β R M + ε where ε is unsystematic returnThe security return model is usually written in such a way that the average value of the unsystematic return is zero. This is accomplished by adding a factor alphaαto the model to represent the average value of the unsystematic returns over time.R = α + β R M + ε where ε is unsystematic returnThis model for security returns is referred to as the market model.Estimating BetaBeta can be estimated by regressing returns of a security on the returns of a market portfolio. Since historical data are employed the beta computed will vary with the time period used, number of observations, and market index employed. Thus a question may be raised about the stability of beta over time.THE CAPITAL ASSET PRICING MODELThe capital asset pricing model (CAPM) asserts that the expected return on a portfolio should exceed the risk-less rate of return by an amount that is proportional to the portfolio beta. The relationship between expected return and risk should be linear.Underlying AssumptionsThe model contains several critical assumptions: (1) investors are risk-averse; (2) investors have common time horizon; (3) investors have homogeneous expectations; (4) perfect markets exist, with no transactions costs and borrowing rates are equal to lending rates.Tests of the CAPMOne major difficulty in testing the CAPM is that the model is stated in terms of investor expectations and not in terms of required returns. Yet a number of tests have been tried, the results suggesting that there is indeed a linear risk/return relationship. More noted is Roll’s critique which states while the CAPM is testable in principle, no correct test of the theory has yet been presented. There is only one potentially testable hypothesis, namely that the true market portfolio is mean-variance efficient. Because the true market portfolio must contain all worldwide assets, the value of most of which cannot be observed, the hypothesis is in all probability untestable.THE MULTIFACTOR CAPMThe CAPM assumes the only risk is uncertainty about future market prices. But Robert Merton suggests that there exist extra-market sources of risk of concern to investors as well, such as future income, inflation, future investment opportunities. These risks affect ability to consume goods and to invest in securities in the future. Thus Merton has developed a “multifactor CAPM” to incorporate these extra-market risks in the model. In essence a security’s return has a Beta sensitivity to several factors. What these precise factors are and how many, however, has not been established. Thus this model is even harder to test than the straight CAPM.ARBITRAGE PRICING THEORY MODELDeveloped by Stephen Ross, the arbitrage pricing model (APT) assumes that there are several factors that determine the rate of return on a security, not just one as in the case of the CAPM. Rather, a security’s return is linearly related to “H” factors, but what they are is not specified. It is like the multifactor CAPM but distinguished from it in that it does not require a market index or standard deviation of returns.Empirical EvidenceEmpirical work suggests the following four plausible factors:1. unanticipated changes in industrial production;2. unanticipated changes in the spread between the yield on low grade and high grade bonds;3. unanticipated changes in interest rates and the shape of the yield curve;4. unanticipated changes in inflation.ATTACKS ON THE THEORYPortfolio theory is a normative theory. It describes how investors should behave. However, a number of positive theories have challenged portfolio theory by showing disparities between how investors should behave and how they actually behave.Asset Return Distribution and Risk MeasuresThere is empirical evidence to suggest that the probability distribution of returns is not normal, but is skewed. This means that between periods when the market exhibits relatively modest changes in returns, there will be periods when there are changes that are much higher (i.e., crashes and bubbles) than the normal distribution predicts.Assault by the Behavioral Finance Theory CampBehavioral finance looks at how psychology affects investor decisions and the implications not only for portfolio theory but also asset pricing theory and market efficiency. There are three themes in the behavioral finance literature: (1) investors err in making investment decisions because they rely on rules of thumb, (2) investors are influenced by form as well as substance in making investment decisions, (3) prices in the financial market are affected by errors and decision frames.The first theme involves heuristics, a term meaning a rule of thumb strategy to follow in order to shorten the time it takes to make a decision. There are circumstances where heuristics can workfairly well. But it can also lead to cognitive biases, or heuristic-driven biases.The second theme involves the concept of framing, meaning the way in which a situation or choice is presented to an investor can drive results. For example, investors often fail to treat the value of their stock portfolio at market value. Instead, they have a “mental account” where they continue to market the value of each stock in their portfolio at the purchase price despite the change in the market value.The third them of behavioral finance involves how errors caused by heuristics and framing dependence affect the pricing of assets.ANSWERS TO QUESTIONS FOR CHAPTER 12(Questions are in bold print followed by answers.)1. A friend has asked you to help him figure out a statement he received from his broker. It seems that, at the start of last year, your friend paid $900 for a bond, and sold it at the end of the year for $890. During the year, he received a single coupon payment of $110. The statement claims that his return (not including commissions and taxes) is 11.11% for the year. Is this claim correct?Returns can be measured by taking all the cash flows (interest payments and capital gains) and dividing by the cost of the security. The formula is:R=(I+P1-P0)/P0=$110+$890-$900/$900=11.11%,so the statement is correct.2. Suppose the probability distribution for the one-period return of some asset is as follows:Return Probability0.20 0.100.15 0.200.10 0.300.03 0.25-0.06 0.15a. W hat is this asset’s expected one-period return?b. What is this asset’s variance and standard deviation for the one-period return?a.The expected return for the asset is:(0.20) (0.10) + (0.15) (0.20) + (0.10) (0.30) + (0.03) (0.25) + (-0.06) (0.15) = 7.85%b.The asset’s return variance is:(0.10) [0.20-0.0785]2+(0.20) [0.15-0.0785]2+(0.30) [0.10-0.0785]2+(0.25) [0.03-0.0785]2+(0.15) [(-0.06) -0.0785] 2=0.006102.The square root of the variance is the standard deviation. Hence, the standard deviation is 0.07812.3. “A portfolio’s expected return and variance of return are simply the weighted average of the expected return and variance of the individual assets.” Do you agree with this statement?This statement is only partially correct. A portfolio’s expe cted return is a weighted average of the expected return of the assets comprising the portfolio. But the portfolio variance is not because it also depends on the correlation (covariance) of the asset returns.4. In the January 25, 1991, issue of The Value Line Investment Survey, you note the following:Company Beta (β)IBM 0.95Bally Manufacturing 1.40Cigna Corporation 1.00British Telecom 0.60a.How do you interpret these betas?b.Is it reasonable to assume that the expected return on British Telecom is less thanthat on IBM shares?c.“Given that Cigna Corporation has a β of 1.00, one can mimic the performance ofthe stock market as a whole by buying only these shares.” Do you agree with thisstatement?a.These figures represent the systematic risk of these stocks; how the stock’s return shouldmove relative to a market index return.b.According to the CAPM, the higher the beta, the greater the expected return. So, accordingtot he reported values for beta, the expected return for British Telecom is less than for IBM.c.This statement is not true. Investing in only these shares will still expose the investor to muchunsystematic risk, which can only be diversified away by investing in a portfolio of different securities.5. Assume the following:Expected market return = 15%Risk-free rate = 5.7%If a security’s beta is 1.3, what is its expected return according to the CAPM?The expected return is:.07+1.3 (.15-.07) =.174=17.4%, (assume risk free rate =7%).6. Professor Harry Markowitz, corecipient of the 1990 Nobel Prize in Economics, wrote the following:A portfolio with sixty different railway securities, for example, wouldnot be as well diversified as the same size portfolio with some railroad,some public utility, mining, various sorts of manufacturing, etc.Why is this true?This is true because railway securities are likely to be highly correlated with each other, whereas a well-diversified portfolio of issues from different industries leads to elimination of unsystematic risk.7. Following is an excerpt from an article, “Risk and Reward,” in The Economist of October 20, 1990:Next question: is the CAPM supported by the facts? That iscontroversial, to put it mildly. It is a tribute to Mr. Sharpe [cowinnerof the 1990 Nobel Prize in Economics] that his work, which dates fromthe early 1960s, is still argued over so heatedly. Attention has latelyturned away from beta to more complicated ways of carving up risk.But the significance of CAPM for financial economics would be hardto exaggerate.a.Summarize Roll’s argument on the problems inherent in empirically verifying theCAPM.b.What are some of the other “more complicated ways of carving up risk”?a.Roll argues that while the CAPM is testable in principle, no correct test of the theory has yetbeen presented. He also argues that there is practically no possibility that a correct test will be done because there is only one potentially testable hypothesis associated with the CAPM, namely that the true market portfolio is mean-variance efficient. Since this portfolio must contain all worldwide assets, the value of most of which cannot be observed, the hypothesis is probably untestable.b.CAPM assumes investors are only concerned with one risk -- the future prices of their assets.Merton asserts that there are other investor concerns, such as the ability to consume goods and services in the future. He has tried to incorporate more than one risk factor in his model.8.a.What are the difficulties in practice of applying the arbitrage pricing theory model?b.Does Roll’s criticism also apply to this pricing model?c.“In the CAPM investors should be compensated for accepting systematic risk: forthe APT model, investors are rewarded for accepting both systematic risk andunsystematic risk.” Do you agree with this statement?a.The difficulty lies in identifying the systematic factors.b.Roll’s criticism does not apply to the APT model because that model does not rely on a truemarket index.c.This statement is true for the CAPM, but not for the APT model. The latter also asserts thatinvestors should be compensated only for accepting systematic risk. But unlike the CAPM, there is more than one systematic risk.9.a.What does it mean that a return distribution has a fat tail?b.What is the implication if a return distribution is assumed to be normallydistributed but is in fact a fat-tailed distribution?a.Probability distributions are not normal, but are instead skewed. The tails of the distributionare more likely than predicted by a normal probability distribution.b.The implication is that between periods when the market exhibits relatively modest changesin returns, there will be periods when there are changes that are much higher (i.e., crashes and bubbles) than the normal distribution predicts.10. How does the behavioral finance approach differ from the standard finance theory approach?Standard financial theory assumes investors are rational utility maximizers. Behavioral finance theory challenges this assumption. It argues that investors are systematically subject to cognitive biases and errors. They make decisions based on mental shortcuts, called heuristics, and these shortcuts are not necessarily consistent with rational wealth maximizing behavior as predicted by the standard finance theory.。
金融市场与金融机构中文答案
金融市场与金融机构中文答案【篇一：fabozzi_金融市场与金融机构基础课后答案】the u.s. federal reserveand the creation of moneycentral banks and their purposethe primary role of a central bank is to maintain the stability of the currency and money supply for a country or a group of countries. the role of central banks can be categorized as: (1) risk assessment, (2) risk reduction, (3) oversight of payment systems, (4) crisis management.one of the major ways a central bank accomplishes its goals is through monetary policy. for this reason, central banks are sometimes called monetary authority. in implementing monetary policy, central banks, acting as a reserve bank, require private banks to maintain and deposit the required reserves with the central bank. in times of financial crisis, central banks perform the role of lender of last resort for the banking system. countries throughout the world may have central banks. additionally, the european central bank is responsible for implementing monetary policy for the member countries of the european union.in implementing monetary and economic policies, the united states is a member of an informal network of nations. this group started in 1976 as the group of 6, or g6: us, france, germany, uk, italy, and japan. thereafter, canada joined to for the g7. in 1998, russia joined to form the g8.the central bank of the united states: the federal reserve systemthe federal reserve system consists of 12 banking districts covering the entire country. created in 1913, the federal reserve is the government agency responsible for the management of the us monetary and banking systems. it is independent of the political branches of government. the fed is managed by a seven-member board of governors, who are appointed by the president and approved by congress.the fed’s tools for monetary management have been made more difficult by financial innovations. the public’s increasing acceptance of money market mutual funds has funneled alarge amount of money into what are essentially interest-bearing checking accounts. securitization permits commercial banks to change what once were illiquid consumer loans of several varieties into securities. selling these securities gives the banks a source of funding that is outside the fed’s influence.instrument of monetary policy: how the fed influences the supply of moneythe fed has three instruments at its disposal to affect the level of reserves.under our fractional reserve banking system have to maintain specified fractional amounts of reserves against their deposits. the fed can raise or lower these required reserve ratios, thereby permitting banks to decrease or increase their lending and investment portfolios. a bank’s total reserves equal its required reserves plus any excess reserves.the fed’s most powerful instrument is its authority to conduct open market operation. it buys and sells in open debt markets government securities for its own accounts. the fed prefers to use treasury bills because it can make its substantial transactions without seriously disrupting the prices or yields of bills.the federal open market committee, or fomc, is the unit that decides on the general issues of changing the rate of growth in the money supply, by open market sales or purchases of securities. the implementation of policy through open market operations is the responsibility of the trading desk of the federal reserve bank of new york.the fed often employs variants of simple open market purchases and sales, these are called the repurchase agreement (or repo) and the reverse repo. in a repo, the fed buys a particular amount of securities from a seller that agrees to repurchase the same number of securities for a higher price at some future time. in a reverse repo, the fed sells securities and makes a