Financial Markets And Institutions

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Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link above. This homework assignment is worth 20 points. Responses should be at least 75 words for each question.

1) Describe an economic tradeoff faced by the Fed in achieving its economic policy objectives.

2) What are recognition and implementation lags? How do these influence security prices?

3) Why might the Fed’s monetary policy depend on the fiscal policy that is implemented?

4) Stock market conditions serve as a leading economic indicator. Assuming the U.S. economy is in an expansion. what are the implications of this indicator? Why might this indicator be inaccurate?

5) Assess the economic situation today. Is the current administration more concerned with reducing unemployment or inflation? Does the Fed have a similar opinion? If not, is the administration publicly criticizing the Fed? Is the Fed publicly criticizing the administration? Explain.

6) What type of organization issues commercial paper? Given the short-term nature of commercial paper, why would ratings agencies assign ratings to them?

7) The maximum maturity of commercial paper is 270 days. Why would an organization issue commercial paper rather than longer-term securities, even if it needs funds for a long period of time?

8) Assume an investor purchased a three-month T-bill with a $10,000 par value for $9,650 and sold it 45 days later for $9,770. What is the yield?

9) A money market security that has a par value of $10,000 sells for $8,784.20. Given that the security has a maturity of two years, what is the investor’s required rate of return?

10) A U.S. investor obtains British pounds when the pound is worth $1.27 and invests in a one-year money market security that provides a yield of 3.5% (in pounds). At the end of one year, the investor converts the proceeds from the investment back to dollars at the prevailing spot rate of $1.29 per pound. Calculate the effective yield.

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Explanation & Answer

attached is my answer

Question 1:
The economic tradeoff faced by the Fed in obtaining the economic policy objectives can be
described as a simulative fiscal approach which can increase monetary development and
decrease joblessness, yet may expand inflation. A prohibitive fiscal approach can keep
inflationary weight low yet may cause low monetary development and higher joblessness.
Moreover, Fed financial approach will influence the economy in a positive way, Fed has sliced
the interest rate to empower economy, This has in fact made more supply of cash basic divisions
where the method for business is bringing down interest rates.
Question 2:
The implementation lag happens when the Fed perceives an issue yet does not actualize an
approach to take care of the issue until some other time. The recognition lag speaks to the time
from when an issue exists until the point when it is perceived by the Fed. It happens on the
grounds that the financial measurements that are observed to identify issues are just
announced occasionally.
These lags can influence security prices as the policymakers may not understand that there is an
issue, in view of the lags, and a considerable measure of monetary information is not distributed
for a lo...


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