TEST BANK
For The Economics Of Money, Banking And Financial Markets,
Global Edition 13th Edition By Frederic Mishkin
(Author) Questions And Answers Graded A+
,
, ANSWERS
TOEND-OF-
CHAPTER
QUESTIONS AND
PROBLEMS
CHAPTER 1
ANSWERS TO QUESTIONS
1. WHAT IS THE TYPICAL RELATIONSHIP AMONG INTEREST RATES ON
THREE-MONTH TREASURY BILLS, LONG-TERM TREASURY BONDS, AND
BAA CORPORATE BONDS?
THE INTEREST RATE ON THREE-MONTH TREASURY BILLS
FLUCTUATES MORE THAN THE OTHER INTEREST RATES AND IS
LOWER ON AVERAGE. THE INTEREST RATE ON BAA CORPORATE
BONDS IS HIGHER ON AVERAGE THAN THE OTHER INTEREST RATES.
2. WHATEFFECT DOES HIGH VOLATILITY OF FINANCIAL MARKETS HAVE
ON PEOPLE'S WILLINGNESS TO SPEND?
THE HIGH VOLATILITY OF FINANCIAL MARKETS DECREASES PEOPLE'S
WILLINGNESS TO SPEND, PRIMARILY BECAUSE IT DIRECTLY AFFECTS
THEIR WEALTH, AND ALSO BECAUSE HIGH VOLATILITY INDICATES
THAT THERE ARE CONSIDERABLE FLUCTUATIONS IN THE PRICES OF
SECURITIES OVER A SHORT TIME SPAN. IT INCREASES INSECURITIES
ABOUT THE FUTURE OF AN ECONOMY. REFER TO FIGURE 2 TO SEE THE
EXTREMELY VOLATILE NATURE OF STOCK PRICES BETWEEN 1950 AND
2020.
3. EXPLAIN THE MAIN DIFFERENCE BETWEEN A BOND AND A COMMON STOCK.
A BOND IS A DEBT INSTRUMENT, WHICH ENTITLES THE OWNER TO
RECEIVE PERIODIC AMOUNTS OF MONEY (PREDETERMINED BY THE
CHARACTERISTICS OF THE BOND) UNTIL ITS MATURITY DATE. A
COMMON STOCK, HOWEVER, REPRESENTS A SHARE OF OWNERSHIP IN
THE INSTITUTION THAT HAS ISSUED THE STOCK. IN ADDITION TO ITS
DEFINITION, IT IS NOT THE SAME TO HOLD BONDS OR STOCK OF A GIVEN
CORPORATION, SINCE REGULATIONS STATE THAT STOCKHOLDERS ARE
RESIDUAL CLAIMANTS (I.E., THE CORPORATION HAS TO PAY ALL
BONDHOLDERS BEFORE PAYING STOCKHOLDERS).
, 4. WHATIS THE MAIN ROLE OF A FINANCIAL INTERMEDIARY?
NAMETWOFINANCIAL INTERMEDIARIES.
A FINANCIAL INTERMEDIARY IS A FIRM OR INSTITUTION THAT
CHANNELS SAVINGS INTO INVESTMENTS– –THAT IS, IT BORROWS
FUNDS FROM INDIVIDUALS WHO HAVE SAVED AND PROVIDES LOANS
TO THOSE WHO NEED FUNDS. BANKS AND MUTUAL FUNDS ARE TWO
EXAMPLES OF SUCH INTERMEDIARIES.
5. WHAT WAS THE MAIN CAUSE OF THE GLOBAL RECESSION IN 2020?
THE RECESSION IN 2020, SOMETIMES REFERRED TO AS THE COVID-
19 RECESSION, WAS MAINLY CAUSED BY THE GLOBAL PANDEMIC
CAUSED BY THE INFECTIOUS CORONAVIRUS DISEASE (COVID-19). IN
MARCH 2020, THE STOCK MARKET FELL BY 25% IN A SINGLE
MONTH.
