货币金融学（第十二版）课后习题答案

Mishkin • Instructor’sManualforTheEconomicsofMoney,Banking,andFinancialMarkets,TwelfthEdition PAGE293Copyright©2019byPearsonEducation,Inc.Allrightsreserved.PAGE62  Mishkin • TheEconomicsofMoney,Banking,andFinancialMarkets,EleventhEditionCopyright©2016PearsonAddison-Wesley.Allrightsreserved.PartThreeAnswerstoEnd-of-ChapterQuestionsandProblems

Chapter1ANSWERSTOQUESTIONSWhatisthetypicalrelationshipamonginterestratesonthree-monthTreasurybills,long-termTreasurybonds,andBaacorporatebonds?onaverage.TheinterestrateonBaacorporatebondsishigheronaveragethantheotherinterestrates.Whateffectmightafallinstockpriceshaveonbusinessinvestment?Thelowerpriceforafirm’ssharesmeansthatitcanraiseasmalleramountoffunds,soinvestmentinfacilitiesandequipmentwillfall.Explainthemaindifferencebetweenabondandacommonstock.Abondisadebtinstrument,whichentitlestheownertoreceiveperiodicamountsofmoney(predeterminedbythecharacteristicsofthebond)untilitsmaturitydate.Acommonstock,however,representsashareofownershipintheinstitutionthathasissuedthestock.Inadditiontoitsdefinition,itisnotthesametoholdbondsorstockofagivencorporation,sinceregulationsstatethatstockholdersareresidualclaimants(i.e.thecorporationhastopayallbondholdersbeforepayingstockholders).Explainthelinkbetweenwell-performingfinancialmarketsandeconomicgrowth.Nameonechannelthroughwhichfinancialmarketsmightaffecteconomicgrowthandpoverty.Wellperformingfinancialmarketstendtoallocatefundstoitsmoreefficientuse,therebyallowingthebestinvestmentopportunitiestobeundertaken.Theimprovementintheallocationoffundsresultsinamoreefficienteconomy,whichstimulateseconomicgrowth(andtherebypovertyreduction).Whatwasthemaincauseoftherecessionthatbeganin2007?TheUnitedStates’economywashitbytheworstfinancialcrisissincetheGreatDepression.Defaultsinsubprimeresidentialmortgagesledtomajorlossesinfinancialinstitutions,producingnotonly.Thesefactorsledtothe“GreatRecession”thatbeganlatein2007.

