1: Questions and Applications 2, 4, 8, 16, and 23
2. Types of Markets Distinguish between
primary and secondary markets. Distinguish between money and capital markets.
4. Efficient Markets Explain the meaning
of efficient markets. Why might we expect markets to be efficient most of the
time? In recent years, several securities firms have been guilty of using
inside information when purchasing securities, thereby achieving returns well above
the norm (even when accounting for risk). Does this suggest that the security
markets are not efficient? Explain.
8. Securities Firms What are the functions of
securities firms? Many securities firms employ brokers and dealers. Distinguish
between the functions of a broker and those of a dealer, and explain how each
Comparing Financial Institutions Classify the types of financial institutions
mentioned in this chapter as either depository or nondepository. Explain the
general difference between depository and nondeposi- tory institution sources
of funds. It is often said that all types of financial institutions have begun
to offer services that were previously offered only by certain types.
Consequently, the operations of many financial institutions are becoming more
similar. Nevertheless, performance levels still differ significantly among
types of financial institutions. Why?
23. Assume that countries A and B are of similar
size, that they have similar economies, and that the government debt levels of
both countries are within reasonable limits. Assume that the regulations in
country A require complete disclosure of financial reporting by issuers of debt
in that country but that regulations in country B do not require much
disclosure of financial reporting. Explain why the government of country A is
able to issue debt at a lower cost than the government of country B.
Chapter 2: Questions and Applications 3, 9, 11, and
19; Problem 1
3. Impact of Government Spending If the federal
government planned to expand the space program, how might this affect interest
9. Real Interest Rate Estimate the real interest
rate over the last year. If financial market participants overestimate
inflation in a particular period, will real interest rates be relatively high
or low? Explain.
11. Impact of Stock Market Crises During periods
when investors suddenly become fearful that stocks are overvalued, they dump
their stocks and the stock market experiences a major decline. During these periods,
interest rates also tend to decline. Use the loanable funds framework discussed
in this chapter to explain how the massive selling of stocks leads to lower
19. Impact of Economic Crises on Interest Rates When
economic crises in countries are due to a weak economy, local interest rates
tend to be very low. However, if the crisis was caused by an unusually high
rate of inflation, interest rates tend to be very high. Explain why.Bottom of Form