commitment to buy them back at a higher price later.a bank borrowing from the fed is said to use the discount window. the discount rate is the rate charged to banks borrowing directly from the fed. raising the rate is designed todiscourage such borrowing, while lowering should have the opposite effect.different kinds of moneymoney is that item which serves as a numeraire. in a basic sense money can be defined as anything that serves as a unit of account and medium of exchange. we measure prices in dollars and exchange dollars for goods. hence coins, currency, and any items readily exchanged into dollars (checking deposits or now accounts) constitute our money supply.money and monetary aggregatesmonetary aggregates measure the amount of money available to the economy at any time. the monetary base is defined as currency in circulation (coins and federal reserve notes) and reserves in the banking system. the instruments that serve as a medium of exchange can be narrowly defined as m1, which is currency and demand deposits. m2 is m1 plus time and savings accounts, and money market mutual funds. finally, m3 is m2 plus short-term treasury liabilities. while all three aggregates are watched and monitored, m1 is the most common form of the money supply, with its trait as being the most liquid. the ratio of the money supply to the economy’s income is known as the velocity of money.the money multipier: the expansion of the money supplythe money multiplier effect arises from the fact that a small change in reserves can produce a large change in the money supply. through our fractional reserve system, a small increase will allow an individual bank, to lend out the greater part of these additional funds. these loans subsequently become deposits in other banks allowing them to expand proportionately. so, while one bank can expand its loans (or deposits) by an amount 1% of reserves required, all banks in the system can do likewise. thus, in a simple format total change in deposits can be stated as change in reserves divided by the reserve requirement, which is also the formula for perpetuity. for example, if the change in the level of reserves is $100 and the reserve requirement is 20%, the change in total deposits will be $500 for a multiplier of 5. of course, major assumptions are that banks will fully loan out their excess reserves and that depositors will not withdraw any of these extra reserves.the impact of interest rates on the money supplyhigh rates of interest may make keeping excess reserves costly, since unused funds represent loans not made and interest not earned. high rates of interest will also affect the public’s demand for hol ding cash. if deposits pay competitive interest rates, customers will be more willing to hold such bank liabilities and less cash. therefore, a higher rate of interest can actually spur growth of the money supply. more likely, however, it will deter borrowing and slow monetary growth.the money supply process in an open economyin the modern era, almost every country has an open economy. foreign commercial and central banks hold dollar accounts in the united states. their purchases and sales of these deposits can affect exchange rates of the dollar against their own currency. the fed has responsibility for maintaining stability in exchange rates. a purchase of foreign exchange with dollars depreciates the dollar’s value, but it also adds dollars to the accounts of foreign banks in this country, thus adding to the u.s. monetary base. most central banks of large economies own or stand ready to own a large amount of each of the world’s major currencies, which are considered international reserves. sales of foreign exchange transactions have monetary base implication and hence consequences for the domestic money supply, emphasis is given to coordinating monetarypolicies among developed nations.answers to questions for chapter 4(questions are in bold print followed by answers.)1. what is the role of a central bank?the role of a central bank has several functions: risk assessment, risk reduction, oversight of payment systems, and crisis management. it can do this through monetary policies, and through the implementation of regulations.2. why is it argued that a central bank should be independent of the government?central banks should be independent of the short-term political interests and political influences generally in setting economic policies.3. identify each participant and its role in the process bywhich the money supply changes and monetary policy is implemented.the fed determines monetary policy and seeks to implement it through changes in reserves. it is up to the nation’s banking system to act on changes in reserves thereby affecting deposits, which constitute the greater part of the m1 definitionof the money supply.4. describe the structure of the board of governors of the federal reserve system.the board of governors of the federal reserve system consistsof 7 members who are appointed to staggered 14-year terms.the board reviews discount operations and sets legal reserve requirements. in addition, all 7 members of the board serve on the federal open market committee (fomc), which determinesthe direction and magnitude of open-market operations. such operations constitute the key instrument for implementing monetary policy.5.a. explain what is meant by the statement “the united stateshas a fractional reserve banking system.”b. how are these items related: total reserves, required reserves, and excess reserves?a. a fractional reserve system requires that a fraction orpercent of a bank’s reserve be placed either in currency invault or with the federal reserve system.b. total reserves are the amounts that banks hold in cash or at the fed. required reserves are amounts required by the fed to meet some specific or legal reserve ratio to deposits. excess reserves are bank reserves in currency and at the fed whichare in excess of legal requirements. since these amounts arenon-interest bearing, banks are often willing to lend these surplus funds to deficit banks at the fed funds rate.【篇二：金融市场与金融机构基础(第9章) 英文版答案】ter 9(questions are in bold print followed by answers.)1. your broker is recommending that you purchase u.s. government bonds. here is the explanation: listen, in thesetimes of uncertainty, with many companies going bankrupt, itmakes sense to play it safe and purchase long-term government bonds. they are issued by the u.s. government, so they are risk free. how would you respond to the broker?u.s. government bonds may be free of default risk, but they are not free from interest rate risk, which may cause the bond price to decline, resulting in a capital loss should the holder of bond sell it before maturity. even then there is the inflation premium risk, which means that the principal may have less purchasing power at maturity than it does today.2. you just inherited 30,000 shares of a company you have never heard of, abd corporation. you call your broker to find out if you have finally struck it rich. afterseveral minutes, she comes back on the telephone and says: “i don’t have a clue about these shares. it’s too bad they are not traded in a financial market. that would make life a lot easier for you. ”what does she mean by this?if the shares are traded on the market, and if the market is efficient, the current price would denote the value of the stock. without market price information, share value would have to be approximated through other time-consuming and less reliable methods.3. suppose you own a bond that pays $75 yearly in coupon interest and that is likely to be called in two years (because the firm has already announced that it will redeem the issue early). the call price will be $1,050.what is the price of your bond now, in the market, if the appropriate discount rate for this asset is 9%?po = $75 (pvifa) 2.09 + $1050 (pvif) 2.09= $75 x 1.7591 + $1050 x .8417 = $1015.724. your broker has advised you to buy shares of hungry boy fast foods, which has paid a dividend of $1.00 per year for 10 years and will (according to the broker) continue to do so for many years. the broker believes that the stock, which now has a price of $12, will be worth $25 per share in five years. you have good reason to think that the discount rate for this firm’s stock is 22% per year, because that rate compensates the buyer for all pertinent risks. is the stock’s present price a good approximation of its true financial value?po = $1 (pvifa) 5.22 + $25 x (pvif) 5.22 = .3715 = $12.15the price is right, in fact the stock is slightly undervalued.5. you have been considering a zero-coupon bond, which pays no interest but will pay a principal of $1,000 at the end of five years. the price of the bond is now $712.99, and its required rate of return is 7.0%. this morning’s news contained a surprising development. the government announced that the rate of inflation appears to be 5.5% instead of the 4% that most people had been expecting. (suppose most people had thought the real rate of interest was 3%.) what would be the price of the bond, once the market began to absorb this new information about inflation?the nominal required rate of return is (real rate plus inflation) ir + if or currently 3% plus 4% = 7%. if if becomes 5.5% then the new required rate of return becomes 8.5%. the price of the bond would then be $1000/(1.085)5 or $665.05.6. state the difference in basis points between each of the following:a. 5.5% and 6.5%b. 7% and 9%c. 6.4% and 7.8%d. 9.1% and 11.9%a. 100 basis pointsb. 200 basis pointsc. 140 basis pointsd. 280 basis points7.a. does a rise of 100 basis points in the discount rate change the price of a 20-year bond as much as it changes the price of a four-year bond, assuming that both bonds have the same coupon rate and offer the same yield?b. does a rise of 100 basis points in the discount rate change the price of a 4% coupon bond as much as it changes the price of a 10% coupon bond, assuming that both bonds have the same maturity and offer the same yield?c. does a rise of 100 basis points in the discount rate change the price of a 10-year bond to the same extent if the discount rate is 4% as it does if the discount rate is 12%?a. the price of the 20-year bond will fall more than that of the 4-year bond because there are more years for the new discount to apply to the cash flows of the 20-year bond.b. the price of the low coupon bond will change more due to the low amount of cash flows that can be reinvested at the higher rate.c. a change from the 4% base will lead to a larger change in price.8.during the early 1980s, interest rates for many long-term bonds were above 14%. in the early 1990s, rates on similar bonds were far lower. what do you think this dramatic decline in market interest rates means for the price volatility of bonds in response to a change in interest rates?since the direction of the interest rate change is downward, price volatility should increase.9.a. what is the cash flow of a 6% coupon bond that pays interest annually, matures in seven years, and has a principal of $1,000?b. assuming a discount rate of 8%, what is the price of this bond?c. assuming a discount rate of 8.5%, what is the price of this bond?d. assuming a discount rate of 7.5%, what is the price of this bond?e. what is the duration of this bond, assuming that the price is the one you calculated in part (b)?f. if the yield changes by 100 basis points, from 8% to 7%, by how much would you approximate the percentage price change to be using your estimate of duration in part (e)?g. what is the actual percentage price change if the yield changes by 100 basis points?a. $60 a year interest for 7 years plus $1000 principal in year 7 for a total of $1420 in cash flow.b. 5.2064 x $60 + .583 x $1000 = $895.38c. 5.119 x $60 + .565 x $1000 = $872.14d. 5.297 x $60 + .603 x $1000 = $920.82e. =$48.68/8.95=5.44$895.38 (0.85-.075)f. applying the formula-d (change in yield) = -5.44 (.01) or a price increase of 5.42%.g. price at 8% =$895.88, at 7% = $946.06, so actual percentage change is ($946.06 - $895.88)/$895.88=5.6%.10. why is it important to be able to estimate the duration of a bond or bond portfolio?to answer this question, we must understand that duration is related to percentage price change.a simple formula can be used to calculate the approximate duration of a bond or bond portfolio. all we are interested in is the percent price change of a bond when interest rates change by a small amount. to control interest rate risk, it is thus necessary to be able to measure it. duration provides that measure.11. explain why you agree or disagree with the following statement: “determining the duration of a financial asset is a simple process.”disagree. determining the duration of a financial asset is not simple process. because for most assets, the cash flow can change when interest rates change. therefore, if a change in the cash flow is not considered, duration calculations can be misleading.12. explain why the effective duration is a more appropriate measure of a complexfinancial instrument’s price sensitiv ity to interest rate changes than is modified duration.modified duration is derived with the assumption that cash flows do not change as interest rates change. effective duration is calculated with the assumption of changing cash flows. for complex finan cial instruments’ price sensitivity to interest rate changes could be very large. hence, the importance of effective duration becomes significant.【篇三：米什金《金融市场与金融机构》课后习题及其答案】class=txt>345。
Fabozzi 金融机构基础课后答案
C H A P T E R8P E N S I O N F U N D SINTRODUCTION TO PENSION FUNDSA pension plan is a fund that is established for the payment of retirement benefits. Pension plans are set up by plan sponsors to pay retirement benefits. Monies are placed in the funds by the employer/employees and earnings compound tax-free until withdrawn at retirement. The key factor explaining pension fund growth is that the employer’s contributions and specified amount of the employee’s contributions, as well as the earnings of the fund assets, a re tax exempt. In essence, a pension is a form of employee remuneration for which the employee is not taxed until funds are withdrawn.TYPE OF PENSION PLANSDefined Benefit PlanIn a defined benefit plan, payments are specified upon retirement by the sponsor. The amount available upon retirement becomes a function of the amount placed in the fund and years of service. The pension obligations are effectively the obligation of the plan sponsor, who assumes the risk of insufficient funding to meet contractual payments. Plan sponsors often buy annuities from insurance companies, thereby shifting the risk to these companies. Such plans are called insured benefit plans, though the phrase is a misnomer in that the benefits are guaranteed only so far as the insurance company can provide the funds.The Pension Benefit Guaranty Corporation (PBGC), established under ERISA provides only for vested benefits payments in event of discontinuation by the plan sponsor. Defined benefit plans are expensive and hard to implement when few employees work for only one company over many years.Benefits become vested when employees reach a certain age and complete enough years of service to meet minimum requirement for receiving benefits. In recent years, firms have not adopted defined benefit plans. Major firms that have them have been freezing their plans. This is because they are costly and firms have found that the plans hinder their competitiveness.Defined Contribution PlansIn a defined contribution plan, the plan sponsor provide only for specified contributions to the fund. No guarantees are given as to the amount of benefits that will be available upon retirement. Thus the risk of poor performance is borne by the employee. Such plans are usually provided under Section 401 K of the Revenue Code, and the employee can usually direct what group will manage these funds. The fastest-growing sector of DCP is the 401k, 403(b) and 457. By end of 1999, over one trillion dollars had been placed in 401k. The largest public