Canyouthinkofareasonwhypeopleingeneraldonotlendmoneytooneanothertobuyahouseoracar?Howwouldyouranswerexplaintheexistenceofbanks?Whataretheotherimportantfinancialintermediariesintheeconomy,besidesbanks?Savingsandloanassociations,mutualsavingsbanks,creditunions,insurancecompanies,mutualfunds,pensionfunds,andfinancecompanies.CanyoudatethelatestfinancialcrisisintheUnitedStatesorinEurope?Aretherereasonstothinkthatthesecrisesmighthavebeenrelated?Why?ThelatestfinancialcrisisintheUnitedStatesandEuropeoccurredin2007–2009.Atthebeginning,ithitmostlytheUSfinancialsystem,butitthenquicklymovedtoEurope,sincefinancialmarketsarehighlyinterconnected.Onespecificwayinwhichthesemarketswererelated,isthatsomefinancialintermediariesinEuropeheldsecuritiesbackedbymortgagesoriginatedintheUnitedStates,andwhenthesesecuritieslosttheiraconsiderablepartoftheirvalue,thebalancesheetofEuropeanfinancialintermediarieswasadverselyaffected.HastheinflationrateintheUnitedStatesincreasedordecreasedinthepastfewyears?Whataboutinterestrates?Ifhistoryrepeatsitselfandweseeadeclineintherateofmoneygrowth,whatmightyouexpecttohappentorealoutput?theinflationrate?interestrates?ThedatainFigures3,5,and6suggestthatrealoutput,theinflationrate,andinterestrateswouldallfall.Wheninterestratesdecrease,howmightbusinessesandconsumerschangetheireconomicbehavior?Businesseswouldincreaseinvestmentspendingbecausethecostoffinancingthisspendingisnowlower,andconsumerswouldbemorelikelytopurchaseahouseoracarbecausethecostoffinancingtheirpurchaseislower.Iseverybodyworseoffwheninterestratesrise?No.Itistruethatpeoplewhoborrowtopurchaseahouseoracarareworseoffbecauseitcoststhemmoretofinancetheirpurchase;however,saversbenefitbecausetheycanearnhigherinterestratesontheirsavings.WhydomanagersoffinancialinstitutionscaresomuchabouttheactivitiesoftheFederalReserveSystem?BecausetheFederalReserveaffectsinterestrates,inflation,andbusinesscycles,allofwhichhaveanimportantimpactontheprofitabilityoffinancialinstitutions.HowdoesthecurrentsizeoftheU.S.budgetdeficitcomparetothehistoricalbudgetdeficitorsurplusforthetimeperiodsince1950?ThedeficitasapercentageofGDPexpandeddramaticallyin2007butimprovedstartingin2010;in2009,thedeficittoGDPratiowas9.8%,andin2016was3.2%,stillabovethehistoricalaverageofaround2%since1950.HowwouldafallinthevalueofthepoundsterlingaffectBritishconsumers?Itmakesforeigngoodsmoreexpensive,soBritishconsumerswillbuyfewerforeigngoodsandmoredomesticgoods.HowwouldanincreaseinthevalueofthepoundsterlingaffectAmericanbusinesses?ItmakesBritishgoodsmoreexpensiverelativetoAmericangoods.Thus,AmericanbusinesseswillfinditeasiertoselltheirgoodsintheUnitedStatesandabroad,andthedemandfortheirproductswillrise.Howcanchangesinforeignexchangeratesaffecttheprofitabilityoffinancialinstitutions?Changesinforeignexchangerateschangethevalueofassetsheldbyfinancialinstitutionsandthusbytradersinforeignexchangewhoworkforfinancialinstitutions.Date$/£5-011.29175-021.29215-031.29165-041.29105-051.295005-081.294205-091.293905-101.293905-111.288505-121.288005-151.291705-161.291205-171.294405-181.300905-191.301805-221.300605-231.298405-241.293505-251.295405-261.279505-301.285805-311.2905Whenthedollarisworthmoreinrelationtocurrenciesofothercountries,areyoumorelikelytobuyAmerican-madeorforeign-madejeans?AreU.S.companiesthatmanufacturejeanshappierwhenthedollarisstrongorwhenitisweak?WhataboutanAmericancompanythatisinthebusinessofimportingjeansintotheUnitedStates?Whenthedollarincreasesinvalue,foreigngoodsbecomelessexpensiverelativetoAmericangoods;thus,youaremorelikelytobuyFrench-madejeansthanAmerican-madejeans.TheresultingdropindemandforAmerican-madejeansbecauseofthestrongdollarhurtsAmericanjeansmanufacturers.Ontheotherhand,theAmericancompanythatimportsjeansintotheUnitedStatesnowfindsthatthedemandforitsproducthasrisen,soitisbetteroffwhenthedollarisstrong.

MuchoftheU.S.governmentdebtisheldbyforeigninvestorsastreasurybondsandbills.Howdofluctuationsinthedollarexchangerateaffectthevalueofthatdebtheldbyforeigners?Asthedollarbecomesstronger(worthmore)relativetoaforeigncurrency,onedollarisequivalentto.Likewise,aweakdollarwillleadtoforeignbondholdingsworthlesstoforeigners.ANSWERSTOAPPLIEDPROBLEMSThefollowingtableliststheforeignexchangeratebetweenU.S.dollarsandBritishpounds(GBP)duringMay2017.Whichdaywouldhavebeenthebestforconverting$200intoBritishpounds?Whichdaywouldhavebeentheworst?Whatwouldbethedifferenceinpounds?5-011.29175-021.29215-031.29165-041.29105-051.295005-081.294205-091.293905-101.293905-111.288505-121.288005-151.291705-161.291205-171.294405-181.300905-191.301805-221.300605-231.298405-241.293505-251.295405-261.279505-301.285805-311.2905Thebestdayis5/26.Atarateof$1.2795/pound,youwouldhave£156.31.Theworstdayis5/19.At$1.3018/pound,youwouldhave£153.63,oradifferenceof£2.68

