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1、PART THREEAnswersto End-of-ChapterProblemsChapter 1Why Study Money,Banking,and Financial Markets?2.The data in Figures 1,2,3,and 4 suggest that real output,the inflation rate,and interest rates wouldall fail.4.You might be more likely to buy a house or a car because the cost of financing them would
2、fall,oryou might be less likely to save because you earn less on your savings.6.No.It is true that people who borrow to purchase a house or a car are worse off because it costs themmore to finance their purchase;however,savers benefit because they can earn higher interest rates ontheir savings.7.The
3、 basic activity of banks is to accept deposits and make loans.8.They channel funds from people who do not have a productive use for them to people who do,thereby resulting in higher economic efficiency.9.The interest rate on three-month Treasury bills fluctuates more than the other interest rates an
4、d islower on average.The interest rate on Baa corporate bonds is higher on average than the otherinterest rates.10.The lower price for a firms shares means that it can raise a smaller amount of funds,so investment infacilities and equipment will fall.11.Higher stock prices mean that consumers*wealth
5、 is higher,and they will be more likely to increasetheir spending.12.It makes foreign goods more expensive,so British consumers will buy fewer foreign goods and moredomestic goods.13.It makes British goods more expensive relative to American goods.Thus American businesses willfind it easier to sell
6、their goods in the United States and abroad,and the demand for their productswill rise.14.In the mid-to late 1970s and in the late 1980s and early 1990s,the value of the dollar was low,making travel abroad relatively more expensive;thus it was a good time to vacation in the UnitedStates and see the
7、Grand Canyon.With the rise in the dollars value in the early 1980s,travel abroadbecame relatively cheaper,making it a good time to visit the Tower of London.15.When the dollar increases in value,foreign goods become less expensive relative to American goods;thus you are more likely to buy French-mad
8、e jeans than American-made jeans.The resulting drop indemand for American-made jeans because of the strong dollar hurts American jeans manufacturers.On the other hand,the American company that imports jeans into the United States now finds that thedemand for its product has risen,so it is better off
9、 when the dollar is strong.5556 Mishkin The Economics of Money,Banking,and Financial Markets,Ninth EditionChapter 2An Overview of the Financial System1.The share of Microsoft stock is an asset for its owner,because it entitles the owner to a share of theearnings and assets of Microsoft.The share is
10、a liability for Microsoft,because it is a claim on itsearnings and assets by the owner of the share.2.Yes,I should take out the loan,because I will be better off as a result of doing so.My interestpayment will be$4,500(90%of$5,000),but as a result,I will earn an additional$10,000,so I willbe ahead o
11、f the game by$5,500.Since Larrys loan-sharking business can make some people betteroff,as in this example,loan sharking may have social benefits.(One argument against legalizing loansharking,however,is that it is frequently a violent activity.)3.Yes,because the absence of financial markets means tha
12、t funds cannot be channeled to people whohave the most productive use for them.Entrepreneurs then cannot acquire funds to set up businessesthat would help the economy grow rapidly.4.The principal debt instruments used were foreign bonds which were sold in Britain and denominatedin pounds.The British
13、 gained because they were able to earn higher interest rates as a result oflending to Americans,while the Americans gained because they now had access to capital to start upprofitable businesses such as railroads.5.This statement is false.Prices in secondary markets determine the prices that firms i
14、ssuing securitiesreceive in primary markets.In addition,secondary markets make securities more liquid and thuseasier to sell in the primary markets.Therefore,secondary markets are,if anything,more importantthan primary markets.6.You would rather hold bonds,because bondholders are paid off before equ
15、ity holders,who are theresidual claimants.7.Because you know your family member better than a stranger,you know more about the borrowershonesty,propensity for risk taking,and other traits.There is less asymmetric information than with astranger and less likelihood of an adverse selection problem,wit
16、h the result that you are more likelyto lend to the family member.9.Loan sharks can threaten their borrowers with bodily harm if borrowers take actions that mightjeopardize their paying off the Ioan.Hence borrowers from a loan shark are less likely to increasemoral hazard.10.They might not work hard
17、 enough while you are not looking or may steal or commit fraud.11.Yes,because even if you know that a borrower is taking actions that might jeopardize paying off theloan,you must still stop the borrower from doing so.Because that may be costly,you may not spendthe time and effort to reduce moral haz
