Questions from Financial Markets

Q: Describe a passive monetary policy.

Describe a passive monetary policy.

Q: Why might the Fed have difficulty in controlling the economy in the

Why might the Fed have difficulty in controlling the economy in the manner desired? Be specific.

Q: Assume that the Fed’s primary goal is to reduce inflation. How

Assume that the Fed’s primary goal is to reduce inflation. How can it achieve its goal? What is a possible adverse effect of such action by the Fed (even if it achieves this goal)?

Q: Explain how the Treasury uses the primary market to obtain adequate funding

Explain how the Treasury uses the primary market to obtain adequate funding from the U.S. government.

Q: Explain how the yield on a foreign money market security would be

Explain how the yield on a foreign money market security would be affected if the foreign currency denominating that security declined to a significant degree.

Q: The maximum maturity of commercial paper is 270 days. Why would

The maximum maturity of commercial paper is 270 days. Why would a firm issue commercial paper instead of longer-term securities, even if it needs funds for a long period of time?

Q: Describe the characteristics of subprime mortgages. Why were mortgage companies aggressively

Describe the characteristics of subprime mortgages. Why were mortgage companies aggressively offering subprime mortgages before the credit crisis?

Q: You have the choice of investing in top-rated commercial paper

You have the choice of investing in top-rated commercial paper or commercial paper that has a lower risk rating. How do you think the risk and return performances of the two investments differ?

Q: How can investors using the primary T-bill market be assured

How can investors using the primary T-bill market be assured that their bid will be accepted? Why do large corporations typically make competitive bids rather than noncompetitive bids for T-bills?

Q: Describe the activity in the secondary T-bill market. How

Describe the activity in the secondary T-bill market. How can this degree of activity benefit investors in T-bills? Why might a financial institution sometimes consider T-bills as a potential source o...