sponsor of a defined contribution plan is the Federal Retirement Thrift ($233 billion).Hybrid Pension PlansIn an effort to offset the flaws of the defined contribution and benefit plans, a number of companies have started to select hybrid pension plans, wherein an employer contributes a certain amount each year. A pre-set minimal benefit level is specified, but if the plan does not meet this goal, the employee must make up the deficit.A cash balance plan is basically a defined benefit that has some of the features of a defined contribution plan. A cash balance plan defines future pension benefits. Each participant in a cash balance plan has an account that is credited with a dollar amount that resembles an employer contribution and is generally determined as a percentage of pay. The plan usually provides benefits in the form of a lump-sum distribution as annuity. Interest is credited to the employee’s account at a rate specified in the plan and is unrelated to the investment earnings of the employer’s pensio n trust.INVESTMENTSDefined benefit plans allocate more than 65% of their funds to equities and fixed-income securities. Defined contribution plans favor insurance company GICs. Since some qualified pension funds are exempt from federal taxes they have little use for municipal bonds in their portfolio. There are no federal restrictions on foreign securities investments, although sponsors may deny management this privilege.REGULATIONBecause pension plans are crucial for U.S. workers, pension plans are regulated under the Employee Retirement Income Security Act of 1974 (ERISA). Its major provisions include:1. Minimum funding standards: a plan sponsor must make to he pension plan; cannot “pay as you go”;2. Fiduciary responsibility: must follow “prudent man” rule in investment practices;3. Minimum vesting standards; for example that after five years of employment, a participant is entitled to 25% of accrued pension benefits.4. Created PBGC for vested benefits funded by premiums under direct benefit plans.MANAGERS OF PENSION FUNDSA plan sponsor chooses one of the following to manage assets: (1) in-house staff, (2) outside money management firms, (3) combination of both. In addition to money managers, advisers called consultants provide other advisory services provided to pension plan sponsors. These include:1.Developing an investment policy and asset allocation;2.Providing actuarial advice;3.Designing benchmark performance measures;4.Monitoring performance;5.Providing specialized research.DEFINED BENEFIT CRISISToday, there is a crisis facing defined benefit pension plans. At the end of 2003, corporate pension underfunding or deficit was close to $250 billion. Some estimates double this number. In essence, corporate and public plan sponsors have systematically underestimated pension liabilities. Pension funding is a cost that affects earnings. The returns on pension assets can be an earning if the projected return exceeds liabilities. This creates a perverse incentive to overstate projected returns and understate liabilities. The bottom line is that the failure to properly value pension liabilities because of the use of an inappropriate discount rate and the impact it had on the allocation decision among major asset classes to justify a high forecast return on assets were the two major contributing factors to this financial crisis.PENSION PROTECTION ACT OF 2006The Pension Protection Act of 2006 (PPA) contains two major parts. The first part modifies ERISA in the following way:1.It required underfunded plans to pay additional premiums to the Pension BenefitGuaranty Corporation.2.It extended the requirement that companies that terminate their pension plans provideextra funding to the pension system.3.It closed loopholes that allowed underfunded plans to skip pension payments.4.It raised the caps on the amount that companies can contribute to their pension plans sothey can contribute more during prosperous times.5.It required that companies measure their pension plan obligations more accurately.6.It prevented companies with underfunded pension plans from providing extra benefits totheir workers without paying for these benefits up front.The second part of the PPA relates primarily to individuals’ use of defined contribution plans. According to the PPA, employers can automatically enroll their employees in a defined contribution plan. It also permits employers to choose default options on behalf of the planparticipants who do not make an election on how to invest their funds, and enables employers to obtain more investment advice for their employees by removing the fiduciary liability based on the perceived conflict of interest of self-interested investment advice provided by the employer.ANSWERS TO QUESTIONS FOR CHAPTER 8(Questions are in bold print followed by answers.)1. What is a plan sponsor?A plan sponsor is a corporation or public agency that establishes a retirement plan for its employees. Plan sponsors include private businesses, federal, state, and local governments, unions, not-for-profit organizations, and even individuals setting up plans for themselves.2. How does a defined-benefit plan differ from a defined-contribution plan?In a defined contribution plan, the sponsor and/or employees are responsible only for making specified (hence “defined”) contributions to the plan. There is no guarantee of what amount will be available upon retirement. Hence the employee bears the risk of whether he will have an adequate retirement income. Under a defined benefit plan the sponsor agrees to provide specified dollar payments to employees upon their retirement. The amount to be paid is usually determined by a formula, which considers length of time of employment and income level.Herein the employer takes the risk of having sufficient funding to meet future needs. Vested benefits are guaranteed by the Pension Benefit Guaranty Corporation (PBGC), wherein an employer contributes a certain amount each year. A pre-set minimal benefit level is specified, but if the plan does not meet this goal, the employee must make up the deficit.3. Why have some corporations frozen their defined benefit plans?Pension plans are too costly and some companies have found it difficult to compete with other firms.4.a.What is a cash balance plan?b.Discuss the resemblance of a cash balance plan to a defined-benefit and a defined-contribution plan.a. A cash balance plan is basically a defined benefit that has some of the features of a definedcontribution plan. It defines future pension benefits. Each participant in a cash balance plan has an account that is credited with a dollar amount that resembles an employer contribution and is generally determined as a percentage of pay. The plan usually provides benefits in the form of a lump-sum distribution a s an annuity. Interest is credited to the employee’s account at a rate specified in the plan and is unrelated to the investment earnings of the employer’s pension trust.b. A cash balance plan is similar to defined benefits in the sense that benefits are fixed based ona formula. Investment responsibility is borne by the employer, and employees areautomatically included in the plan. It is similar to defined contribution in the sense that assets are accumulated in an “account” for each employee and vested asse ts may be taken as a lump sum and rolled into an IRA.5.a.What is an insured pension plan?b.What is the function of PBGC?a.An insured plan is one administered by an insurance company providing annuities uponretirement. Unless the PBGC is involved for defined benefits, there is no further insurance. b.The Pension Benefit Guaranty Corporation insures vested benefits under defined benefitsplans in the event of corporate failures. It charges premiums for this service. Currently, the PBGC itself is close to insolvency due to fact that many corporate plans are under-funded and PBGC itself has little enforcement power. Also, many companies have dropped defined benefit plans in favor of defined contribution plans to save themselves premium payments and pass on the risks of providing adequate retirement income to the employees themselves.6. What role do mutual funds play in 401(k) plans?A 401k plan is a defined contribution plan. The employee can select a qualified plan in which to place his retirement contributions. These contributions are tax deferred as is the income generated by the fund. A mutual fund can qualify as a 401k plan, thus allowing it to generate tax-deferred earnings on behalf of the employee.7. Can and do pension plans invest in foreign securities or tax-exempt securities?U.S. pension funds are free to invest in foreign securities. However, plan sponsors may set local restrictions. It is also true for tax-exempt securities.8.a.What is the major legislation regulating pension funds?b.Does the legislation require every corporation to establish a pension fund?a.Pension plans are regulated under the Employee Retirement Income Security Act of 1974 asamended. This legislation establishes the types of plans covered, funding and vesting requirements, and the PBGC.b.There is currently no legislation that requires a corporation to establish a pension plan. But ifit does so, it must comply with ERISA regulations.9. Discuss ERISA’s “prudent man” rule.ERISA’s “prudent man role” establishes fiduciary stand ards for pension fund trustees and managers. The rule seeks to determine which investments are proper to make sure that the trustee takes the role seriously in acquiring and using the information pertinent to making an investment decision.10. Who are plan sponsor consultants and what is their role?In addition to money managers, advisors call plan sponsor as consultants they provide other advisory services to pension plan sponsors. Among the functions that consultants provide to plan sponsors include developing plan for investment policy, providing actuarial advice, designing benchmarks and measuring and monitoring the performance of the fund’s money managers.11. In 2001, investor Warren Buffett had this to say about pension accounting: Unfortunately, the subject of pension [return] assumptions, critically important though it is, almost never comes up in corporate board meetings. . . . And now, of course, the need for discussion is paramount because these assumptions that are being made, with all eyes looking backward at the glories of the 1990s, are so extreme.a.What does Mr. Buffett mean by the “pension return assumption”?b.Why is the pension return assumption important in pension accounting inaccordance with generally accepted accounting principles?c.Why is the pension return assumption important in pension accounting inaccordance with Internal Revenue rules?d.Mr. Buffet went on to warn that too high an assumed return on pension assets riskslitigation for a company’s chief financial officer, its board, and its auditors. Why? a.The assumptions that management or plan administrator uses to project pension fund growthrates, and amounts of assets and liabilities.b.The assumptions determine whether plan assets can meet liabilities. Overly optimistic returnlead to conclusions that liabilities will be met and that the fair value of the plan is positive.c.There are IRS regulations that determine the actual amount of funding required.d.Too high an assumed return on pension assets may mislead plan participants on the issue ofplan solvency. Such deception may lead to litigation.。
Fabozzi_金融市场与金融机构基础课后答案12
C H A P T E R12R I S K/R E T U R N A N D A S S E T P R I C I N G M O D E L S PORTFOLIO THEORYPortfolio theory proceeds from the axiom that investors seek to maximize returns given some risk level they are willing to accept. Portfolios that maximize the expected return from an investment subject to a given level of risk are said to be efficient. From among efficient portfolios, the one which risk-averse investors prefer, is said to be an optimal portfolio. To construct an efficient portfolio, it is necessary to understand what is meant by expected return and risk.Investment ReturnThe return on an investment portfolio during a given interval of time is equal to the change in value of the portfolio plus any distributions received from the assets in the portfolio. These returns are expressed as a fraction of the initial portfolio value.R = (V1– V0 + D) / V0where V1 = portfolio value at the end of intervalV0 = portfolio value at the beginning of intervalD = cash distribution during intervalFor purposes of comparison, returns are expressed per unit of time, usually a year. If several years of units are included in the time horizon, then the return can be computed by averaging the return over the several unit intervals. There are three averaging methods in use: (1) the arithmetic average return (simple average of total return divided by number of time units), (2) time-weighted rate of return (also referred to as the geometric average), (3) dollar weighted return. One measure of risk is the extent to which future portfolio values are likely to diverge from the expected value.Portfolio RiskPortfolio risk can be measured in terms of the dispersion of returns about the expected value or mean return. The variance of return is a weighted sum of the squared deviations from the expected return. The standard deviation is the square root of the variance.Expected Portfolio ReturnA particularly useful way to quantify the uncertainty about the portfolio return is to specify the probability associated with each of the possible future returns and calculate the expected value of the portfolio return. The expected value is the weighted average of the possible outcomes, where the weights are the relative chances of occurrence. The expected return on the portfolio isexpressed as:E(R) = P1 R1 + P2 R2 + . . . + P N R NProbability distributions can take various shapes. For a symmetrical distribution, the dispersion of returns on one side of the expected return is the same as the dispersion on the other side of the expected return. The risk of a portfolio is measured by the variance and standard deviation of returns.DiversificationDiversification results from combining securities whose returns are less than perfectly correlated in order to reduce portfolio risk. It smoothes out the variation of returns and reduces the variability. Much of the total risk is diversifiable. But not all risks can be eliminated via diversification. Unsystematic risk (that which relates uniquely to the security or issuing firm) can be substantially reduced with a large, well-diversified portfolio. Still some risks remain which affect all firms to some degree (e.g. business cycles and interest rate changes). This is the market or systematic risk.Mathematically, a security’s return is compos ed of: R =βrm + e where, beta is a market sensitivity index, indicating how sensitive the security return is to changes in the market level. The unsystematic return is independent of the market return and is represented by the epsilon e. The systematic risk of a security is equal to β times the standard deviation of the market return. The unsystematic risk equals the standard deviation of the residual return factor. Portfolio systematic risk is equal to the portfolio beta factor times the risk of the market index. The portfolio beta factor is simply the average of the individual security betas, weighted by the proportion of each security in the portfolio.The Risk of Individual SecuritiesThe systematic risk of an individual security is that portion of its total risk that cannot be eliminated by combining it with other securities in a well diversified portfolio. Thus, we have: Security Return = Systematic Return + Unsystematic ReturnThe security return may be expressed as:R = β R M + ε where ε is unsystematic returnThe security return model is usually written in such a way that the average value of the unsystematic return is zero. This is accomplished by adding a factor alphaαto the model to represent the average value of the unsystematic returns over time.R = α + β R M + ε where ε is unsystematic returnThis