ANSWERSTODataanalysisPROBLEMS 1. GototheSt.LouisFederalReserveFREDdatabaseandfinddataonthethree-monthtreasurybillrate(TB3MS),thethree-monthAAnonfinancialcommercialpaperrate(CPN3M),the30-yeartreasurybondrate(GS30),the30-yearfixedratemortgageaverage(MORTGAGE30US),andtheNBERrecessionindicators(USREC).Forthemortgagerateindicator,setthefrequencysettingto‘monthly’.Ingeneral,howdotheseinterestratesbehaveduringexpansionaryperiods?Generallyspeaking,theinterestratesfallduringrecessions,andriseduringexpansionaryperiods.Ingeneral,howdothethree-monthinterestratescomparetothe30-yearrates?HowdotheTreasuryratescomparetotherespectivecommercialpaperandmortgagerates?Innearlyallinstances,the30-yearratesaresignificantlyhigherthanthethree-monthrates.Likewise,inmostcases,the30-yearmortgagerateishigherthanthe30-yeartreasuryrate,andthethree-monthcommercialpaperrateishigherthanthethree-monthtreasuryrate.Forthemostrecentavailablemonthofdata,taketheaverageofeachofthethree-monthratesandcompareittotheaverageofthethree-monthratesfromJanuary2000.Howdotheaveragescompare?Forthemostrecentavailablemonthofdata,taketheaverageofeachofthe30-yearratesandcompareittotheaverageofthe30-yearratesfromJanuary2000.Howdotheaveragescompare?

May2017January2000Three-monthrateavg.0.925.5330-yearrateavg.3.497.42Seetableabove.Forbothrateaverages,theyhavedecreasedsignificantlysinceJanuary2000.

2. GototheSt.LouisFederalReserveFREDdatabaseandfinddataontheM1moneysupply(M1SL)andthe10-yeartreasurybondrate(GS10).Addthetwoseriesintoasinglegraphbyusingthe“AddDataSeries”feature.TransformtheM1moneysupplyvariableintotheM1growthratebyadjustingtheunitsfortheM1moneysupplyto“PercentChangefromYearAgo.”a. Ingeneral,howhavethegrowthrateoftheM1moneysupplyandthe10-yeartreasurybondratebehavedduringrecessionsandduringexpansionaryperiodssincetheyear2000?Generally,the10-yeartreasuryratefellduringtherecessionaryperiodsof2001and2007–2009;duringexpansionaryperiods,therewaslessofapattern,butthereseemstobealong-rundownwardtrendintheinterestrate.Themoneygrowthrateincreasedsignificantlyduringrecessionaryperiods;however,duringexpansions,thereislessofapattern;followingthe2001recession,moneygrowthgraduallydeclined,butafterthe2007–2009recession,moneygrowthwasrelativelyhighandvariable.b. Ingeneral,isthereanobvious,stablerelationshipbetweenmoneygrowthandthe10-yearinterestratesincetheyear2000?Whenmoneygrowthrises,the10-yeartreasuryrateappearstofall,andvice-versa;however,thiseffectismoreobviousoversomeperiodsthanothers.c. Comparethemoneygrowthrateandthe10-yearinterestrateforthemostrecentmonthavailabletotheratesforJanuary2000.Howdotheratescompare?

May2017January2000M1MoneyGrowth8.002.1910-yearTreasuryrate2.306.66ThemoneygrowthrateissignificantlyhigherinMay2017thanitwasinJanuary2000.The10-yeartreasuryrateissignificantlylowerinMay2017thanitwasinJanuary2000.