For The Economics Of Money, Banking And Financial Markets,
Global Edition 13th Edition By Frederic Mishkin
(Author) Questions And Answers Graded A+
,
, ANSWERS
TOEND-OF-
CHAPTER
QUESTIONS AND
PROBLEMS
CHAPTER 1
ANSWERS TO QUESTIONS
1. WHAT IS THE TYPICAL RELATIONSHIP AMONG INTEREST RATES ON
THREE-MONTH TREASURY BILLS, LONG-TERM TREASURY BONDS, AND
BAA CORPORATE BONDS?
THE INTEREST RATE ON THREE-MONTH TREASURY BILLS
FLUCTUATES MORE THAN THE OTHER INTEREST RATES AND IS
LOWER ON AVERAGE. THE INTEREST RATE ON BAA CORPORATE
BONDS IS HIGHER ON AVERAGE THAN THE OTHER INTEREST RATES.
2. WHATEFFECT DOES HIGH VOLATILITY OF FINANCIAL MARKETS HAVE
ON PEOPLE'S WILLINGNESS TO SPEND?
THE HIGH VOLATILITY OF FINANCIAL MARKETS DECREASES PEOPLE'S
WILLINGNESS TO SPEND, PRIMARILY BECAUSE IT DIRECTLY AFFECTS
THEIR WEALTH, AND ALSO BECAUSE HIGH VOLATILITY INDICATES
THAT THERE ARE CONSIDERABLE FLUCTUATIONS IN THE PRICES OF
SECURITIES OVER A SHORT TIME SPAN. IT INCREASES INSECURITIES
ABOUT THE FUTURE OF AN ECONOMY. REFER TO FIGURE 2 TO SEE THE
EXTREMELY VOLATILE NATURE OF STOCK PRICES BETWEEN 1950 AND
2020.
3. EXPLAIN THE MAIN DIFFERENCE BETWEEN A BOND AND A COMMON STOCK.
A BOND IS A DEBT INSTRUMENT, WHICH ENTITLES THE OWNER TO
RECEIVE PERIODIC AMOUNTS OF MONEY (PREDETERMINED BY THE
CHARACTERISTICS OF THE BOND) UNTIL ITS MATURITY DATE. A
COMMON STOCK, HOWEVER, REPRESENTS A SHARE OF OWNERSHIP IN
THE INSTITUTION THAT HAS ISSUED THE STOCK. IN ADDITION TO ITS
DEFINITION, IT IS NOT THE SAME TO HOLD BONDS OR STOCK OF A GIVEN
CORPORATION, SINCE REGULATIONS STATE THAT STOCKHOLDERS ARE
RESIDUAL CLAIMANTS (I.E., THE CORPORATION HAS TO PAY ALL
BONDHOLDERS BEFORE PAYING STOCKHOLDERS).
, 4. WHATIS THE MAIN ROLE OF A FINANCIAL INTERMEDIARY?
NAMETWOFINANCIAL INTERMEDIARIES.
A FINANCIAL INTERMEDIARY IS A FIRM OR INSTITUTION THAT
CHANNELS SAVINGS INTO INVESTMENTS– –THAT IS, IT BORROWS
FUNDS FROM INDIVIDUALS WHO HAVE SAVED AND PROVIDES LOANS
TO THOSE WHO NEED FUNDS. BANKS AND MUTUAL FUNDS ARE TWO
EXAMPLES OF SUCH INTERMEDIARIES.
5. WHAT WAS THE MAIN CAUSE OF THE GLOBAL RECESSION IN 2020?
THE RECESSION IN 2020, SOMETIMES REFERRED TO AS THE COVID-
19 RECESSION, WAS MAINLY CAUSED BY THE GLOBAL PANDEMIC
CAUSED BY THE INFECTIOUS CORONAVIRUS DISEASE (COVID-19). IN
MARCH 2020, THE STOCK MARKET FELL BY 25% IN A SINGLE
MONTH.
