Puplice finance
CHAPTER 1
>wh th d’fferent types of financial institution v
£9 Classify the following transactions as taking place in the I Cfiltdeaiedescefiptlion of the main services offered by sac:
primary or secondary markets: (LG 1-I) I 26 IE5)
a. IBM issues $200 million of new common stock. s( _ _ between Sn lie ff”
b. The New Company issues $50 million of common stock 9, How would economic transactions pp ‘rs 0 ad
in an 1po_ (e_g_, households) and users of funds (e.g., corporations) oc
c. IBM sells $5 million of GM preferred stock out of its in a world Wlthflllt F15? (LG 1’6) g
marketable securities portfolio. _ 10_ why would a Wo1-id limited to the direct transfer of funds
d. The Magellan Fund buys $100 million of previously from Suppliers of funds to users of funds likely result in
i55“’=‘rd IBM b°“d5- _ quite low levels of fund flows? (LG I-5)
e’ Prudential Insurance CO‘ Sells $10 mflhon of GM com- 11 How do Fls reduce monitoring costs associated with the flow
S‘°°”‘ _ _ of funds from fund suppliers to fund investors? (LG 1-6)
Classify We followifig financial ms“?-me.ms asjmzoney mar’ 12. How do Fls alleviate the problem of liquidity and price risk
ket Secumles or capital market Securmw (LG i ) faced by investors wishing to invest in securities of corpora-
a. Banker’s acceptances mus? (LG L6)
b. Commercial paper
c. Common stock 13. How do financial institutions help individuals to diversify
cl. Corporate bonds their portfolio risks? Which financial institution is best able
e_ Mortgages I [0 achieve this goal‘? (LG 1 -6)
f- Ne8oti3b]9 Certificates Of deposit > What is meant by maturity interiiiediation? (LG I-6)
3‘ Repumhase agriemems 15. What is meant by denomination intermediation? (LG I-6)
h. U.S. Treasury bills _ 7 _ _ 0
1′. U.S. Treasury notes 16. What other services do Fls provide to the financial system.
j. Federal funds (LG I-6)
3.. How does the location of the money market differ from that > Why fife F15 regulated‘? (LG 1 -8) t
of the Capital market? (LG 1*-2) 18. What events resulted in banks’ shift from the traditional
4. Which of the money market instruments has grown the banking model of “originate and hold” to a model of
fastest since 1990‘? (LG I-2) “originate and distribute?” (LG 1-6, LG I -7, LG I-8)
5. What are the major instruments traded in capital markets? 19. How did the boom in the housing market in the early and
(LG 1-2) mid-20oos exacerbate Fls transition away from their role as
5. Which of the capitall market instruments ha5 grown the :I‘3e‘}ia;iS£SC§‘1I measurement and management? (LG 1’5:
fastestsince 1990‘? (LG I-2) 0 ” ’ _” i
Ha U_s_ bank is holding Japanese yen in its ptmfoliofl What 20. What countrioes have the most international debt securities
type of exchange rate movement would the bank be most Outstanding? (LG I ’8)
concerned about‘? (LG I-3) 21. What countries have the largest commercial banks? (LG I-8)
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