model for security returns is referred to as the market model.Estimating BetaBeta can be estimated by regressing returns of a security on the returns of a market portfolio. Since historical data are employed the beta computed will vary with the time period used, number of observations, and market index employed. Thus a question may be raised about the stability of beta over time.THE CAPITAL ASSET PRICING MODELThe capital asset pricing model (CAPM) asserts that the expected return on a portfolio should exceed the risk-less rate of return by an amount that is proportional to the portfolio beta. The relationship between expected return and risk should be linear.Underlying AssumptionsThe model contains several critical assumptions: (1) investors are risk-averse; (2) investors have common time horizon; (3) investors have homogeneous expectations; (4) perfect markets exist, with no transactions costs and borrowing rates are equal to lending rates.Tests of the CAPMOne major difficulty in testing the CAPM is that the model is stated in terms of investor expectations and not in terms of required returns. Yet a number of tests have been tried, the results suggesting that there is indeed a linear risk/return relationship. More noted is Roll’s critique which states while the CAPM is testable in principle, no correct test of the theory has yet been presented. There is only one potentially testable hypothesis, namely that the true market portfolio is mean-variance efficient. Because the true market portfolio must contain all worldwide assets, the value of most of which cannot be observed, the hypothesis is in all probability untestable.THE MULTIFACTOR CAPMThe CAPM assumes the only risk is uncertainty about future market prices. But Robert Merton suggests that there exist extra-market sources of risk of concern to investors as well, such as future income, inflation, future investment opportunities. These risks affect ability to consume goods and to invest in securities in the future. Thus Merton has developed a “multifactor CAPM” to incorporate these extra-market risks in the model. In essence a security’s return has a Beta sensitivity to several factors. What these precise factors are and how many, however, has not been established. Thus this model is even harder to test than the straight CAPM.ARBITRAGE PRICING THEORY MODELDeveloped by Stephen Ross, the arbitrage pricing model (APT) assumes that there are several factors that determine the rate of return on a security, not just one as in the case of the CAPM. Rather, a security’s return is linearly related to “H” factors, but what they are is not specified. It is like the multifactor CAPM but distinguished from it in that it does not require a market index or standard deviation of returns.Empirical EvidenceEmpirical work suggests the following four plausible factors:1. unanticipated changes in industrial production;2. unanticipated changes in the spread between the yield on low grade and high grade bonds;3. unanticipated changes in interest rates and the shape of the yield curve;4. unanticipated changes in inflation.ATTACKS ON THE THEORYPortfolio theory is a normative theory. It describes how investors should behave. However, a number of positive theories have challenged portfolio theory by showing disparities between how investors should behave and how they actually behave.Asset Return Distribution and Risk MeasuresThere is empirical evidence to suggest that the probability distribution of returns is not normal, but is skewed. This means that between periods when the market exhibits relatively modest changes in returns, there will be periods when there are changes that are much higher (i.e., crashes and bubbles) than the normal distribution predicts.Assault by the Behavioral Finance Theory CampBehavioral finance looks at how psychology affects investor decisions and the implications not only for portfolio theory but also asset pricing theory and market efficiency. There are three themes in the behavioral finance literature: (1) investors err in making investment decisions because they rely on rules of thumb, (2) investors are influenced by form as well as substance in making investment decisions, (3) prices in the financial market are affected by errors and decision frames.The first theme involves heuristics, a term meaning a rule of thumb strategy to follow in order to shorten the time it takes to make a decision. There are circumstances where heuristics can workfairly well. But it can also lead to cognitive biases, or heuristic-driven biases.The second theme involves the concept of framing, meaning the way in which a situation or choice is presented to an investor can drive results. For example, investors often fail to treat the value of their stock portfolio at market value. Instead, they have a “mental account” where they continue to market the value of each stock in their portfolio at the purchase price despite the change in the market value.The third them of behavioral finance involves how errors caused by heuristics and framing dependence affect the pricing of assets.ANSWERS TO QUESTIONS FOR CHAPTER 12(Questions are in bold print followed by answers.)1. A friend has asked you to help him figure out a statement he received from his broker. It seems that, at the start of last year, your friend paid $900 for a bond, and sold it at the end of the year for $890. During the year, he received a single coupon payment of $110. The statement claims that his return (not including commissions and taxes) is 11.11% for the year. Is this claim correct?Returns can be measured by taking all the cash flows (interest payments and capital gains) and dividing by the cost of the security. The formula is:R=(I+P1-P0)/P0=$110+$890-$900/$900=11.11%,so the statement is correct.2. Suppose the probability distribution for the one-period return of some asset is as follows:Return Probability0.20 0.100.15 0.200.10 0.300.03 0.25-0.06 0.15a. W hat is this asset’s expected one-period return?b. What is this asset’s variance and standard deviation for the one-period return?a.The expected return for the asset is:(0.20) (0.10) + (0.15) (0.20) + (0.10) (0.30) + (0.03) (0.25) + (-0.06) (0.15) = 7.85%b.The asset’s return variance is:(0.10) [0.20-0.0785]2+(0.20) [0.15-0.0785]2+(0.30) [0.10-0.0785]2+(0.25) [0.03-0.0785]2+(0.15) [(-0.06) -0.0785] 2=0.006102.The square root of the variance is the standard deviation. Hence, the standard deviation is 0.07812.3. “A portfolio’s expected return and variance of return are simply the weighted average of the expected return and variance of the individual assets.” Do you agree with this statement?This statement is only partially correct. A portfolio’s expe cted return is a weighted average of the expected return of the assets comprising the portfolio. But the portfolio variance is not because it also depends on the correlation (covariance) of the asset returns.4. In the January 25, 1991, issue of The Value Line Investment Survey, you note the following:Company Beta (β)IBM 0.95Bally Manufacturing 1.40Cigna Corporation 1.00British Telecom 0.60a.How do you interpret these betas?b.Is it reasonable to assume that the expected return on British Telecom is less thanthat on IBM shares?c.“Given that Cigna Corporation has a β of 1.00, one can mimic the performance ofthe stock market as a whole by buying only these shares.” Do you agree with thisstatement?a.These figures represent the systematic risk of these stocks; how the stock’s return shouldmove relative to a market index return.b.According to the CAPM, the higher the beta, the greater the expected return. So, accordingtot he reported values for beta, the expected return for British Telecom is less than for IBM.c.This statement is not true. Investing in only these shares will still expose the investor to muchunsystematic risk, which can only be diversified away by investing in a portfolio of different securities.5. Assume the following:Expected market return = 15%Risk-free rate = 5.7%If a security’s beta is 1.3, what is its expected return according to the CAPM?The expected return is:.07+1.3 (.15-.07) =.174=17.4%, (assume risk free rate =7%).6. Professor Harry Markowitz, corecipient of the 1990 Nobel Prize in Economics, wrote the following:A portfolio with sixty different railway securities, for example, wouldnot be as well diversified as the same size portfolio with some railroad,some public utility, mining, various sorts of manufacturing, etc.Why is this true?This is true because railway securities are likely to be highly correlated with each other, whereas a well-diversified portfolio of issues from different industries leads to elimination of unsystematic risk.7. Following is an excerpt from an article, “Risk and Reward,” in The Economist of October 20, 1990:Next question: is the CAPM supported by the facts? That iscontroversial, to put it mildly. It is a tribute to Mr. Sharpe [cowinnerof the 1990 Nobel Prize in Economics] that his work, which dates fromthe early 1960s, is still argued over so heatedly. Attention has latelyturned away from beta to more complicated ways of carving up risk.But the significance of CAPM for financial economics would be hardto exaggerate.a.Summarize Roll’s argument on the problems inherent in empirically verifying theCAPM.b.What are some of the other “more complicated ways of carving up risk”?a.Roll argues that while the CAPM is testable in principle, no correct test of the theory has yetbeen presented. He also argues that there is practically no possibility that a correct test will be done because there is only one potentially testable hypothesis associated with the CAPM, namely that the true market portfolio is mean-variance efficient. Since this portfolio must contain all worldwide assets, the value of most of which cannot be observed, the hypothesis is probably untestable.b.CAPM assumes investors are only concerned with one risk -- the future prices of their assets.Merton asserts that there are other investor concerns, such as the ability to consume goods and services in the future. He has tried to incorporate more than one risk factor in his model.8.a.What are the difficulties in practice of applying the arbitrage pricing theory model?b.Does Roll’s criticism also apply to this pricing model?c.“In the CAPM investors should be compensated for accepting systematic risk: forthe APT model, investors are rewarded for accepting both systematic risk andunsystematic risk.” Do you agree with this statement?a.The difficulty lies in identifying the systematic factors.b.Roll’s criticism does not apply to the APT model because that model does not rely on a truemarket index.c.This statement is true for the CAPM, but not for the APT model. The latter also asserts thatinvestors should be compensated only for accepting systematic risk. But unlike the CAPM, there is more than one systematic risk.9.a.What does it mean that a return distribution has a fat tail?b.What is the implication if a return distribution is assumed to be normallydistributed but is in fact a fat-tailed distribution?a.Probability distributions are not normal, but are instead skewed. The tails of the distributionare more likely than predicted by a normal probability distribution.b.The implication is that between periods when the market exhibits relatively modest changesin returns, there will be periods when there are changes that are much higher (i.e., crashes and bubbles) than the normal distribution predicts.10. How does the behavioral finance approach differ from the standard finance theory approach?Standard financial theory assumes investors are rational utility maximizers. Behavioral finance theory challenges this assumption. It argues that investors are systematically subject to cognitive biases and errors. They make decisions based on mental shortcuts, called heuristics, and these shortcuts are not necessarily consistent with rational wealth maximizing behavior as predicted by the standard finance theory.。
金融市场与金融机构基础Fabozzi Chapter01
Foundations of Financial Markets and Institutions, 4e (Fabozzi/Modigliani/Jones)Chapter 1 IntroductionMultiple Choice Questions1 Financial Assets1) An asset is a possession that has value in an exchange and can be classified as ________.A) financial or intangible.B) financial or variable.C) tangible or intangible.D) fixed or variable.Answer: CDiff: 2Topic: 1.1 Financial AssetsObjective: 1.5: the various ways to classify financial markets2) The financial asset is referred to as a ________ if the claim is a fixed dollar.A) debt instrument.B) common equity instrument.C) derivative instrument.D) preferred equity instrument.Answer: ADiff: 2Topic: 1.1 Financial AssetsObjective: 1.4: the distinction between debt instruments and equity instruments3) A basic economic principle is that the price of any financial asset ________ the present value of its expected cash flow, even if the cash flow is not known with certainty.A) is greater thanB) is equal toC) is less thanD) is equal to or greater thanAnswer: BDiff: 2Topic: 1.1 Financial AssetsObjective: 1.1: what a financial asset is and the principal economic functions of financial assets4) A(n) ________ such as plant or equipment purchased by a business entity shares at least one characteristic with a financial asset: Both are expected to generate future cash flow for their owner.A) tangible assetB) intangible assetC) balance sheet assetD) cash assetAnswer: ADiff: 1Topic: 1.1 Financial AssetsObjective: 1.2: the distinction between financial assets and tangible assets5) Financial assets have two principal economic functions. Which of the below is ONE of these?A) A principal economic function is to transfer funds from those who have surplus funds to borrow to those who need funds to invest in intangible assets.B) A principal economic function is to transfer funds in such a way as to redistribute the avoidable risk associated with the cash flow generated by intangible assets among those seeking and those providing the funds.C) A principal economic function is to transfer funds in such a way as to redistribute the unavoidable risk associated with the cash flow generated by tangible assets among those seeking and those providing the funds.D) A principal economic function is to transfer funds from those who have surplus funds to invest to those who need funds to invest in intangible assets.Answer: CComment: Financial assets have two principal economic functions.(1) The first is to transfer funds from those who have surplus funds to invest to those who need funds to invest in tangible assets.(2) The second economic function is to transfer funds in such a way as to redistribute the unavoidable risk associated with the cash flow generated by tangible assets among those seeking and those providing the funds.Diff: 3Topic: 1.1 Financial AssetsObjective: 1.1: what a financial asset is and the principal economic functions of financial assets6) A principal economic function to transfer funds from those who have ________ to invest to those who need funds to invest in ________.A) deficit funds; tangible assets.B) surplus funds; intangible assets.C) deficit funds; intangible assets.D) surplus funds; tangible assets.Answer: DComment: Financial assets have two principal economic functions.(1) The first is to transfer funds from those who have surplus f unds to invest to those who need funds to invest in tangible assets.