Financial Services

Daniella is considering the purchase of a 10-year, $10,000 bond being issued by Disreputable, Inc. The bond offers an interest rate of 5.5%. The rate on a similar US Treasury bond is 2.5%. All else equal, Daniella will be getting a default premium of _____, if she purchases the Disreputable, Inc. bond.

5.5%-2.5%=3%

5 C's of credit

Character, Capacity, Capital, Collateral, Conditions

B&G Corporation issues convertible bonds. Convertible bonds allow B&G bondholders to convert their bonds into __________ at some point in the future.

Common Stock

M1-

High liquidity, coins, currency, and checkable deposits

A bank's pretax net income =

Net interest income - Noninterest expense

Collectibles-

You can make money of the particular item increases in value over time but you can lose money if that collectible never gains value. (Collectibles Definition)Add--Something that you collect -Rarity or popularity increases its value over time -Examples= currency, baseball cards, Hess Trucks, Dolls etc.

Interest rates

can represent the price of money.

A _______________ is caused by a lack of lending by banks when they become uncertain about the financial markets and their own need for reserves, which results in companies and households not being able to borrow the funds that they need for their desired level of spending, thereby causing a slowing down of, or recession in, the economy.

credit crunch

​When the Federal Reserve decreases the required reserve ratio, the Fed is attempting to:

increase the money supply.

A gap analysis is something a bank can do to better understand its:

liquidity risk.

The purchase of direct debt and mortgage-backed securities by the Federal Reserve in November 2008 is referred to as

quantitative easing.

Harper just got a big raise at work, which pushed her from the 15% federal marginal tax bracket to the 25% marginal tax bracket. Which of the following best describes how this might affect her decision to buy municipal bonds?

will make her more likely to buy municipal bonds because it will increase the difference between the nominal interest rate paid on the bonds and the after-tax interest rate she will receive relative to corporate bonds.

Crypto-currency

- Investor can make money if the crypto-currency increases in value but can lose money if it loses value or can not liquidate the crypto-currency. They are a relatively new type of investment that promises privacy and security with transactions but their fluctuating value and low liquidity makes them very risky. It is a digital asset which utilizes cryptography and blockchain to provide transactions without the intervention of any middleman. Blockchain basically is what helps encrypt data and keep transactions safe and private. Cryptocurrency funds are essentially mutual funds that invest in cryptocurrency. ICO's are the IPO's to cryptocurrency.

Which of the following is included in the M1 definition of the money supply?

Demand deposits and other checkeable deposits

Explain what dollar cost averaging is and why it can be beneficial.

Dollar cost averaging is an investment strategy where an investor invests the same dollar amount during regular intervals in order to reduce risk overtime.

A limitation on US banks is the prohibition from holding __________ in their asset portfolios.

Equities

Foreign Exchange Markets-

Exchange rates when it comes to money fluctuate constantly, money can be made if you exchange money and then exchange it back into your currency at a higher rate but because rates constantly fluctuate it is hard to predict this type of change. (Foreign exchange market) Add- Allows investors to speculate, sell, or exchange different currencies.

The key to solving the adverse selection problem that banks face hinges on

a better flow of information.

Among the responsibilities of the Fed is

acting as the fiscal agent of the US Treasury

Interest rates

are "price" to borrow money

Convertible bonds-

bonds that are convertible into shares of common stock

The rising popularity of ATMs has resulted in a(n) __________ as a tool of monetary policy.

decline in the usefulness of the reserve ratio

When the Federal Reserve increases the reserve ratio, the impact will be to

decrease the size of the money multiplier.