Chapter2ANSWERSTOQUESTIONSIfIcanbuyacartodayfor$5,000anditisworth$10,000inextraincometomenextyearbecauseitenablesmetogetajobasatravelingsalesman,shouldItakeoutaloanfromLarrytheLoanSharkata90%interestrateifnooneelsewillgivemealoan?WillIbebetterorworseoffasaresultoftakingoutthisloan?Canyoumakeacaseforlegalizingloansharking?willbe$4,500(90%of$5,000),butasaresult,Iwillearnanadditional$10,000,soIwillbeaheadofthegameby$5,500.SinceLarry’sloan-sharkingbusinesscanmakesomepeoplebetteroff,asinthisexample,loansharkingmayhavesocialbenefits.(Oneargumentagainstlegalizingloansharking,however,isthatitisfrequentlyaviolentactivity.)Someeconomistssuspectthatoneofthereasonseconomiesindevelopingcountriesgrowsoslowlyisthattheydonothavewell-developedfinancialmarkets.Doesthisargumentmakesense?Yes,becausetheabsenceoffinancialmarketsmeansthatfundscannotbechanneledtopeoplewhohavethemostproductiveuseforthem.Entrepreneursthencannotacquirefundstosetupbusinessesthatwouldhelptheeconomygrowrapidly.Giveatleastthreeexamplesofasituationinwhichfinancialmarketsallowconsumerstobettertimetheirpurchases.Examplesofhowfinancialmarketsallowconsumerstobettertimetheirpurchasesinclude:Thepurchaseofadurablegood,likeacarorfurniture.Payingfortuition.Payingthecostofrepairingafloodedbasement.Inallthreecases,consumerswereabletopayforagoodorservice(educationorthereparationofafloodedbasement)withouthavingtowaittosaveenoughandonlythenbeingabletoaffordsuchgoodsandservices.Ifyoususpectthatacompanywillgobankruptnextyear,whichwouldyouratherhold,bondsissuedbythecompanyorequitiesissuedbythecompany?Why?Youwouldratherholdbonds,becausebondholdersarepaidoffbeforeequityholders,whoaretheresidualclaimants.

SupposethatToyotasellsyen-denominatedbondsinTokyo.IsthisdebtinstrumentconsideredaEurobond?HowwouldyouranswerchangeifthebondweresoldinNewYork?IftheYendenominatedbondissoldinTokyo,thenitisnotconsideredaEurobond.IfthebondissoldinNewYork,thenitisconsideredaEurobond.Describewhoissueseachofthefollowingmoneymarketinstruments:TreasurybillsCertificatesofdepositCommercialpaperRepurchaseagreementFedfundsTreasurybillsareshort-termdebtinstrumentsissuedbytheUSgovernmenttocoverimmediatespendingobligations,i.e.financedeficitspending.Certificatesofdeposit(CD)areissuedbybanksandsoldtodepositors.Corporationsandlargebanksissuecommercialpaperasamethodofshort-termfundingindebtmarkets.Reposareissuedprimarilybybanksandfundedbycorporationsandotherbanksthroughloansinwhichtreasurybillsserveascollateral,withanexplicitagreementtopayoffthedebt(repurchasethetreasuries)inthenearfuture.Fedfundsareovernightloansfromonebanktoanother.Whatisthedifferencebetweenamortgageandamortgage-backedsecurity?TheU.S.economyborrowedheavilyfromtheBritishinthenineteenthcenturytobuildarailroadsystem.Whydidthismakebothcountriesbetteroff?TheBritishgainedbecausetheywereabletoearnhigherinterestratesasaresultoflendingtoAmericans,whiletheAmericansgainedbecausetheynowhadaccesstocapitaltostartupprofitablebusinessessuchasrailroads.AsignificantnumberofEuropeanbanksheldlargeamountsofassetsasmortgage-backedsecuritiesderivedfromtheU.S.housingmarket,whichcrashedafter2006.Howdoesthisdemonstratebothabenefitandacosttotheinternationalizationoffinancialmarkets?Howdoesrisk-sharingbenefitbothfinancialintermediariesandprivateinvestors?Financialintermediariesbenefitbycarryingriskatrelativelylowtransactioncosts.Sincehigherriskassetsonaverageearnahigherreturn,financialintermediariescanearnaprofitonadiversifiedissuedbyfinancialintermediariesatlowerrisk.Thefinancialintermediarylowersrisktoindividualinvestorsthroughthepoolingofassets.Howcantheadverseselectionproblemexplainwhyyouaremorelikelytomakealoantoafamilymemberthantoastranger?Becauseyouknowyourfamilymemberbetterthanastranger,youknowmoreabouttheborrower’shonesty,propensityforrisk-taking,andothertraits.Thereislessasymmetricinformationthanwithastrangerandlesslikelihoodofanadverseselectionproblem,withtheresultthatyouaremorelikelytolendtothefamilymember.Oneofthefactorscontributingtothefinancialcrisisof2007–2009wasthewidespreadissuanceofsubprimemortgages.Howdoesthisdemonstrateadverseselection?Theissuanceofsubprimemortgagesrepresentslendersloaningmoneytothepoolofpotentialhomeownerswhoarethehighestcreditriskandhavethelowestnetwealthandotherfinancialresources.Inotherwords,thisgroupofborrowersmostinneedofmortgagecreditwasalsothehighestrisktolenders,aperfectexampleofadverseselection.Whydoloansharksworrylessaboutmoralhazardinconnectionwiththeirborrowersthansomeotherlendersdo?Loansharkscanthreatentheirborrowerswithbodilyharmifborrowerstakeactionsthatmightjeopardizetheirpayingofftheloan.Hence,borrowersfromaloansharkarelesslikelytoincreasemoralhazard.Ifyouareanemployer,whatkindsofmoralhazardproblemsmightyouworryaboutwithregardtoyouremployees?Theymightnotworkhardenoughwhileyouarenotlookingormaystealorcommitfraud.