(2) The second economic function is to transfer funds in such a way as to redistribute the unavoidable risk associated with the cash flow generated by tangible assets among those seeking and those providing the funds.Diff: 2Topic: 1.1 Financial AssetsObjective: 1.1: what a financial asset is and the principal economic functions of financial assets 2 Financial Markets1) Financial markets provide three economic functions. Which of the below is NOT one of these?A) The interactions of buyers and sellers in a financial market determine the price of the traded asset.B) Financial markets provide a mechanism for an investor to sell a financial asset.C) Financial markets increases the cost of transacting.D) The interactions of buyers and sellers in a financial market determine the required return on a financial asset.Answer: CComment: Financial markets provide three economic functions.First, the interactions of buyers and sellers in a financial market determine the price of the traded asset. Or, equivalently, they determine the required return on a financial asset. As the nducement for firms to acquire funds depends on the required return that investors demand, it is this feature of financial markets that signals how the funds in the economy should be allocated among financial assets. This is called the price discovery process.Second, financial markets provide a mechanism for an investor to sell a financial asset. Because of this feature, it is said that a financial market offers liquidity, an attractive feature when circumstances either force or motivate an investor to sell. If there were not liquidity, the owner would be forced to hold a debt instrument until it matures and an equity instrument until the company is either voluntarily or involuntarily liquidated.While all financial markets provide some form of liquidity, the degree of liquidity is one of the factors that characterize different markets. The third economic function of a financial market is that it reduces the cost of transacting. There are two costs associated with transacting: search costs and information costs.Diff: 3Topic: 1.2 Financial MarketsObjective: 1.3: what a financial market is and the principal economic functions it performs2) The shifting of the financial markets from dominance by retail investors to institutional investors is referred to as the ________ of financial markets.A) globalizationB) institutionalizationC) securitizationD) diversificationAnswer: BDiff: 2Topic: 1.2 Financial MarketsObjective: 1.5: the various ways to classify financial markets3) Financial markets can be categorized as those dealing with newly issued financial claims that are called the ________, and those for exchanging financial claims previously issued that are called the ________.A) secondary market; primary market.B) financial market; secondary market.C) OTC market; NYSE/AMEX market.D) primary market; secondary market.Answer: DDiff: 2Topic: 1.2 Financial MarketsObjective: 1.6: the differences between the primary and secondary markets4) Business entities include nonfinancial and financial enterprises. ________ manufacture products such as cars and computers and/or provide nonfinancial services such as transportation and utilities.A) Financial enterprisesB) Nonfinancial enterprisesC) Both financial and nonfinancial enterprisesD) None of theseAnswer: BDiff: 1Topic: 1.2 Financial MarketsObjective: 1.7: the participants in financial markets3 Globalization of Financial Markets1) Which of the below is NOT a factor that has led to the integration of financial markets?A) A factor is liberalization of markets and the activities of market participants in key financial centers of the world.B) A factor is deregulation of markets and the activities of market participants in key financial centers of the world.C) A factor is technological advances for monitoring world markets, executing orders, and analyzing financial opportunities.D) A factor is decreased institutionalization of financial markets.Answer: DComment: The factors that have led to the integration of financial markets are (1) deregulation or liberalization of markets and the activities of market participants in key financial centers of the world; (2) technological advances for monitoring world markets, executing orders, and analyzing financial opportunities; and (3) increased institutionalization of financial markets.Diff: 3Topic: 1.3 Globalization of Financial MarketsObjective: 1.8: reasons for the globalization of financial markets2) A factor leading to the integration of financial markets is ________.A) decreased institutionalization of financial markets.B) increased monitoring of markets.C) technological advances for monitoring domestic markets, executing orders, and analyzing financial opportunities.D) technological advances for monitoring world markets, executing orders, and disregarding financial opportunities.Answer: DComment: The factors that have led to the integration of financial markets are (1) deregulation or liberalization of markets and the activities of market participants in key financial centers of the world; (2) technological advances for monitoring world markets, executing orders, and analyzing financial opportunities; and (3) increased institutionalization of financial markets.Diff: 2Topic: 1.3 Globalization of Financial MarketsObjective: 1.8: reasons for the globalization of financial markets3) From the perspective of a given country, financial markets can be classified as either internal or external. The internal market is composed of two parts: the domestic market and the foreign market. The domestic market is ________.A) where the securities of issuers not domiciled in the country are sold and traded.B) where issuers domiciled in a country issue securities and where those securities are subsequently traded.C) where securities are offered simultaneously to investors in a number of countries.D) where issuers domiciled in a country issue securities and where those securities are NOT subsequently traded.Answer: BDiff: 2Topic: 1.3 Globalization of Financial MarketsObjective: 1.10: the distinction between a domestic market, a foreign market, and the Euromarket 4) A reason for a corporation using ________ is a desire by issuers to diversify their source of funding so as to reduce reliance on domestic investors.A) EuromarketsB) domestic equity marketsC) domestic government marketsD) None of theseAnswer: ADiff: 1Topic: 1.3 Globalization of Financial MarketsObjective: 1.11: the reasons why entities use foreign markets and Euromarkets4 Derivative Markets1) The two basic types of derivative instruments are ________ and ________.A) insurance contracts; options contractsB) futures/forward contracts; indenturesC) futures/forward contracts; legal contractsD) futures/forward contracts; options contractsAnswer: DDiff: 2Topic: 1.4 Derivative MarketsObjective: 1.12: what a derivative instrument is and the two basic types of derivative instruments2) Derivative instruments derive their value from ________.A) market conditions at time of delivery.B) market conditions at time of issue.C) the underlying instruments to which they relate.D) variations in the future claims conveyed from spot markets.Answer: CDiff: 2Topic: 1.4 Derivative MarketsObjective: 1.13: the role of derivative instruments3) Derivative contracts provide ________.A) issuers and investors an expensive but efficient way of controlling some major risks.B) issuers and investors an inexpensive way of controlling some major risks.C) issuers and investors an inexpensive but inefficient way of controlling all major risks.D) issuers and investors an expensive way of controlling some minor risks.Answer: BDiff: 1Topic: 1.4 Derivative MarketsObjective: 1.13: the role of derivative instruments4) Derivative markets may have at least three advantages over the corresponding cash (spot) market for the same financial asset. Which of the below is ONE of these advantages?A) Transactions typically can be accomplished faster in the derivatives market.B) It will always cost more to execute a transaction in the derivatives market in order to adjust the risk exposure of an investor's portfolio to new economic information than it would cost to make that adjustment in the cash market.C) All derivative markets can absorb a greater dollar transaction without an adverse effect on the price of the derivative instrument; that is, the derivative market may be more liquid than the cash market.D) Some derivative markets can absorb a greater dollar transaction but with an adverse effect on the price of the derivative instrument; that is, the derivative market may be more liquid than the cash market.Answer: AComment: Derivative markets may have at least three advantages over the corresponding cash (spot) market for the same financial asset.First, depending on the derivative instrument, it may cost less to execute a transaction in the derivatives market in order to adjust the risk exposure of an investor’’s portfolio to new economic information than it would cost to make that adjustment in the cash market.Second, transactions typically can be accomplished faster in the derivatives market.Third, some derivative markets can absorb a greater dollar transaction without an adverse effect on the price of the derivative instrument; that is, the derivative market may be more liquid than the cash market.Diff: 3Topic: 1.4 Derivative MarketsObjective: 1.13: the role of derivative instruments5 The Role of the Government in Financial Markets1) Which of the following statements is FALSE?A) Because of the prominent role played by financial markets in economies, governments have long deemed it necessary to regulate certain aspects of these markets.B) In their regulatory capacities, governments have had little influence on the development and evolution of financial markets and institutions.C) It is important to realize that governments, markets, and institutions tend to behave interactively and to affect one another's actions in certain ways.D) A sense of how the government can affect a market and its participants is important to an understanding of the numerous markets and securities.Answer: BComment: In their regulatory capacities, governments have greatly influenced the development and evolution of financial markets and institutions.Diff: 2Topic: 1.5 The Role of the Government in Financial MarketsObjective: 1.15 the different ways that governments regulate markets, including disclosure regulation, financial activity regulation, financial institution regulation, regulation of foreign firm participation, and regulation of the monetary system2) Which of the below statements is TRUE?A) Because of differences in culture and history, different countries regulate financial markets and financial institutions in varying ways, emphasizing some forms of regulation more than others.B) The standard explanation or justification for governmental regulation of a market is that the market, left to itself, will produce its particular goods or services in an efficient manner and at the lowest possible cost.C) Governments in most developed economies have created elaborate systems of regulation for financial markets, in part because the markets themselves are simple and in part because financial markets are unimportant to the general economies in which they operate.D) Financial activity regulation are free of rules about traders of securities and trading on financial markets.Answer: AComment: The standard explanation or justification for governmental regulation of a market is that the market, left to itself, will not produce its particular goods or services in an efficient manner and at the lowest possible cost.Governments in most developed economies have created elaborate systems of regulation for financial markets, in part because the markets themselves are complex and in part because financial markets are so important to the general economies in which they operate.Financial activity regulation consists of rules about traders of securities and trading on financial markets.Diff: 3Topic: 1.5 The Role of the Government in Financial MarketsObjective: 1.14: the typical justification for governmental regulation of markets3) The regulatory structure in the United States is largely the result of ________.A) the first IPO bubble in the 20th century.B) the boom in the stock market experienced in the 1990s.C) bull markets that have occurred at various times.D) financial crises that have occurred at various times.Answer: DDiff: 1Topic: 1.5 The Role of the Government in Financial MarketsObjective: 1.16 the U.S. Department of the Treasury's proposed plan for regulatory reform4) The proposal by the U.S. Department of the Treasury, popularly referred to as the "Blueprint for Regulatory Reform" or simply Blueprint, would replace the prevailing complex array of regulators with a regulatory system based on functions. More specifically, there would be three regulators. Which of the below is NOT one of these?A) market stability regulatorB) prudential regulatorC) uninhibited regulatorD) business conduct regulatorAnswer: CDiff: 2Topic: 1.5 The Role of the Government in Financial MarketsObjective: 1.15 the different ways that governments regulate markets, including disclosure regulation, financial activity regulation, financial institution regulation, regulation of foreign firm participation, and regulation of the monetary system6 Financial Innovation1) ________ increase the liquidity of markets and the availability of funds by attracting new investors and offering new opportunities for borrowers.A) Market-broadening instrumentsB) Market-management instrumentsC) Risk-management instrumentsD) Arbitraging-broadening instrumentsAnswer: AComment: The Economic Council of Canada classifies financial innovations into the following three broad categories:(1) market-broadening instruments, which increase the liquidity of markets and the availability of funds by attracting new investors and offering new opportunities for borrowers(2) risk-management instruments, which reallocate financial risks to those who are less averse to them, or who offsetting exposure and thus are presumably better able to should them(3) arbitraging instruments and processes, which enable investors and borrowers to take advantage of differences in costs and returns between markets, and which reflect differences in the perception of risks, as well as in information, taxation, and regulationsDiff: 2Topic: 1.6 Financial InnovationObjective: 1.17 the primary reasons for financial innovation2) The Economic Council of Canada classifies financial innovations into three broad categories. Which of the below is NOT one of these?A) market-broadening instrumentsB) risk-management instrumentsC) risk-broadening instrumentsD) arbitraging instruments and processesAnswer: CComment: The Economic Council of Canada classifies financial innovations into the following three broad categories:(1) market-broadening instruments, which increase the liquidity of markets and the availability of funds by attracting new investors and offering new opportunities for borrowers(2) risk-management instruments, which reallocate financial risks to those who are less averse to them, or who offsetting exposure and thus are presumably better able to should them(3) arbitraging instruments and processes, which enable investors and borrowers to take advantage of differences in costs and returns between markets, and which reflect differences in the perception of risks, as well as in information, taxation, and regulationsDiff: 2Topic: 1.6 Financial InnovationObjective: 1.17 the primary reasons for financial innovation3) There are two extreme views of financial innovation. Which of the below is ONE of these?A) Some hold that the essence of innovation is the introduction of financial assets that are less efficient for redistributing risks among market participants.B) There are some who believe that the minor impetus for innovation has been the endeavor to circumvent regulations and find loopholes in tax rules.C) Some hold that the essence of innovation is the introduction of financial instruments that are more efficient for redistributing risks among market participants.D) None of theseAnswer: CComment: There are two extreme views of financial innovation.There are some who believe that the major impetus for innovation has been the endeavor to circumvent (or arbitrage) regulations and find loopholes in tax rules.At the other extreme, some hold that the essence of innovation is the introduction of financial instruments that are more efficient for redistributing risks among market participants.Diff: 2Topic: 1.6 Financial InnovationObjective: 1.17 the primary reasons for financial innovation4) An ultimate and important cause of financial innovation does not involve ________.A) incentives to follow existing regulation and and tax laws.B) increased volatility of interest rates, inflation, equity prices, and exchange rates.C) changing global patterns of financial wealth.D) financial intermediary competition.Answer: AComment: It would appear that many of the innovations that have passed the test of time and have not disappeared have been innovations that provided more efficient mechanisms for redistributing risk. Other innovations may just represent a more efficient way of doing things. Indeed, if we consider the ultimate causes of financial innovation,the following emerge as the most important:1. Increased volatility of interest rates, inflation, equity prices, and exchange rates.2. Advances in computer and telecommunication technologies.3. Greater sophistication and educational training among professional market participants.4. Financial intermediary competition.5. Incentives to get around existing regulation and and tax laws.6. Changing global patterns of financial wealth.Diff: 2Topic: 1.6 Financial InnovationObjective: 1.17 the primary reasons for financial innovationTrue/False Questions1 Financial Assets1) An equity instrument (also called a residual claim) obligates the issuer of the financial asset to pay the holder an amount based on earnings, if any, after holders of debt instruments have been paid.Answer: TRUEDiff: 1Topic: 1.1 Financial AssetsObjective: 1.4: the distinction between debt instruments and equity instruments2) A intangible asset is one whose value depends on particular physical properties such as buildings, land, or machinery. Tangible assets, by contrast, represent legal claims to some future benefit.Answer: FALSEComment: A tangible asset is one whose value depends on particular physical properties such as buildings, land, or machinery. Intangible assets, by contrast, represent legal claims to some future benefit.Diff: 1Topic: 1.1 Financial AssetsObjective: 1.2: the distinction between financial assets and tangible assets3) Financial assets have two principal economic functions. One function is to transfer funds from those who have surplus funds to invest to those who need funds to invest in tangible assets. Answer: TRUEDiff: 1Topic: 1.1 Financial AssetsObjective: 1.1: what a financial asset is and the principal economic functions of financial assets 2 Financial Markets1) The three economic functions of financial markets are: to improve the price discovery process; to lessen liquidity; and, to reduce the cost of transacting.Answer: FALSEComment: The three economic functions of financial markets are: to improve the price discovery process; to enhance liquidity; and to reduce the cost of transacting.Diff: 2Topic: 1.2 Financial MarketsObjective: 1.3: what a financial market is and the principal economic functions it performs2) The market participants include households, business entities, national governments, national government agencies, state and local governments, supranationals, and regulators.Answer: TRUEDiff: 1Topic: 1.2 Financial MarketsObjective: 1.3: what a financial market is and the principal economic functions it performs3) One economic function of a financial market is to reduce the cost of transacting. There are two costs associated with transacting: search costs and information costs.Answer: TRUEDiff: 1Topic: 1.2 Financial MarketsObjective: 1.3: what a financial market is and the principal economic functions it performs3 Globalization of Financial Markets1) Globalization means the integration of financial markets throughout the world into an international financial market.Answer: TRUEDiff: 1Topic: 1.3 Globalization of Financial MarketsObjective: 1.8: reasons for the globalization of financial markets2) The domestic market in any country is the market where the securities of issuers not domiciled in thecountry are sold and traded.Answer: FALSEComment: The foreign market in any country is the market where the securities of issuers not domiciled in the country are sold and traded.Diff: 1Topic: 1.3 Globalization of Financial MarketsObjective: 1.10: the distinction between a domestic market, a foreign market, and the Euromarket 3) Global competition has forced governments to exercise control various aspects of their financial markets so that their financial enterprises can compete effectively around the world.Answer: FALSEComment: Global competition has forced governments to deregulate (or liberalize) various aspects of their financial markets so that their financial enterprises can compete effectively around the world.Diff: 1Topic: 1.3 Globalization of Financial MarketsObjective: 1.8: reasons for the globalization of financial markets4 Derivative Markets1) Derivative instruments play a critical role in global financial markets.Answer: TRUEDiff: 1Topic: 1.4 Derivative MarketsObjective: 1.13: the role of derivative instruments2) IBM pension fund owns a portfolio consisting of the common stock of a large number of companies. Suppose the pension fund knows that two months from now it must sell stock in its portfolio to pay beneficiaries $20 million. The risk that IBM pension fund faces is that two months from now when the stocks are sold, the price of most or all stocks may be higher than they are today.Answer: FALSEComment: IBM pension fund owns a portfolio consisting of the common stock of a large number of companies. Suppose the pension fund knows that two months from now it must sell stock in its portfolio to pay beneficiaries $20 million. The risk that IBM pension fund faces is that two months from now when the stocks are sold, the price of most or all stocks may be lower than they are today.Diff: 2Topic: 1.4 Derivative MarketsObjective: 1.13: the role of derivative instruments3) When the option grants the owner of the option the right to buy a financial asset from the other party, the option is called a put option.Answer: FALSEComment: When the option grants the owner of the option the right to buy a financial asset from the other party, the option is called a call option.Diff: 2Topic: 1.4 Derivative MarketsObjective: 1.13: the role of derivative instruments5 The Role of the Government in Financial Markets1) The market stability regulator would take on the traditional role of the Federal Reserve by giving it the responsibility and authority to ensure overall financial market stability.Answer: TRUEDiff: 1Topic: 1.5 The Role of the Government in Financial MarketsObjective: 1.15 the different ways that governments regulate markets, including disclosure regulation, financial activity regulation, financial institution regulation, regulation of foreign firm participation, and regulation of the monetary system2) Blueprint regulation is the form of regulation that requires issuers of securities to make public a large amount of financial information to actual and potential investors.Answer: FALSEComment: Disclosure regulation is the form of regulation that requires issuers of securities to make public a large amount of financial information to actual and potential investors.Diff: 1Topic: 1.5 The Role of the Government in Financial MarketsObjective: 1.16 the U.S. Department of the Treasury's proposed plan for regulatory reform3) Financial activity regulation is the form of regulation that requires issuers of securities to make public a large amount of financial information to actual and potential investors.Answer: FALSEComment: Disclosure regulation is the form of regulation that requires issuers of securities to make public a large amount of financial information to actual and potential investors.NOTE. Financial activity regulation consists of rules about traders of securities and trading on financial markets.Diff: 1Topic: 1.5 The Role of the Government in Financial MarketsObjective: 1.14: the typical justification for governmental regulation of markets。
《金融市场与金融机构》课后习题答案
《金融市场与金融机构》米什金第七版课后习题答案（请集中复习1-6、10-13、15章）
第一章为什么研究金融市场与金融机构
第二章金融体系概览
第三章利率的含义及其在定价中的作用
第四章为什么利率会变化
第五章利率的风险结构和期限结构如何影响利率
第六章金融市场是否有效
第十章货币政策传导：工具、目标战略和战术
第七版中的12题在第五六版中没有，此处的12-19题即为第七版的13-20题
第十一章货币市场
第十二章债券市场
第十三章股票市场
第十四章抵押贷款市场
第十五章外汇市场
1。
《金融市场与金融机构》课后习题答案
《金融市场与金融机构》米什金第七版课后习题答案
（请集中复习1-6、10-13、15章）
第一章为什么研究金融市场与金融机构
第二章金融体系概览
第三章利率的含义及其在定价中的作用
第四章为什么利率会变化
第五章利率的风险结构和期限结构如何影响利率
第六章金融市场是否有效
第十章货币政策传导：工具、目标战略和战术
第七版中的12题在第五六版中没有，此处的12-19题即为第七版的13-20题
第十一章货币市场
第十二章债券市场
第十三章股票市场
第十四章抵押贷款市场
第十五章外汇市场。
金融市场与金融机构中文
金融市场与金融机构答案中文 【篇一：fabozzi_ 金融市场与金融机构基础课后答案】the u.s. federal reserveand the creation of moneycentral banks and their purposethe primary role of a central bank is to maintain the stabilityof the currency and money supply for a country or a group of countries. the role of central banks can be categorized as: (1)risk assessment, (2) risk reduction, (3) oversight of payment systems, (4) crisis management.one of the major ways a central bank accomplishes its goalsis through monetary policy. for this reason, central banks are sometimes called monetary authority. in implementingmonetary policy, central banks, acting as a reserve bank,require private banks to maintain and deposit the requiredreserves with the central bank. in times of financial crisis,central banks perform the role of lender of last resort for the banking system. countries throughout the world may havecentral banks. additionally, the european central bank is responsible for implementing monetary policy for the member countries of the european union.there is widespread agreement that central banks should be independent of the government so that decisions of the central bank will not be influenced for short-term political purposessuch as pursuing a monetary policy to expand the economybut at the expense of inflation.in implementing monetary and economic policies, the unitedstates is a member of an informal network of nations. thisgroup started in 1976 as the group of 6, or g6: us, france, germany, uk, italy, and japan. thereafter, canada joined to forthe g7. in 1998, russia joined to form the g8.the central bank of the united states: the federal reservesystemthe federal reserve system consists of 12 banking districts covering the entire country. created in 1913, the federalreserve is the government agency responsible for the management of the us monetary and banking systems. it is independent of the political branches of government. the fed ismanaged by a seven-member board of governors, who are appointed by the president and approved by congress.the fed ’s tools for monetary management have been made more difficult by financial innovations. the public ’s increasing acceptance of money market mutual funds has funneled a large amount of money into what are essentially interest- bearing checking accounts. securitization permits commercial banks to change what once were illiquid consumer loans of several varieties into securities. selling these securities gives the banks a source of funding that is outside the fed ’s influence.instrument of monetary policy: how the fed influences the supply of moneythe fed has three instruments at its disposal to affect the level of reserves.under our fractional reserve banking system have to maintain specified fractional amounts of reserves against their deposits. the fed can raise or lower these required reserve ratios, thereby permitting banks to decrease or increase their lending and investment portfolios. a bank ’s total reserves equal its required reserves plus any excess reserves.the fed ’s most powerful instrument is its authority to conduct open market operation. it buys and sells in open debt markets government securities for its own accounts. the fed prefers to use treasury bills because it can make its substantial transactions without seriously disrupting the prices or yieldsof bills.the federal open market committee, or fomc, is the unit that decides on the general issues of changing the rate of growth in the money supply, by open market sales or purchases of securities. the implementation of policy through open market operations is the responsibility of the trading desk of the federal reserve bank of new york.the fed often employs variants of simple open market purchases and sales, these are called the repurchase agreement (or repo) and the reverse repo. in a repo, the fed buys a particular amount of securities from a seller that agrees to repurchase the same number of securities for a higher price at some future time. in a reverse repo, the fed sells securitiesand makes a commitment to buy them back at a higher price later.a bank borrowing from the fed is said to use the discount window. the discount rate is the rate charged to banks borrowing directly from the fed. raising the rate is designed to discourage such borrowing, while lowering should have the opposite effect.different kinds of moneymoney is that item which serves as a numeraire. in a basic sense money can be defined as anything that serves as a unit of account and medium of exchange. we measure prices in dollars and exchange dollars for goods. hence coins, currency, and any items readily exchanged into dollars (checking deposits or now accounts) constitute our money supply.money and monetary aggregatesmonetary aggregates measure the amount of money available to the economy at any time. the monetary base is defined as currency in circulation (coins and federal reserve notes) and reserves in the banking system. the instruments that serve as a medium of exchange can be narrowly defined as m1, which is currency and demand deposits. m2 is m1 plus time and savings accounts, and money market mutual funds. finally, m3 is m2 plus short-term treasury liabilities. while all three aggregates are watched and monitored, m1 is the most common form of the money supply, with its trait as being the most liquid. the ratio of the money supply to the economy ’s income is known as the velocity of money.the money multipier: the expansion of the money supplythe money multiplier effect arises from the fact that a small change in reserves can produce a large change in themoneysupply. through our fractional reserve system, a small increasewill allow an individual bank, to lend out the greater part of these additional funds. these loans subsequently become deposits in other banks allowing them to expand proportionately. so, while one bank can expand its loans (or deposits) by an amount 1% of reserves required, all banksinthe system can do likewise. thus, in a simple format total change in deposits can be stated as change in reserves divided by the reserve requirement, which is also theformulafor perpetuity. for example, if the change in the level ofreserves is $100 and the reserve requirement is 20%, the change in total deposits will be $500 for a multiplier of 5. of course, major assumptions are that banks will fully loan out their excess reserves and that depositors will not withdraw any of these extra reserves.the impact of interest rates on the money supplyhigh rates of interest may make keeping excess reserves costly, since unused funds represent loans not made and interest not earned. high rates of interest will also affect the pub lic ’s demand for holding cash. if deposits pay competitive interest rates, customers will be more willing to hold suchbank liabilities and less cash. therefore, a higher rate of interest can actually spur growth of the money supply. more likely, however, it will deter borrowing and slow monetary growth.the money supply process in an open economyin the modern era, almost every country has an open economy. foreign commercial and central banks hold dollar accounts in the united states. their purchases and sales of these deposits can affect exchange rates of the dollar against their own currency. the fed has responsibility for maintaining stability in exchange rates. a purchase of foreign exchange with dollars depreciates the dollar ’s value, but it also adds dollars to the accounts of foreign banks in this country, thus adding to the u.s. monetary base. most central banks of large economies own or stand ready to own a large amount of each of the world ’s major currencies, which are considered international reserves. sales of foreign