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Lecture 9

ECON 310 Lecture 9: Econ310F16 Lecture 9

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Department
Economics
Course
ECON 310
Professor
David Cox
Semester
Spring

Description
Mon Mankets wage rate naucikl instruments inded loans and discount bonds Money matketn arise be cause Cash outflows of comparation s and banks, and Cash inflow insh wi htutions excess San lend ins on lenders in consider instru to be money like short small price known and prices Key Money Markets Repurchase Agreements al are closely mela bd. Ink bank Mankad market in which ban bomow Mond geposits, held unsecured loans of the loquts is usual an as we wal See, in a co aple a Mon Mankets wage rate naucikl instruments inded loans and discount bonds Money matketn arise be cause Cash outflows of comparation s and banks, and Cash inflow insh wi htutions excess San lend ins on lenders in consider instru to be money like short small price known and prices Key Money Markets Repurchase Agreements al are closely mela bd. Ink bank Mankad market in which ban bomow Mond geposits, held unsecured loans of the loquts is usual an as we wal See, in a co aple aMechanics of an Bank A Deposits at +1m Loan Suat bank to Bank Cen Mal Bank Deposits of Bank A t Deposits of Bank B Assets Defoss at Conhal bark. au 2. Commercial Paper CCP) cp secured short-ter IS an olisce gat bond issued b and banks in o tons Handing issued b IS On Crede wan dwer over a short Bill CT-Bills Market our bonds issued y governments Considered to tree default when issugd 7: Bils usu sold by auction Mechanics of an Bank A Deposits at +1m Loan Suat bank to Bank Cen Mal Bank Deposits of Bank A t Deposits of Bank B Assets Defoss at Conhal bark. au 2. Commercial Paper CCP) cp secured short-ter IS an olisce gat bond issued b and banks in o tons Handing issued b IS On Crede wan dwer over a short Bill CT-Bills Market our bonds issued y governments Considered to tree default when issugd 7: Bils usu sold by auctionpurchase C "Repo") is a econo short-tert securea loan agreement Collateral loan bond overnment ona urchase agreement- /S a contra Sale securities at to repurchase a price Leg cash Leg 2 cash he cash borouen. Lender IS in ou lending to Male on repo loan IS measured purchase C "Repo") is a econo short-tert securea loan agreement Collateral loan bond overnment ona urchase agreement- /S a contra Sale securities at to repurchase a price Leg cash Leg 2 cash he cash borouen. Lender IS in ou lending to Male on repo loan IS measuredLet X repurchase price CAeg a) Rate ie CR CO. O2. loan as repo agree A de OM does not repurchase bond wom becomes and a Owner sell bond to reco bond Coll4 realizes many repo agreements are most Zoman on bowowing heading banks heatige funds, Auro meg market mutual h leaders end using Roo agreements D why not lend a bank and a demand deposit deposit insurance? 40 million limits of loo, ooo ar ooo very large ash ledere bank deassifs are uot safe its bank Coq d go bankrupt "U serves as ylein deasud dnpssit repo Let X repurchase price CAeg a) Rate ie CR CO. O2. loan as repo agree A de OM does not repurchase bond wom becomes and a Owner sell bond to reco bond Coll4 realizes many repo agreements are most Zoman on bowowing heading banks heatige funds, Auro meg market mutual h leaders end using Roo agreements D why not lend a bank and a demand deposit deposit insurance? 40 million limits of loo, ooo ar ooo very large ash ledere bank deassifs are uot safe its bank Coq d go bankrupt "U serves as ylein deasud dnpssit repoos and a repo agreement takes possession o and bond and a Heulots to sell it. result in a loss fo B inihal price M. our le is price of then B loses 3 on Wangachon one repo s probleni Cash lender can demand a thirat on bon EExample A sells B a pond whose men manket is (00 but i tih price is a lower leg 2, hee B is in e tak,a possession a bond nice exceeals leading to Haircut of bond of Bond os and a repo agreement takes possession o and bond and a Heulots to sell it. result in a loss fo B inihal price M. our le is price of then B loses 3 on Wangachon one repo s probleni Cash lender can demand a thirat on bon EExample A sells B a pond whose men manket is (00 but i tih price is a lower leg 2, hee B is in e tak,a possession a bond nice exceeals leading to Haircut of bond of Bondthailout CHC is usu -express. a bond's initial market price repo agreement H- C Znitial Market- Price of bond O, OS 100 Repo O, 32 3, A- defaults then B is roteged, against a drop bord OR 'up Q. An increase in haiau neang real value of Ale Cash bombnen ts CPar is lowered Cas om using a bond whose barrower cavi on bomour S using a Bona hare. inihal meanket price, is Hoo o agree w are and DO ll repo una kot s interaction' of short-term bambuen lemolers thailout CHC is usu -express. a bond's initial market price repo agreement H- C Znitial Market- Price of bond O, OS 100 Repo O, 32 3, A- defaults then B is roteged, against a drop bord OR 'up Q. An increase in haiau neang real value of Ale Cash bombnen ts CPar is lowered Cas om using a bond whose barrower cavi on bomour S using a Bona hare. inihal meanket price, is Hoo o agree w are and DO ll repo una kot s interaction' of short-term bambuen lemolersNote illions of dollers are weveryday in nepo market. 2. In Mammal tines repo lendu is considered to be usual haircuts are Cash lenders o are Concerned about Can respond b Ci reducing the mafarity of days higher HC Cit) deuraud a agree meet a point of vie w are not general des inable. Cash borswerk point op view. bo vows 710 from one week repo agree ae end week many lage financial shhahons AnAnce veya lavage asset pat kos using is ienewed ongoing basis cash lenders point o view Continuin renew in o agreement is analogous to bank Note illions of dollers are weveryday in nepo market. 2. In Mammal tines repo lendu is considered to be usual haircuts are Cash lenders o are Concerned about Can respond b Ci reducing the mafarity of days higher HC Cit) deuraud a agree meet a point of vie w are not general des inable. Cash borswerk point op view. bo vows 710 from one week repo
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