Iftherewerenoasymmetryintheinformationthataborrowerandalenderhad,couldamoralhazardproblemstillexist?Yes,becauseevenifyouknowthataborroweristakingactionsthatmightjeopardizepayingofftheloan,youmuststillstoptheborrowerfromdoingso.Becausethatmaybecostly,youmaynotspendthetimeandefforttoreducemoralhazard,andsotheproblemofmoralhazardstillexists.“Inaworldwithoutinformationcostsandtransactioncosts,financialintermediarieswouldnotexist.”Isthisstatementtrue,false,oruncertain?Explainyouranswer.True.Iftherearenoinformationalortransactionscosts,peoplecouldmakeloanstoeachotheratnocostandwouldthushavenoneedforfinancialintermediaries.soon),youwillprobablynotbeableearn5%ontheloanafteryourexpenseseventhoughithas5%interest.Inaddition,youarelikelytobearlessriskbydepositingyoursavingsatthebankratherthanlendingthemtoyourneighbor.Howdoconflictsofinterestmaketheasymmetricinformationproblemworse?Potentiallycompetinginterestsmayleadanindividualorfirmtoconcealinformationordisseminatemisleadinginformation.Asubstantialreductioninthequalityofinformationinfinancialmarketsincreasesasymmetricinformationproblemsandpreventsfinancialmarketsfromchannelingfundsintothemostproductiveinvestmentopportunities.Consequently,thefinancialmarketsandtheeconomybecomelessefficient.Thatis,falseinformationasaresultofaconflictofinterestcanleadtoamoreinefficientallocationofcapitalthanjustasymmetricinformationalone.Howcantheprovisionofseveraltypesoffinancialservicesbyonefirmbebothbeneficialandproblematic?Financialfirmsthatprovidemultipletypesoffinancialservicescanbemoreefficientthrougheconomiesofscope,thatis,byloweringthecostofinformationproduction.However,thiscanbeproblematicsinceitcanalsoleadtoconflictsofinterest,inwhichthefinancialfirmprovidesfalseormisleadinginformationtoprotectitsowninterests.Thiscanleadtoaworseningoftheasymmetricinformationproblem,makingfinancialmarketslessefficient.