exchange transactions have monetary base implication and hence consequences for the domestic money supply, emphasis is given to coordinating monetarypolicies among developed nations.answers to questions for chapter 4(questions are in bold print followed by answers.)1. what is the role of a central bank?the role of a central bank has several functions: risk assessment, risk reduction, oversight of payment systems,and crisis management. it can do this through monetary policies, and through the implementation of regulations.2. why is it argued that a central bank should be independent of the government?central banks should be independent of the short-term political interests and political influences generally in setting economic policies.3. identify each participant and its role in the process by which the money supply changes and monetary policy is implemented.the fed determines monetary policy and seeks to implement it through changes in reserves. it is up to the nation ’s banking system to act on changes in reserves thereby affecting deposits, which constitute the greater part of the m1 definition of the money supply.4. describe the structure of the board of governors of the federal reserve system.the board of governors of the federal reserve system consists of 7 members who are appointed to staggered 14-year terms. the board reviews discount operations and sets legal reserve requirements. in addition, all 7 members of the board serve on the federal open market committee (fomc), which determines the direction and magnitude of open-market operations. such operations constitute the key instrument for implementing monetary policy.5.a. explain what is meant by the statement “the united states has a fractional reserve banking system. ”b. how are these items related: total reserves, required reserves, and excess reserves?a. a fractional reserve system requires that a fraction or percent of a bank ’s reserve be placed either in currency in vault or with the federal reserve system.b. total reserves are the amounts that banks hold in cash or at the fed. required reserves are amounts required by the fed to meet some specific or legal reserve ratio to deposits. excess reserves are bank reserves in currency and at the fed which are in excess of legal requirements. since these amounts are non-interest bearing, banks are often willing to lend these surplus funds to deficit banks at the fed funds rate.【篇二：米什金《金融市场与金融机构》课后习题及其答案】class=txt>345【篇三：金融市场习题及答案】>1．金融市场是一个包含很多子系统的大系统；子系统之间也其实不是简单的并列关系。
金融市场与金融机构基础FabozziChapter01
金融市场与金融机构基础FabozziChapter01Foundations of Financial Markets and Institutions, 4e (Fabozzi/Modigliani/Jones)Chapter 1 IntroductionMultiple Choice Questions1 Financial Assets1) An asset is a possession that has value in an exchange and can be classified as ________.A) financial or intangible.B) financial or variable.C) tangible or intangible.D) fixed or variable.Answer: CDiff: 2Topic: 1.1 Financial AssetsObjective: 1.5: the various ways to classify financial markets2) The financial asset is referred to as a ________ if the claim isa fixed dollar.A) debt instrument.B) common equity instrument.C) derivative instrument.D) preferred equity instrument.Answer: ADiff: 2Topic: 1.1 Financial AssetsObjective: 1.4: the distinction between debt instruments and equity instruments3) A basic economic principle is that the price of any financial asset ________ the present value of its expected cash flow, even ifthe cash flow is not known with certainty.A) is greater thanB) is equal toC) is less thanD) is equal to or greater thanAnswer: BDiff: 2Topic: 1.1 Financial AssetsObjective: 1.1: what a financial asset is and the principal economic functions of financial assets4) A(n) ________ such as plant or equipment purchased by a business entity shares at least one characteristic with a financial asset: Both are expected to generate future cash flow for their owner.A) tangible assetB) intangible assetC) balance sheet assetD) cash assetAnswer: ADiff: 1Topic: 1.1 Financial AssetsObjective: 1.2: the distinction between financial assets and tangible assets5) Financial assets have two principal economic functions. Which of the below is ONE of these?A) A principal economic function is to transfer funds from those who have surplus funds to borrow to those who need funds to invest in intangible assets.B) A principal economic function is to transfer funds in such a way as to redistribute the avoidable risk associated with thecash flow generated by intangible assets among those seeking and those providing the funds.C) A principal economic function is to transfer funds in such a way as to redistribute the unavoidable risk associated with the cash flow generated by tangible assets among those seeking and those providing the funds.D) A principal economic function is to transfer funds from those who have surplus funds to invest to those who need funds to invest in intangible assets.Answer: CComment: Financial assets have two principal economic functions.(1) The first is to transfer funds from those who have surplus funds to invest to those who need funds to invest in tangible assets.(2) The second economic function is to transfer funds in sucha way as to redistribute the unavoidable risk associated with the cash flow generated by tangible assets among those seeking and those providing the funds.Diff: 3Topic: 1.1 Financial AssetsObjective: 1.1: what a financial asset is and the principal economic functions of financial assets6) A principal economic function to transfer funds from those who have ________ to invest to those who need funds to invest in ________.A) deficit funds; tangible assets.B) surplus funds; intangible assets.C) deficit funds; intangible assets.D) surplus funds; tangible assets.Answer: DComment: Financial assets have two principal economic functions.(1) The first is to transfer funds from those who have surplusf unds to invest to those who need funds to invest in tangible assets.(2) The second economic function is to transfer funds in sucha way as to redistribute the unavoidable risk associated with the cash flow generated by tangible assets among those seeking and those providing the funds.Diff: 2Topic: 1.1 Financial AssetsObjective: 1.1: what a financial asset is and the principal economic functions of financial assets 2 Financial Markets1) Financial markets provide three economic functions. Which of the below is NOT one of these?A) The interactions of buyers and sellers in a financial market determine the price of the traded asset.B) Financial markets provide a mechanism for an investor to sell a financial asset.C) Financial markets increases the cost of transacting.D) The interactions of buyers and sellers in a financial market determine the required return on a financial asset.Answer: CComment: Financial markets provide three economic functions.First, the interactions of buyers and sellers in a financial market determine the price of the traded asset. Or, equivalently, they determine the required return on a financial asset. As the nducement for firms to acquire funds depends on the requiredreturn that investors demand, it is this feature of financial markets that signals how the funds in the economy should be allocated among financial assets. This is called the price discovery process.Second, financial markets provide a mechanism for an investor to sell a financial asset. Because of this feature, it is said that a financial market offers liquidity, an attractive feature when circumstances either force or motivate an investor to sell. If there were not liquidity, the owner would be forced to hold a debt instrument until it matures and an equity instrument until the company is either voluntarily or involuntarily liquidated.While all financial markets provide some form of liquidity, the degree of liquidity is one of the factors that characterize different markets. The third economic function of a financial market is that it reduces the cost of transacting. There are two costs associated with transacting: search costs and information costs.Diff: 3Topic: 1.2 Financial MarketsObjective: 1.3: what a financial market is and the principal economic functions it performs2) The shifting of the financial markets from dominance by retail investors to institutional investors is referred to as the ________ of financial markets.A) globalizationB) institutionalizationC) securitizationD) diversificationAnswer: BDiff: 2Topic: 1.2 Financial MarketsObjective: 1.5: the various ways to classify financial markets3) Financial markets can be categorized as those dealing with newly issued financial claims that are called the ________, and those for exchanging financial claims previously issued that are called the ________.A) secondary market; primary market.B) financial market; secondary market.C) OTC market; NYSE/AMEX market.D) primary market; secondary market.Answer: DDiff: 2Topic: 1.2 Financial MarketsObjective: 1.6: the differences between the primary and secondary markets4) Business entities include nonfinancial and financial enterprises. ________ manufacture products such as cars and computers and/or provide nonfinancial services such as transportation and utilities.A) Financial enterprisesB) Nonfinancial enterprisesC) Both financial and nonfinancial enterprisesD) None of theseAnswer: BDiff: 1Topic: 1.2 Financial MarketsObjective: 1.7: the participants in financial markets3 Globalization of Financial Markets1) Which of the below is NOT a factor that has led to the integration of financial markets?A) A factor is liberalization of markets and the activities of market participants in key financial centers of the world.B) A factor is deregulation of markets and the activities of market participants in key financial centers of the world.C) A factor is technological advances for monitoring world markets, executing orders, and analyzing financial opportunities.D) A factor is decreased institutionalization of financial markets.Answer: DComment: The factors that have led to the integration of financial markets are (1) deregulation or liberalization of markets and the activities of market participants in key financial centers of the world; (2) technological advances for monitoring world markets, executing orders, and analyzing financial opportunities; and (3) increased institutionalization of financial markets.Diff: 3Topic: 1.3 Globalization of Financial MarketsObjective: 1.8: reasons for the globalization of financial markets2) A factor leading to the integration of financial markets is ________.A) decreased institutionalization of financial markets.B) increased monitoring of markets.C) technological advances for monitoring domestic markets, executing orders, and analyzing financial opportunities.D) technological advances for monitoring world markets, executing orders, and disregarding financial opportunities.Answer: DComment: The factors that have led to the integration of financial markets are (1) deregulation or liberalization of markets and the activities of market participants in key financial centers of the world; (2) technological advances for monitoring worldmarkets, executing orders, and analyzing financial opportunities; and (3) increased institutionalization of financial markets.Diff: 2Topic: 1.3 Globalization of Financial MarketsObjective: 1.8: reasons for the globalization of financial markets3) From the perspective of a given country, financial markets can be classified as either internal or external. The internal market is composed of two parts: the domestic market and the foreign market. The domestic market is ________.A) where the securities of issuers not domiciled in the country are sold and traded.B) where issuers domiciled in a country issue securities and where those securities are subsequently traded.C) where securities are offered simultaneously to investors in a number of countries.D) where issuers domiciled in a country issue securities and where those securities are NOT subsequently traded.Answer: BDiff: 2Topic: 1.3 Globalization of Financial MarketsObjective: 1.10: the distinction between a domestic market, a foreign market, and the Euromarket 4) A reason for a corporation using ________ is a desire by issuers to diversify their source of funding so as to reduce reliance on domestic investors.A) EuromarketsB) domestic equity marketsC) domestic government marketsD) None of theseAnswer: ADiff: 1Topic: 1.3 Globalization of Financial MarketsObjective: 1.11: the reasons why entities use foreign markets and Euromarkets4 Derivative Markets1) The two basic types of derivative instruments are ________ and ________.A) insurance contracts; options contractsB) futures/forward contracts; indenturesC) futures/forward contracts; legal contractsD) futures/forward contracts; options contractsAnswer: DDiff: 2Topic: 1.4 Derivative MarketsObjective: 1.12: what a derivative instrument is and the two basic types of derivative instruments2) Derivative instruments derive their value from ________.A) market conditions at time of delivery.B) market conditions at time of issue.C) the underlying instruments to which they relate.D) variations in the future claims conveyed from spot markets.Answer: CDiff: 2Topic: 1.4 Derivative MarketsObjective: 1.13: the role of derivative instruments3) Derivative contracts provide ________.A) issuers and investors an expensive but efficient way of controlling some major risks.B) issuers and investors an inexpensive way of controllingsome major risks.C) issuers and investors an inexpensive but inefficient way of controlling all major risks.D) issuers and investors an expensive way of controlling some minor risks.Answer: BDiff: 1Topic: 1.4 Derivative MarketsObjective: 1.13: the role of derivative instruments4) Derivative markets may have at least three advantages over the corresponding cash (spot) market for the same financial asset. Which of the below is ONE of these advantages?A) Transactions typically can be accomplished faster in the derivatives market.B) It will always cost more to execute a transaction in the derivatives market in order to adjust the risk exposure of an investor's portfolio to new economic information than it would cost to make that adjustment in the cash market.C) All derivative markets can absorb a greater dollar transaction without an adverse effect on the price of the derivative instrument; that is, the derivative market may be more liquid than the cash market.D) Some derivative markets can absorb a greater dollar transaction but with an adverse effect on the price of the derivative instrument; that is, the derivative market may be more liquid than the cash market.Answer: AComment: Derivative markets may have at least three advantages over the corresponding cash (spot) market for the same financial asset.First, depending on the derivative instrument, it may cost less to execute a transaction in the derivatives market in order to adjust the risk exposure of an investor’’s portfolio to new economic information than it would cost to make that adjustment in the cash market.Second, transactions typically can be accomplished faster in the derivatives market.Third, some derivative markets can absorb a greater dollar transaction without an adverse effect on the price of the derivative instrument; that is, the derivative market may be more liquid than the cash market.Diff: 3Topic: 1.4 Derivative MarketsObjective: 1.13: the role of derivative instruments5 The Role of the Government in Financial Markets1) Which of the following statements is FALSE?A) Because of the prominent role played by financial markets in economies, governments have long deemed it necessary to regulate certain aspects of these markets.B) In their regulatory capacities, governments have had little influence on the development and evolution of financial markets and institutions.C) It is important to realize that governments, markets, and institutions tend to behave interactively and to affect one another's actions in certain ways.D) A sense of how the government can affect a market and its participants is important to an understanding of the numerous markets and securities.Answer: BComment: In their regulatory capacities, governments havegreatly influenced the development and evolution of financial markets and institutions.Diff: 2Topic: 1.5 The Role of the Government in Financial Markets Objective: 1.15 the different ways that governments regulate markets, including disclosure regulation, financial activity regulation, financial institution regulation, regulation of foreign firm participation, and regulation of the monetary system2) Which of the below statements is TRUE?A) Because of differences in culture and history, different countries regulate financial markets and financial institutions in varying ways, emphasizing some forms of regulation more than others.B) The standard explanation or justification for governmental regulation of a market is that the market, left to itself, will produce its particular goods or services in an efficient manner and at the lowest possible cost.C) Governments in most developed economies have created elaborate systems of regulation for financial markets, in part because the markets themselves are simple and in part because financial markets are unimportant to the general economies in which they operate.D) Financial activity regulation are free of rules about traders of securities and trading on financial markets.Answer: AComment: The standard explanation or justification for governmental regulation of a market is that the market, left to itself, will not produce its particular goods or services in an efficient manner and at the lowest possible cost.Governments in most developed economies have createdelaborate systems of regulation for financial markets, in part because the markets themselves are complex and in part because financial markets are so important to the general economies in which they operate.Financial activity regulation consists of rules about traders of securities and trading on financial markets.Diff: 3Topic: 1.5 The Role of the Government in Financial Markets Objective: 1.14: the typical justification for governmental regulation of markets。
