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Final

ECON102 Study Guide - Final Guide: Overnight Rate, Loanable Funds, SpeculationPremium


Department
Economics
Course Code
ECON102
Professor
All
Study Guide
Final

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University of Alberta
ECON102
Introduction to Macroeconomics
Winter 2018
Final
Prof: Andrew Wong
Study Guide

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Table of content:
- Chapter 13: The Basic of Finance
Equity, Debt, and Derivatives
Risk, Return, and the Efficient Market Hypothesis
- Chapter 14: Money and the Monetary System
Banks and the Money Supply
Banks and Creating Money
The Liquidity-Preference Model
- Chapter 15: Inflation
Inflation and Unemployment
International Trade and The Phillips Curve
- Chapter 17: Open-Market Macroeconomics
FDI and Exchange Rates
The Exchange Rate Model
The Real Exchange Rate and Review

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Chapter 13: The Basic of Finance
Equity, Debt, and Derivatives
Equity%
-The!financial!system!achieves!what!we!talked!about!above!by!crea2ng!financial!assets!that
can!be!bought!and!sold
-For!example,!owning!a!part!of!a!company!allows!that!person!to!share!in!the!profits,!or!in
other!words!he!has!an!equity!stake!in!the!company
-A!stock!is!a!financial!asset!that!represents!par2al!ownership!of!a!company
-Stockholders!are!en2tled!to!receive!a!por2on!of!a!companys!profits
-A!dividend!is!a!payment!made!periodically!to!all!shareholders!of!a!company
-PE!ra2o!(not!very!important,!just!an!aside)
-Profits!—!Earnings!—!Net!Income
-Price!of!the!stock!vs!the!earnings!of!the!stock
-Thats!how!you!can!find!out!if!a!stock!of!under!or!overvalued
Debt%
-A!loan!is!issued!when!a!lender!provides!funds!to!a!borrower!in!exchange!for!future
repayment!of!the!amount!loaned!PLUS!interest
-Loans!are!generally!less!risky!and!less!rewarding!than!buying!a!stock
-A!bond!is!a!form!of!debt!where!the!bond!issuer!promises!to!repay!the!loan!plus!scheduled
interest!payments
-In!other!words!its!a!“contract”!between!both!par2es!that!outlines!all!the!parameters
-The!interest!payments!on!bonds!are!called!coupons
-For!example,!on!a!given!bond:
-The!Face%Value!is!the!money!that!they!have!to!pay
-The!Maturity%date!is!the!date!to!pay!it!by
-The!coupon%rate!is!the!interest!payment,!usually!compounded!annually
-Bond!ra2ng!agencies!verify!each!party!and!give!them!a!ra2ng!(AAA,!or!AA+,!or!AA-!usually)
Deriva9ves!
-These!are!financial!assets!that!are!based!on!the!value!of!some!other!asset
-The!most!common!example!of!a!deriva2ve!is!a!futures%contract
-The!buyer!of!a!futures!contract!agrees!to!pay!the!seller!based!on!the!future!price!of!some
asset
-Futures!contracts!allow!sellers!to!transfer!risks!rela2ng!to!future!prices!to!the!other!party
-Example!—!Buying!machinery
-Suppose!you’re!part!of!a!Canadian!company
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