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(solution) Question 1) For each statement, state whether you believe the


Question 1)

For each statement, state whether you believe the statement is true or false. Provide a brief explanation ofyour reasoning.

a) When we say a bank is engaging in asset transformation we mean in part that the bank is raisingfunds by selling high risk assets to depositors.


b) All else equal, if investors sell real estate and deposit the proceeds in their saving account thenM1 and M2 increase.


c) When a bank requires an extensive loan application process, this is designed primarily to preventadverse selection,


Question 2)

Quick Answers. For each of the following you only need to provide a one or two-word response (chooseone of the underlined phrases for each statement).

a) When giving consideration to a crypto-currency like Bitcoin, we can say that is or is not a store ofvalue, one of the functions of money?


b) Raising funds for your startup through Kickstarter, a ?funding platform?, is direct or indirectfinance?


c) Over the past 40 years, by total value of assets, commercial banks or mutual funds arecollectively the largest in the United States?


d) Depository institutions such as commercial banks and credit unions have or don?t have the sameprimary source of funds.


e) If unexpected inflation occurs, people would rather be lenders or borrowers?


f) Suppose a newly-issued corporate bond (a standard coupon bond) has a coupon rate of 3% and ayield to maturity of 4%, then we know that the bond?s issuing price was lower or higher than theface value of the bond.


g) All else equal, as the price of a coupon bond goes down, the yield to maturity will increase ordecrease?


h) In the liquidity preference framework, an increase in interest rates will increase or decrease thequantity demand for money?


i) All else equal, an increase in the default risk of a bond relative to alternative bonds will increaseor decrease the yield to maturity of that bond?


j) All else equal, the liquidity of a bond decreases as the broker-dealer fees increase or decrease?


Question 3)

For each statement, state whether you believe the statement is true or false. Provide a brief explanation ofyour reasoning.

a) According to the liquidity preference framework, excess supply in the money market
Running head: MONEY, BANKS AND FINANCIAL INSTITUTIONS MONEY, BANKS AND FINANCIAL INSTITUTIONS

 

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DATE 1 MONEY, BANKS AND FINANCIAL INSTITUTIONS 2 Money, Banks and Financial...

 


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