Ifyouweregoingtogetaloantopurchaseanewcar,whichfinancialintermediarywouldyouuse:acreditunion,apensionfund,oraninvestmentbank?Youwouldlikelyuseacreditunionifyouwereamember,sincetheirprimarybusinessisconsumerloans.Insomecases,itispossibletoborrowdirectlyfrompensionfunds,butitcancomewithhighborrowingcostsandtaximplications.Investmentbanksdonotprovideloanstothegeneralpublic.Whywouldalifeinsurancecompanybeconcernedaboutthefinancialstabilityofmajorcorporationsorthehealthofthehousingmarket?Mostlifeinsurancecompaniesholdlargeamountsofcorporatebondsandmortgageassets;thus,poorcorporateprofitsoradownturninthehousingmarketcansignificantlyadverselyimpactthevalueofassetholdingsofinsurancecompanies.In2008,asafinancialcrisisbegantounfoldintheUnitedStates,theFDICraisedthelimitoninsuredlossestobankdepositorsfrom$100,000peraccountto$250,000peraccount.Howwouldthishelpstabilizethefinancialsystem?Duringthefinancialpanic,regulatorswereconcernedthatdepositorsworriedtheirbankswouldfail,andthatdepositors(especiallywithaccountsover$100,000)wouldpullmoneyfrombanks,leavingcash-starvedbankswithevenlesscashtosatisfycustomerdemandsandday-to-dayoperations.Thislimitwouldreassuredepositorsthattheirmoneywassafeinbanksandpreventabankpanic,helpingtostabilizethefinancialsystem.Financialregulationissimilar,butnotexactlythesame,inindustrializedcountries.Discusswhyitmightbedesirable—orundesirable—tohavethesamefinancialregulationacrossindustrializedcountries.Thisisatopicforwhichthereisnoclearanswer.Ononeside,itwouldbebeneficialtohavefinancialregulationsthatareidenticalinallcountriestoavoidfinancialmarketsparticipantstomigratetheirbusinesstocountrieswithfewerregulations.Ontheotherside,allcountriesaredifferentanddesigningacommonsetoffinancialregulationsseemstobearatherdifficulttask.Mostcountrieswouldwanttomaintainatleastpartoftheirregulations,soconsensusisdifficulttoreach.

ANSWERSTOAPPLIEDPROBLEMS24. Supposeyouhavejustinherited$10,000andareconsideringthefollowingoptionsforinvestingthemoneytomaximizeyourreturn:Option1:Putthemoneyinaninterest-bearingcheckingaccountthatearns2%.TheFDICinsurestheaccountagainstbankfailure.Option2:Investthemoneyinacorporatebondwithastatedreturnof5%,althoughthereisa10%chancethecompanycouldgobankrupt.Option3:Loanthemoneytooneofyourfriend’sroommates,Mike,atanagreed-uponinterestrateof8%,eventhoughyoubelievethereisa7%chancethatMikewillleavetownwithoutrepayingyou.Option4:Holdthemoneyincashandearnzeroreturn.a. Ifyouarerisk-neutral(i.e.,neitherseekoutnorshyawayfromrisk),whichofthefouroptionsshouldyouchoosetomaximizeyourexpectedreturn?(Hint:Tocalculatetheexpectedreturnofanoutcome,multiplytheprobabilitythataneventwilloccurbytheoutcomeofthatevent.)b. SupposeOption3andOption4areyouronlychoices.Ifyoucouldpayyourfriend$100tofindoutextrainformationaboutMikethatwouldindicatewithcertaintywhetherhewillleavetownwithoutpaying,wouldyoupaythe$100?Whatdoesthissayaboutthevalueofbetterinformationregardingrisk?WithOption1,sincedepositsareinsureditcanbeassumedarisklessinvestment.Thus,theexpectedtotalpayoffwouldbe$10,000×1.02=$10,200.WithOption2,abondreturnof5%impliesapotentialpayoffof$10,000×1.05=$10,500,andthereisa90%chancethatthisoutcomewilloccur,thustheexpectedpayoffis$10,500×0.9=$9450.UnderOption3,theexpectedpayoffis$10,000×1.08×0.93=$10,044.Option4isriskless,sotheexpectedtotalpayoffis$10,000.Giventhesechoicesandtheassumptionthatyoudon’tcareaboutrisk,Option1isthebestinvestment.Option3impliestheveryrealpossibilityofeitherreceivingnothing(ifheactuallyleavestown),or$10,800(ifheindeedpaysaspromised).Ifyoudon’tpayMike,youhaveanexpectedreturnof$10,044asshownabove.Ifyoupaidyourfriendthe$100andlearnedthatMikewouldleavewithoutpaying,thenobviouslyyouwouldn’tloanMikethemoney,andyouwouldbeleftwith$9900.However,ifyoupaidthefriend$100andlearnedthatMikewouldpay,youwouldhave$10,700(=$10,000×1.08-$100).AfterpayingyourfriendMike,butbeforeknowingthetrueoutcome,yourexpectedreturnwouldbe$10,644($9900×0.07+$10,700×0.93).UnderOption3,payingyourfriendthe$100isdefinitelyworthitbecauseitincreasesyourexpectedreturnandinadditiondramaticallyreducesthedownsideriskthatyoumakeabadloan,andincreasesthecertaintyofthepayoffamount.Thatis,withasymmetricinformation(notpayingyourroommate),youhavearangeofpayoffsof$0to$10,800versus$9900to$10,700withoutasymmetricinformation.Thus,payingasmallamounttoimproveriskassessmentunderOption3canbeverybeneficial,ataskforwhichfinancialintermediariesarewellsuited.Option4,isriskless,sotheexpectedtotalpayoffis$10,000.Ifyouaremoreriskaverse,Option4islikelythebetteroption.However,ifyouaremoreriskneutralthenpayingyourroommatethe$100tohaveaminimum$9900paymentandpossiblyasmuchas$10,700isthebetterscenario.ANSWERSTOdataanalysisPROBLEMSGototheSt.LouisFederalReserveFREDdatabaseandfinddataonfederaldebtheldbytheFederalReserve(FDHBFRBN),byprivateinvestors(FDHBPIN),andbyinternationalandforeigninvestors(FDHBFIN).Usingtheseseries,calculatethetotalamountheldandthepercentageheldineachofthethreecategoriesforthemostrecentquarteravailable.Repeatforthefirstquarterof2000,andcomparetheresults.Seetable.Sincetheyear2000,theFedhasincreaseditsshareoffederaldebtheld,andforeigninvestorshavesignificantlyincreaseditsshareofdebtheld.Thisreflectsasignificantdeclineintheshareoffederaldebtheldbyprivateinvestors.