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CHAPTER 4THE U.S. FEDERAL RESERVEAND THE CREATION OF MONEYCENTRAL BANKS AND THEIR PURPOSEThe primary role of a central bank is to maintain the stability of the currency and money supply for a country or a group of countries. The role of central banks can be categorized as: (1) risk assessment, (2) risk reduction, (3) oversight of payment systems, (4) crisis management.One of the major ways a central bank accomplishes its goals is through monetary policy. For this reason, central banks are sometimes called monetary authority. In implementing monetary policy, central banks, acting as a reserve bank, require private banks to maintain and deposit the required reserves with the central bank. In times of financial crisis, central banks perform the role of lender of last resort for the banking system. Countries throughout the world may have central banks. Additionally, the European Central Bank is responsible for implementing monetary policy for the member countries of the European Union.There is widespread agreement that central banks should be independent of the government so that decisions of the central bank will not be influenced for short-term political purposes such as pursuing a monetary policy to expand the economy but at the expense of inflation.In implementing monetary and economic policies, the United States is a member of an informal network of nations. This group started in 1976 as the Group of 6, or G6: US, France, Germany, UK, Italy, and Japan. Thereafter, Canada joined to for the G7. In 1998, Russia joined to form the G8.THE CENTRAL BANK OF THE UNITED STATES: THE FEDERAL RESERVE SYSTEMThe Federal Reserve System consists of 12 banking districts covering the entire country. Created in 1913, the Federal Reserve is the government agency responsible for the management of the US monetary and banking systems. It is independent of the political branches of government. The Fed is managed by a seven-member Board of Governors, who are appointed by the President and approved by Congress.The Fed's tools for monetary management have been made more difficult by financial innovations. The public's increasing acceptance of money market mutual funds has funneled a large amount of money into what are essentially interest-bearing checking accounts. Securitization permits commercial banks to change what once were illiquid consumer loans of several varieties into securities. Selling these securities gives the banks a source of funding that is outside the Fed's influence.INSTRUMENT OF MONETARY POLICY: HOW THE FED INFLUENCES THE SUPPLY OF MONEYThe Fed has three instruments at its disposal to affect the level of reserves.Reserve RequirementsUnder our fractional reserve banking system have to maintain specified fractional amounts of reserves against their deposits. The Fed can raise or lower these required reserve ratios, thereby permitting banks to decrease or increase their lending and investment portfolios. A bank's total reserves equal its required reserves plus any excess reserves.Open Market OperationsThe Fed's most powerful instrument is its authority to conduct open market operation. It buys and sells in open debt markets government securities for its own accounts. The Fed prefers to use Treasury bills because it can make its substantial transactions without seriously disrupting the prices or yields of bills.The Federal Open Market Committee, or FOMC, is the unit that decides on the general issues of changing the rate of growth in the money supply, by open market sales or purchases of securities. The implementation of policy through open market operations is the responsibility of the trading desk of the Federal Reserve Bank of New York.Open Market Repurchase AgreementsThe Fed often employs variants of simple open market purchases and sales, these are called the repurchase agreement (or repo) and the reverse repo. In a repo, the Fed buys a particular amount of securities from a seller that agrees to repurchase the same number of securities for a higher price at some future time. In a reverse repo, the Fed sells securities and makes a commitment to buy them back at a higher price later.Discount RateA bank borrowing from the Fed is said to use the discount window. The discount rate is the rate charged to banks borrowing directly from the Fed. Raising the rate is designed to discourage such borrowing, while lowering should have the opposite effect.DIFFERENT KINDS OF MONEYMoney is that item which serves as a numeraire. In a basic sense money can be defined as anything that serves as a unit of account and medium of exchange. We measure prices in dollars and exchange dollars for goods. Hence coins, currency, and any items readily exchanged into dollars (checking deposits or NOW accounts) constitute our money supply.MONEY AND MONETARY AGGREGATESMonetary aggregates measure the amount of money available to the economy at any time. The monetary base is defined as currency in circulation (coins and federal reserve notes) and reserves in the banking system. The instruments that serve as a medium of exchange can be narrowly defined as Mi, which is currency and demand deposits. M2 is Mi plus time and savings accounts, and money market mutual funds. Finally, M3 is M? plus short-term Treasury liabilities. While all three aggregates are watched and monitored, Mi is the most common form of the money supply, with its trait as being the most liquid. The ratio of the money supply to the economy's income is known as the velocity of money.THE MONEY MULTIPIER: THE EXPANSION OF THE MONEY SUPPLYThe money multiplier effect arises from the fact that a small change in reserves can produce a large change in the money supply. Through our fractional reserve system, a small increase will allow an individual bank, to lend out the greater part of these additional funds. These loans subsequently become deposits in other banks allowing them to expand proportionately. So, while one bank can expand its loans (or deposits) by an amount 1% of reserves required, all banks in the system can do likewise. Thus, in a simple format total change in deposits can be stated as change in reserves divided by the reserve requirement, which is also the formula for perpetuity. For example, if the change in the level of reserves is $100 and the reserve requirement is 20%, the change in total deposits will be $500 for a multiplier of 5. Of course, major assumptions are that banks will fully loan out their excess reserves and that depositors will not withdraw any of these extra reserves. THE IMPACT OF INTEREST RATES ON THE MONEY SUPPLYHigh rates of interest may make keeping excess reserves costly, since unused funds represent loans not made and interest not earned. High rates of interest will also affect the public's demand for holding cash. If deposits pay competitive interest rates, customers will be more willing to hold such bank liabilities and less cash. Therefore, a higher rate of interest can actually spur growth of the money supply. More likely, however, it will deter borrowing and slow monetary growth.THE MONEY SUPPLY PROCESS IN AN OPEN ECONOMYIn the modern era, almost every country has an open economy. Foreign commercial and central banks hold dollar accounts in the United States. Their purchases and sales of these deposits can affect exchange rates of the dollar against their own currency. The Fed has responsibility for maintaining stability in exchange rates. A purchase of foreign exchange with dollars depreciates the dollar's value, but it also adds dollars to the accounts of foreign banks in this country, thus adding to the U.S. monetary base. Most central banks of large economies own or stand ready to own a large amount of each of the world's major currencies, which are considered international reserves. Sales of foreign exchange transactions have monetary base implication and hence consequences for the domestic money supply, emphasis is given to coordinating monetarypolicies among developed nations.ANSWERS TO QUESTIONS FOR CHAPTER 4(Questions are in bold print followed by answers.)1.What is the role of a central bank?The role of a central bank has several functions: risk assessment, risk reduction, oversight of payment systems, and crisis management. It can do this through monetary policies, and through the implementation of regulations.2.Why is it argued that a central bank should be independent of the government?Central banks should be independent of the short-term political interests and political influences generally in setting economic policies.3.Identify each participant and its role in the process by which the money supply changes and monetary policy is implemented.The Fed determines monetary policy and seeks to implement it through changes in reserves. It is up to the nation's banking system to act on changes in reserves thereby affecting deposits, which constitute the greater part of the M| definition of the money supply.4.Describe the structure of the board of governors of the Federal Reserve System.The Board of Governors of the Federal Reserve System consists of 7 members who are appointed to staggered 14-year terms. The Board reviews discount operations and sets legal reserve requirements. In addition, all 7 members of the Board serve on the Federal Open Market Committee (FOMC), which determines the direction and magnitude of open-market operations. Such operations constitute the key instrument for implementing monetary policy.5.a・ Explain what is meant by the statement "the United States has a fractional reserve banking system."b. How are these items related: total reserves, required reserves, and excess reserves?a. A fractional reserve system requires that a fraction or percent of a bank's reserve be placedeither in currency in vault or with the Federal Reserve System.b.Total reserves are the amounts that banks hold in cash or at the Fed. Required reserves areamounts required by the Fed to meet some specific or legal reserve ratio to deposits. Excess reserves are bank reserves in currency and at the Fed which are in excess of legal requirements.Since these amounts are non-interest bearing, banks are often willing to lend these surplus funds to deficit banks at the Fed funds rate.5.What is the required reserve ratio, and how has the 1980 Depository Institutions Deregulation and Monetary Control Act constrained the Fed's control over the ratio?The required reserve ratio is the fraction of deposits a bank must hold as reserves. The DIDMCA constrained the Fed's control over the ratio by letting Congress set ranges of reserves for demand and time deposits.6.In what two forms can a bank hold its required reserves?A bank can hold its reserves in the form of currency in vault or in deposit at the Fed.8.a.What is an open market purchase by the Fed?b.Which unit of the Fed decides on open market policy, and what unit implements thatpolicy?c.What is the immediate consequence of an open market purchase?a.An open market purchase by the Fed consists of the purchase of U.S. Treasury securities.b.The FOMC decides on open market policy and directs the Federal Reserve Bank of New Yorkto implement it through sales and purchases of these securities.c.The immediate consequence of an open market purchase is to supply the seller of the securitywith a check on the Federal Reserve System that he can deposit in his bank, therebyimmediately increasing the excess reserves and thus nation's money supply.7.Distinguish between an open market sale and a matched sale (which is the same as a matched sale-purchase transaction or a reverse repurchase agreement).A matched sale or reverse repo involves the sale of a Treasury security with an agreement to buy it back at a later date and at a higher price as the cost for borrowing the funds. This contrasts with an outright sale at some discounted or premium price.8.What is the discount rate, and to what type of action by a bank does it apply?The discount rate is the rate a bank pays to borrow a t the "discount window” of the Fed. Such borrowings are often undertaken to meet temporary liquidity needs. Bank needs are monitored and the Fed likes to state that borrowing from it is a "privilege and not a right.”IL Define the monetary base and M2The monetary base includes total bank reserves plus currency in the hands of the public. M2 = Mi (currency and demand deposits) + savings and time deposits.12.Describe the basic features of the money multiplier.The money multiplier is crucial to the concept of money creation and is analogous to the idea of the autonomous spending multiplier and formula for a perpetuity. It is the inverse of the required reserve ratio (1/rr). If the reserve ratio is .2 then the money supply will expand five times any increase in new deposits. The multiplier will be less if banks hold excess reserves or experience cash drains.13.Suppose the Fed were to inject $100 million of reserves into the banking system by an open market purchase of Treasury bills. If the required reserve ratio were 10%, what is the maximum increase in Mi that the new reserves would generate? Assume that banks make all the loans their reserves allow, that firms and individuals keep all their liquid assets in depository accounts, and no money is in the form of currency.The maximum increase in Mi will be $1 billion assuming no cash drains in the system, and banks are fully loaned up.14.Assume the situation from question 13, except now assume that banks hold a ratio of0.5% of excess reserves to deposits and the public keeps 20% of its liquid assets in the form of cash. Under these conditions, what is the money multiplier? Explain why this value of the multiplier is so much lower than the multiplier from question 13.Substitute the given values of currency ratio, required reserves ratio, and excess reserves ratio of 20%, 10% and 0.5% respectively into the formula given on page 94 of the textbook. Now we have a lower multiplier value of 3.9=1.20A 305. This is because public and banks do not deposit or lend, all they can.。