18、ard,and so the problem of moral hazard still exists.Part Three:Answers to End-of-Chapter Problems 5712.True.If there are no information or transactions costs,people could make loans to each other at nocost and would thus have no need for financial intermediaries.13.Because the costs of making the lo
19、an to your neighbor are high(legal fees,fees for a credit check,and so on),you will probably not be able earn 5%on the loan after your expenses even though it hasa 10%interest rate.You are better off depositing your savings with a financial intermediary andearning 5%interest.In addition,you are like
20、ly to bear less risk by depositing your savings at the bankrather than lending them to your neighbor.14.A ranking from most liquid to least liquid is(a),(b),(c),and(d).The ranking is similar for the mostsafe to the least safe.15.Increased discussion of foreign financial markets in the U.S.press and
21、the growth in markets forinternational financial instruments such as Eurodollars and Eurobonds.58 Mishkin The Economics of Money,Banking,and Financial Markets,Ninth EditionChapter 3What Is Money?1.(b)2.Because the orchard owner likes only bananas but the banana grower doesnt like apples,the bananagr
22、ower will not want apples in exchange for his bananas,and they will not trade.Similarly,thechocolatier will not be willing to trade with the banana grower because she does not like bananas.The orchard owner will not trade with the chocolatier because he doesnt like chocolate.Hence,in abarter economy
23、,trade among these three people may well not take place,because in no case is there adouble coincidence of wants.However,if money is introduced into the economy,the orchard ownercan sell his apples to the chocolatier and then use the money to buy bananas from the banana grower.Similarly,the banana g
24、rower can use the money she receives from the orchard owner to buy chocolatefrom the chocolatier,and the chocolatier can use the money to buy apples from the orchard owner.The result is that the need for a double coincidence of wants is eliminated,and everyone is better offbecause all three producer
25、s are now able to eat what they like best.3.Cavemen did not need money.In their primitive economy,they did not specialize in producing onetype of good and they had little need to trade with other cavemen.4.Because a check was so much easier to transport than gold,people would frequently rather be pa
26、id bycheck even if there was a possibility that the check might bounce.In other words,the lower transactionscosts involved in handling checks made people more willing to accept them.5.Wine is more difficult to transport than gold and is also more perishable.Gold is thus a better store ofvalue than w
27、ine and also leads to lower transactions cost.It is therefore a better candidate for use asmoney.6.Because money was losing value at a slower rate(the inflation rate was lower)in the 1950s than inthe 1970s,it was then a better store of value,and you would have been willing to hold more of it.7.Not n
28、ecessarily.Checks have the advantage in that they provide you with receipts,are easier to keeptrack of,and may make it harder for someone to steal money out of your account.These advantagesof checks may explain why the movement toward a checkless society has been very gradual.8.The ranking from most
29、 liquid to least liquid is:(a),(c),(e),(f),(b),and(d).9.Money loses its value at an extremely rapid rate in hyperinflation,so you want to hold it for as short atime as possible.Thus money is like a hot potato that is quickly passed from one person to another.10.Because of the rapid inflation in Braz
30、il,the domestic currency,the real,is a poor store of value.Thusmany people would rather hold dollars,which are a better store of value,and use them in their dailyshopping.Part Three:Answers to End-of-Chapter Problems 5911.Not necessarily.Although the total amount of debt has predicted inflation and
31、the business cyclebetter than Ml or M2,it may not be a better predictor in the future.Without some theoretical reasonfor believing that the total amount of debt will continue to predict well in the future,we may not wantto define money as the total amount of debt.13.Ml contains the most liquid asset
32、s.M2 is the largest measure.14.(a)Ml and M2,(b)M2,(c)M2,(d)Ml and M2.15.Revisions are not a serious problem for long-run movements of the money supply,because revisionsfor short-run(one-month)movements tend to cancel out.Revisions for long-run movements,such asone-year growth rates,are thus typicall
33、y quite small.60Mishkin The Economics of Money,Banking,and Financial Markets,Ninth EditionChapter 4Understanding Interest Rates1.Less.It would be worth 1/(1+0.20)=$0.83 when the interest rate is 20%,rather than 1/(1+0.10)=$0.91 when the interest rate is 10%.2.No,because the present discounted value
