Identify and describe the roles of several major participants in the secondary mortgage markets.
> Explain the difference between the annual percentage rate and the effective annual rate.
> 1. How is a bond’s price computed? a. Compute the present value of the coupon payment and subtract the par value of the bond. b. Sum the coupons to be paid over the bond’s time to maturity and its par value. c. Compute the present value of the coupon pay
> What is usury, and how does it relate to the cost of consumer credit?
> Describe compounding or discounting that is done more often than annually.
> Describe the process for determining the size of a constant periodic payment that is necessary to fully amortize a loan such as a home mortgage.
> Briefly describe how to solve for the interest rate or the time period in annuity problems.
> Describe how the present value of an annuity can be found.
> What is an ordinary annuity? What is an annuity due?
> How can the Rule of 72 be used to determine how long it will take for an investment to double in value?
> Identify the six principles of finance.
> What are the types of marketable securities issued by the Treasury?
> What are the factors, in addition to supply-and-demand relationships, that determine market interest rates?
> 1. What is the relationship between the present value of future cash flows and the maximum price an investor should be willing to pay for a security? a. The maximum price is greater than the present value of future cash flows. b. The maximum price is equ
> Indicate the sources of demand for loanable funds, and discuss the factors that affect the demand for loanable funds.
> What are the main sources of loanable funds? Indicate and briefly discuss the factors that affect the supply of loanable funds.
> How does the loanable funds theory explain the level of interest rates?
> How did the Fed contribute to the recent historically low interest rates?
> Identify major periods of rising interest rates in U.S. history, and describe some of the underlying reasons for these interest rate movements.
> How can a default risk premium change over time?
> What is meant by default risk and a default risk premium?
> What is meant by the speculative type of inflation?
> How can a change in the money supply lead to a change in the price level?
> Explain the process by which price changes may be initiated by a general change in costs.
> 1. A firm’s decision to reduce dividends a. is usually not well received by investors. b. is good news as the firm will reinvest funds to finance firm expansion. c. is an indication that the firm has too many shares of stock outstanding. d. is an indicat
> 1. The U.S. government issues which of the following money market securities? a. Treasury bills b. Commercial paper c. Negotiable certificates of deposit d. Banker’s acceptances 2. Who issues commercial paper? a. U.S. government b. Business firms
> Discuss the causes of the major periods of inflation in American history.
> What was the basis for inflation during World Wars I and II?
> Describe how interest rates may adjust to an unanticipated increase in inflation.
> Discuss the early periods of inflation based on the issue of paper money.
> Describe the process by which inflation took place before modern times.
> Identify and describe the three basic theories used to explain the term structure of interest rates.
> What is the term structure of interest rates and how is it expressed?
> Describe the process of advance refunding of the federal debt.
> What have been the recent developments in the maturity distributions of marketable interest-bearing federal debt?
> Describe any significant changes in the ownership pattern of federal debt securities in recent years.
> 1. Which of the following is true for common shareholders? a. They are the firm’s creditors. b. The firm is obligated to pay them an annual dividend. c. They can vote for candidates to the firm’s board of directors. d. The dividend is a fixed percentage
> What is the tax status of income from federal securities?
> Describe the dealer system for marketable U.S. government securities.
> Explain the mechanics of issuing Treasury bills, indicating how the price of a new issue is determined.
> What is the “interest rate,” and how is it determined?
> Define personal saving.
> Compare savings surplus and savings deficit units. Indicate which economic units are generally one type or the other.
> Briefly describe the historical role of savings in the United States.
> Describe whether the federal government has been operating with surplus or deficit budgets in recent years.
> Identify the major expense categories in the federal budget.
> Identify the various sources of revenues in the federal government.
> 1. A bond that is an unsecured obligation of the issuer—in other words, there are no specific assets pledged as collateral in case the issuer cannot repay the bondholders, is called a. an equipment trust certificate. b. an indenture. c. a first mortgage
> Identify the major components of net saving and describe their relative contributions in recent years.
> What role did individuals play in the development of the 2007-09 financial crisis?
