MGEC71H3 Chapter Notes - Chapter 2: Adverse Selection, Nasdaq, Eurodollar

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orangesardine2

25 Jun 2012

School

UTSC

Department

Economics for Management Studies

Course

MGEC71H3

Professor

Jack Parkinson

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Document Summary

Can be characterized on the basis of credit quality/issuer (government vs. corporate); term to maturity; etc: short-term (maturity 1 year) traded in the money. Market: long-term (maturity 10 year) traded in the capital. Market: medium-term (maturity >1 and < 10 years) traded in the. Capital market: equity markets - common stocks. Primary market - new security issues sold to initial buyers. Secondary market - securities previously issued are bought and sold: brokers (agent: direct finance) the actions matter. Trades conducted in central locations (e. g. , toronto stock. Brokers, dealers, market makers, investment banks etc buy/sell on the exchange: over-the-counter (otc) markets (bonds/fx, dealers at different locations buy and sell, money market trade in short-term debt instruments (maturity 1 year) Some important money market instruments: government of canada treasury bills, certificates of deposit, commercial paper, repurchase agreements, overnight funds, capital market trade in longer term debt & equity (maturity > 1 year)

Related Questions

part 1

1. Why are bond markets important?

2. Why are stock markets important?

3. Why are banks important?

4. What aspects of the economy are affected by the money supply?

5. What are the four phases of a business cycle? How does money supply affect business

cycles?

6. What is the relationship between money supply growth and inflation?

7. What is monetary policy? What is fiscal policy?

8. What is the foreign exchange market?

9. How does an appreciation of a currency affect the economy?

10. How does a depreciation of a currency affect an economy?

part 2

1. What are the two components of a financial system? What is direct finance? Indirect

finance?

2. What is the role of financial markets?

3. Explain the following classifications of financial markets

a. Debt and. equity markets

b. Primary and secondary markets

c. Exchanges and over-the-counter markets

d. Money and capital markets

4. List and briefly explain each money market instrument.

5. List the capital market instruments.

6. Explain why financial intermediaries play an important role in the economy (address the

following: transactions costs, risk sharing, information costs, and economies of scope).

7. What is asymmetric information? What are the two problems that arise when there is

asymmetric information in the financial system?

8. Explain the adverse selection and moral hazard problems that are a result of asymmetric

information.

9. What are the different types of financial intermediaries in the U.S. economy?

10. Which financial intermediaries are classified as depository institutions (or banks)?

11. What are the two main reasons why the government regulates the financial system?

12. What are the different types of financial regulations implemented by the government in

the U.S.?

1) Discuss the function performed by a financial intermediary in linking surplus and deficit units in the financial market. What will happen in the financial market if the financial intermediary does not exist? (You can use any financial institution to clarify your answer)

ceruleanfox914

List the different categories/types for the following:

Financial markets.

Financial institutions.

Financial instruments.

Regulation of financial markets.

MGEC71H3 Chapter Notes - Chapter 2: Adverse Selection, Nasdaq, Eurodollar

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