金融市场学双语-郭宁-思考题整理-ZUCC

Chapter 1

3.Some economists suspect that one of the reasons that economies in developing countries grow so slowly is that they do not have well-developed financial markets. Does this argument make sense?

Financial markets are crucial to promoting greater economic efficiency by channeling funds from people who do not have a productive use for them to those who do. Well-functioning financial markets are a key factor in producing high economic growth, and poorly performing financial markets are one reason that many countries in the world remain poor.

Chapter 2

3.Why are financial intermediaries so important to an economy?

Because the intermediary obtains funds from savers then makes loans/investments with borrowers. This process, called financial intermediation, is actually the primary means of moving funds from lenders to borrowers. More important source of finance than securities markets Needed because of transactions costs, risk sharing, and asymmetric information .

4. Discuss the differences between depository institutions, contractual savings institutions, and investment intermediaries.

Depository institutions are financial intermediaries that accept deposits from individuals and institutions and make loans.

Contractual saving institutions are financial intermediaries that acquire funds at periodic intervals on a contractual basis.

Investment intermediaries are finance companies, mutual funds, and money market mutual funds that provide transactionary services.

Chapter 11

3.Explain how the Federal Reserve can influence the federal funds interest rate.

The Federal Reserve cannot directly control fed funds rates. It can and does indirectly influence them by adjusting the level of reserves available to banks in the system. The Fed can increase the amount of money in the financial system by buying securities. when investors sell securities to the Fed, the proceeds are deposited in their banks' accounts at the Federal Reserve. These deposits increase the supply of reserves by selling securities, fed funds rates will increase.

4.Explain why money market interest rates move so closely together over time.

Because all of comparing money market securities have very low risk and a short term. They all have deep markets and so are priced competitively. In addition , because these instruments have so many of the same risk and term characteristics, they are close substitutes.

5.How are Treasury bills sold? How do competitive and noncompetitive bids differ?

The Fed has set up a direct purchase option that individuals may use to purchase Treasury bills over the Internet.The significant difference between the two methods is that competitive bidders may or may not end up buying securities whereas the noncompetitive bidders are guaranteed to do so.

Chapter 12

3.What role do restrictive covenants play in bond markets?

The restrictive covenants include rules and restrictions on managers designed to protect the bondholders’ interest. And they usually limit the amount of dividends the firm can pay, and the ability of the firm to issue additional debt.

4.What is a convertible bond? How does the convertibility feature affect the bond's price and interest rate?

Convertible bond is a kind of bond which bondholders can convert into a company's common stock at the agreed price.Result from the convertibility feature ,its price will be relatively higher and interest rate will be comparatively lower.

5.What types of risks should bondholders be aware of and how do these affect bond prices and yields?

(1) Interest-rate risk. The longer the time until the bond matures, the greater will be the change in price. If the bondholders attempt to sell their bonds after interest rates have risen, they will receive less than they paid.

(2)Default risk. The degree of risk varies widely among different bond issues .Bonds with lower risk and a higher rating have lower interest rates than more risk bonds.

(3) Liquidity risk. Bonds with shorter term and lower face value have lower interest rates.

Chapter 13

3.How do over-the-counter markets differ from organized exchanges?

Organized exchanges :

1) Auction markets with floor specialists.

2) 25% of traders are filled with directly by specialist.

3) Remaining trades are filled through SuperDOT.

Over-the-counter markets:

1) Multiple market makers set bid and ask prices.

2) Multiple dealers for any given security.

4.What are the advantages and disadvantages of Electronic Communications Networks (ECNs) for trading stocks?

Advantages:

1）Transparency: everyone can see unfilled orders.

2）Cost reduction: smaller spreads.

3) Faster execution

4）After-hours trading

Disadvantage: they work only for stocks with substantial volume.

5.Why would a crisis in the subprime mortgage market lead to declining prices in the U.S. equity markets?

The subprime financial crisis had a major negative impact on the economy leading to a downward revision of the growth prospects for U.S. companies, thus lowering the dividend growth rate in the Gordon model.

Chapter 14

3. What features contribute to keeping long-term mortgage interest rate low?

current long-term market rates; the term of the mortgage; the number of discount points paid

4. Explain the features of mortgage loans that are designed to reduce the likelihood of default.

a. Collateral : The lending institution will place a lien against the property, and this remains in effect until loan is paid off.

b. Down payments: The lender requires the borrower to make a down payment on the property, that is , to pay a portion of the purchase price.

c. Private Mortgage Insurance: PMI is an insurance policy that guarantees to make up any discrepancy

between the value of the property and the loan amount, should a default occur.

d. Borrower Qualification: The rules for qualifying a borrower were complex and constantly changing.