34、of these payments is necessarily less than$10 million aslong as the interest rate is greater than zero.3.$1,000/(1+0.10)+$l,210/(1+0.10)2+$1,331/(1+0.10)3=$3,0004.The yield to maturity is less than 10 percent.Only if the interest rate was less than 10 percent wouldthe present value of the payments a
35、dd up to$4,000,which is more than the$3,000 present value inthe previous problem.5.$2,000=$100/(1+i)+$100/(1+ip+.+$100/(1+f)20+$1,000/(1+i)2n.6.25%=($1,000-S8OO)/$8OO=$200/S800=0.25.7.14.9%,derived as follows:The present value of the$2 million payment five years from now is$2/(1+z)5 million,which eq
36、uals the$1 million loan.Thus I=2/(1+z)5,Solving for i,(I+i)5=2,sothat f=V2-1=0.149=14.9%.8.If the interest rate were 12 percent,the present discounted value of the payments on the governmentloan are necessarily less than the$1,000 loan amount because they do not start for two years.Thusthe yield to
37、maturity must be lower than 12 percent in order for the present discounted value of thesepayments to add up to$1,000.9.If the one-year bond did not have a coupon payment,its yield to maturity would be($1,000-$800)/$800 一$200/$800=0.25=25%.Because it does have a coupon payment,its yield to maturity m
38、ustbe greater than 25%.However,because the current yield is a good approximation of the yield tomaturity for a twenty-year bond,we know that the yield to maturity on this bond is approximately15%.Therefore,the one-year bond has a higher yield to maturity.10.The current yield will be a good approxima
39、tion to the yield to maturity whenever the bond price isvery close to par or when the maturity of the bond is over ten years.11.You would rather own the Treasury bill,because it has a higher yield to maturity.As the example inthe text indicates,the discount yields understatement of the yield to matu
40、rity for a one-year bill issubstantial,exceeding one percentage point.Thus the yield to maturity on the one-year bill would begreater than 9%,the yield to maturity on the one-year Treasury bond.12.You would rather be holding long-term bonds because their price would increase more than the priceof th
41、e short-term bonds,giving them a higher return.Part Three:Answers to End-of-Chapter Problems 6113.No.If interest rates rise sharply in the future,long-term bonds may suffer such a sharp fall in pricethat their return might be quite low-possibly even negative.14.People are more likely to buy houses b
42、ecause the real interest rate when purchasing a house has fallenfrom 3 percent(=5 percent-2 percent)to 1 percent(=10 percent-9 percent).The real cost offinancing the house is thus lower,even though mortgage rates have risen.(If the tax deductibility ofinterest payments is allowed for,then it becomes
43、 even more likely that people will buy houses.)15.The economists are right.They reason that nominal interest rates were below expected rates ofinflation in the late 1970s,making real interest rates negative.The expected inflation rate,however,fell much faster than nominal interest rates in the mid-1
44、980s,so nominal interest rates were above theexpected inflation rate and real rates became positive.62 Mishkin The Economics of Money,Banking,and Financial Markets,Ninth EditionChapter 5The Behavior of Interest Rates1.(a)Less,because your wealth has declined;(b)more,because its relative expected ret
45、urn has risen;(c)less,because it has become less liquid relative to bonds;(d)less,because its expected return hasfallen relative to gold;(e)more,because it has become less risky relative to bonds.2.(a)More,because your wealth has increased;(b)more,because the house has become more liquid;(c)less,bec
46、ause its expected return has fallen relative to Microsoft stock;(d)more,because it hasbecome less risky relative to stocks;(e)less,because its expected return has fallen.3.(a)More,because it has become more liquid;(b)less,because it has become more risky;(c)more,because its expected return has risen
47、;(d)more,because its expected return has risen relative to theexpected return on long-term bonds,which has declined.4.(a)More,because the bonds have become more liquid;(b)more,because their expected return hasrisen relative to stocks;(c)less,because they have become less liquid relative to stocks;(d
48、)less,because their expected return has fallen;(e)more,because they have become more liquid.5.The rise in the value of stocks would increase peoples wealth and therefore the demand forRembrandts would rise.6.When the Fed sells bonds to the public,it increases the supply of bonds,thus shifting the su
49、pplycurve Bs to the right.The result is that the intersection of the supply and demand curves Bs and Bdoccurs at a lower price and a higher equilibrium interest rate,and the interest rate rises.With theliquidity preference framework,the decrease in the money supply shifts the money supply curve Msto
50、 the left,and the equilibrium interest rate rises.The answer from bond supply and demand analysisis consistent with the answer from the liquidity preference framework.7.In the loanable funds framework,when the economy booms,the demand for bonds increases.Thepublics income and wealth rises while the