> Briefly describe credit ratings and credit scores.
> What is meant by the term securitization? What is a mortgage-backed security?
> Identify and briefly describe the two major types of residential real estate mortgages.
> What is a mortgage? What is meant by the term mortgage markets?
> Identify and briefly describe the major securities that are originated or traded in capital securities markets.
> Describe the major components of gross domestic product.
> What are the two types of financial market securities?
> 1. Is this statement correct: Eurodollar bond are issued only in Europe and are denominated in dollars? a. Yes b. No, Eurodollars bonds can be issued in any country, except the United States. c. No, Eurodollar bonds are denominated in euros. d. No, Eurod
> Explain how financial savings generated by a business are a function of its life cycle?
> What are the life cycle stages of corporations and other business firms?
> How does each stage relate to the amount and type of individual savings?
> What are the life cycle stages of individuals?
> How do economic cycle movements affect the media or types of savings by businesses?
> Describe the principal factors that influence the level of savings by individuals.
> How and why do corporations save?
> Describe the recent levels of savings rates in the United States.
> Also, differentiate between voluntary and contractual savings.
> What is capital formation?
> 1. What does it mean to “annualize a return”? a. Computer how many dollars you receive each year b. Determine the total price change during the past year c. Determine what the compounded average annual return is on an investment. d. Take 12 monthly holdi
> Trace the effect on its accounts of a loan made by a bank that has excess reserves available from new deposits.
> Why are the expansion and contraction of deposits by the banking system possible in our financial system?
> Explain how Federal Reserve notes are supported or backed in our financial system.
> Discuss the various objectives of debt management.
> Federal government deficit financing may have a very great influence on monetary and credit conditions. Explain.
> Describe the effects of tax policy on monetary and credit conditions.
> Discuss how the U.S. government influences the economy and how the government responded to the 2007-09 perfect financial storm.
> Describe the relationship between policy makers, types of policies, and policy objectives.
> Why does it seem to be important to regulate and control the supply of money?
> Define the velocity of money and explain why it is important to anticipate changes in money velocity.
> 1. The “holding period” in “holding period return” refers to this length of time: a. One year. b. It always refers to how long an asset has been owned. c. Any time frame over which you’d like to know the return. d. One month. 2. The holding period retur
> Briefly describe what is meant by the money multiplier and indicate the factors that affect its magnitude or size.
> What is the difference between the monetary base and total bank reserves?
> Summarize the factors that can lead to a change in bank reserves.
> Describe the effect on bank reserves when the Federal Reserve sells U.S. government securities to a bank.
> Trace the effect on bank reserves of a change in the amount of cash held by the public.
> Explain the potential for deposit expansion when required reserves average 10 percent and $2,000 in excess reserves are deposited in the banking system.
> Explain how deposit expansion takes place in a banking system consisting of two banks.
> List and describe briefly the economic policy objectives of the nation.
> Comment on the objectives of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA).
> Why was it considered necessary to create the Federal Reserve System when we already had the benefits of the National Banking Act?
> 1. Which is the major source of new financing for U.S corporations each year? a. bonds b. stock c. internal financing (retained earnings) d. It depends on the year. 2. Why would a U.S. firm issue bonds overseas? a. The Securities and Exchange Commission
> Briefly describe why and when thrift institutions were founded.
> How did the First Bank of the United States serve the nation? Also briefly describe why the Second Bank of the United States was chartered.
> Describe the three basic ways for processing or collecting a check in the United States.
> Describe the functions of banks and the banking system.
> Compare commercial banking with investment banking. What is universal banking?
> Define international banking. Describe how some foreign banking systems differ from the U.S. banking system.
> What were the Basel Accords and what was their purpose?
> Define and describe the following terms: common equity capital ratio, tier 1 ratio, and total capital ratio. How are these used by bank regulators?
> Describe the major financial institutions engaged in getting the savings of individuals into business firms that want to make investments to maintain and grow their firms.
> Describe what is meant by liquidity risk, credit risk, and interest rate risk.