5.Why has the online lending market developed in recent years and what are the advantages and disadvantages of this development?

a. Reason:Because the mortgage market is well suited to providing online service for several reasons. First, it is information based and no products have to be shipped or inventoried. Second, the product (a loan) is homogeneous across providers. A borrower does not really care who provides the money as long as it is provided efficiently. Third, because home buyers tend not to obtain mortgage loans very often, they have little loyalty to any local lender. Finally, online lenders can often offer loans at lower cost because they can operate with lower cost because they can operate with lower overhead than firms that must greet the public.

b. Advantages:

The online mortgage market makes if much easier for borrowers to shop interest rates and terms. And many online mortgage firms have made mortgage leading more competitive. This may lead to lower rates and better service.

c. Disadvantage

There is an easy way to obtain personal information.

Chapter 20

3. What distinguishes a hedge fund from other types of mutual funds?

First, hedge funds have a minimum investment requirement of between $100000 and $20 million, with the typical minimum investment being $1 million.

Second, hedge funds usually require that investors commit their money for long periods of time, often several years. The purpose is to give managers breathing room to attempt long-range strategies. Third, hedge funds often charge large fees to investors. The typical fund charges a 1% annual asset management fee plus 20% of profits. Some charge significantly more.

4.What regulatory changes have been adopted or are being considered to deal with abuses in the mutual fund industry?

a. Require more independent directors .75% of the board must be independent and they must hold annual executive sessions outside the presence of fund managers.

b. Hardening the 4:00 valuation rule. Late trading should be prevented.

c. Increased and enforces redemption fees, which is to discourage market timing by additional fees for short-term redemptions.

d. Increased transparency. Directors are required to more clearly and openly reveal any relationship that exists between fund owners and investment managers. Investment managers are required to more clearly disclose compensation arrangements and how fees are charged.

5.How does the governance structure of mutual funds lead to asymmetric information and conflicts of interest?

Investors as the shareholders elect directors, who are supposed to look out for their interest. The directors in turn select investment advisors, who actually run the mutual fund.

Chapter 21

3. What are the major differences between life insurance and property and casualty insurance? Property and casualty insurance is different from life insurance. First, policies tend to be short-term, usually for one year or less. Second, whereas life insurance is limited to insuring against one event, property and casualty companies insure

against many different events. Finally, the amount of the potential loss is much more difficult to predict than for life insurance. These characteristics cause property and casualty companies to hold more liquid assets than those of life insurance companies. "The wide range of losses means that property and casualty firms must maintain substantial liquidity.

4.Distinguish between defined-benefit and defined-contribution pension plan.

Defined-Benefit Pension Plans place a burden on the employer to properly fund the expected retirement benefit payouts,while defined-Contribution Pension Plan is a plan where a set amount is invested for retirement,but the benefit payout is uncertain.

5.How did AIG, a trillion-dollar insurance giant, find itself on the brink of bankruptcy in 2008? As the mortgage crisis unfolded and the true risk that had been accepted by issuers of CDSs become clear,they led to their near bankruptcy and eventual need for a $182billion bailout of AIG.

Chapter 22

3.What is the difference between a hostile takeover and a merger?

Mergers are supported by both firms and corporate officers are usually selected so that both firms contribute to the new management team. In hostiles, the acquirer attempts to purchase sufficient shares of the target firm to gain a majority of the seats on the board of directors.

4.Explain why private placements of securities are an attractive way of raising funds for some firms.

1. The security does not need to be registered with the SEC as long as certain restrictive requirements are satisfied.

2.Investment bankers often facilitate the transactions by advising the issuing firm on the appropriate terms for the issue and by identifying potential purchasers.

3.Private placements are more common for the sale of bonds than for stocks.

5.What are the principal advantages often cited as motivation for a private equity buyout? First, as private companies they are not subject to the controversial regulations included in the

2002 Sarbanes-Oxley Act.

Second, CEOs of publicly held firms often fell under pressure to produce quarterly profits. In a private equity scenario, CEOs frequently have more time and flexibility to enact the changes needed to turn around subpar companies.