2017:Q12000:Q1

Held($bil.)%ShareHeld($bil.)%ShareFed2859.113.7501.710.5PrivateInvestors11904.857.13182.866.7ForeignInvestors6079.329.21085.022.7Total20843.2

4769.5

GototheSt.LouisFederalReserveFREDdatabaseandfinddataonthetotalassetsofallcommercialbanks(TLAACBM027SBOG)andthetotalassetsofmoneymarketmutualfunds(MMMFFAQ027S).TransformthecommercialbankassetsseriestoquarterlybyadjustingtheFrequencysettingto“Quarterly.”Calculatethepercentincreaseingrowthofassetsforeachseries,fromJanuary2000tothemostrecentquarteravailable.Whichofthetwofinancialintermediarieshasexperiencedthemostgrowth?Seetablebelow.Commercialbankassetshaveincreasedby187%from2000:Q1to2017:Q1,whilemoneymarketmutualfundassetshaveincreasedalso,butbylessthancommercialbanksduringthattime,at57.1%.

2017:Q12000:Q1CommercialBanks$16,158.7Bil.$5,639.9Bil.MoneyMarketMutualFunds$2,664.3Bil.$1,696.1Bil.Chapter3ANSWERSTOQUESTIONSWhyissimplycountingcurrencyaninadequatemeasureofmoney?Sincealotofotherassetshaveliquiditypropertiesthataresimilartocurrencybutcanbeusedasmoneytopurchasegoodsandservices,notcountingthemwouldunderstateaneconomy’saccesstoliquidityfortransactionspurposes.Forthisreason,countingassetssuchascheckingdepositsorsavingsaccountsmoreaccuratelyreflectsthestockofassetsthatcanbeconsideredmoney.Inprison,cigarettesaresometimesusedamonginmatesasaformofpayment.Howisitpossibleforcigarettestosolvethe“doublecoincidenceofwants”problem,evenifaprisonerdoesnotsmoke?Evenifheorshe