Money and Banking Study Guide Chapter 1-5

The interest rates alone became a huge problem for the mortgage holders in Kansas City. Molly Fleming-Pierre, the policy director for Community Creating Opportunities in Kansas City stated that “Our residents, in just Kansas City, are paying 26 million dollars every single year in interest alone” (qtd. in We Are Superman). People cannot continue to pay such a large amount. The advantage for people in buying a home is that equity is built in something of great value. But with such high rates, these families put a huge portion of their house payment into paying the interest. It’s difficult for families to pay off a home with so little of it going to principle. Payments can be made for years and there still be so much owed for the home. This makes it impossible for them to get ahead on payments. Families cannot afford to sell the home, save more money, and move into a better, safer neighborhood with quality schools and convenient shopping. Another advantage of buying a home is paying it off and eventually living in something that is completely paid for. Without monthly house payments, money can go towards retirement and other items to better lives. But high interest rates make this dream much more difficult or even impossible to achieve.

C/D = 0.1; T/D = 2; ER/D = 0.2, [pic], [pic], MB = 1000. Compute the money multiplier, the money supply, the level of currency and checkable deposits, the level of time deposits and excess reserves, and the level of total reserves and required reserves. Use the model of money supply determination discussed in class. Show your work.

The Second Bank of the United States was the countries national bank founded in 1816; this being just five short years after the first national bank expired (1833 Andrew Jackson Shuts Down Second Bank Of The U.S., n.d.). The first national bank was created by Washington and Hamilton in 1791 to house all federal funds. Jackson took office in 1829 and launched an investigation into the policies of this bank and the funding. Jackson, fought for the common man, not just the rich. He did not like his findings due to this and ordered banks closure in 1833; this is what is referred to as the Bank War. He also went as far as to veto an attempt by Congress to make a new branch of the bank, this and other reasons he had a spilt cabinet. Once closed he

Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets.

To maintain stability of the financial system and contain universal threats of the financial markets

Some examples of physical locations markets include the NYSE, the American Stock Exchange, and the US Treasury.

5. An active secondary market for debt or equity securities makes raising new capital less expensive for firms.

Briefly explain the rise and fall of LTCM. What was the moral hazard issue the fed was worried about? How did they try and get around the moral hazard issue? What specifically was the Fed's role in the bailout? What roles specifically did Bear play and not play in the LTCM's life and death?

1. Has the inflation rate in Canada increased or decreased in the past few years? What about interest rates?

Investors in the secondary market often purchase mortgage securities after they are issued. Large institutions make investments in mortgage securities when they are issues. Other dealers in a secondary market sometimes redistribute securities.

A: Most investments in the economy would fail to take place if there were no financial institutions because many independent investors do not like to take large amounts of risk. By utilizing financial intermediaries, which are “organizations that receive funds from savers and channel them to investors,” people are given peace of mind in knowing that their source of money/investing is more stable and accounted for. Those who apply this principle also value the liquidity, or convertibility, that financial institutions provide in the case of emergency or cold feet.

Stock exchange or stock market is an organized and regulated financial market where securities such as bonds, notes and shares are bought and sold at prices governed by the forcesof demand and supply. Stock exchanges basically serve as primary markets and secondary markets. The primary market is where corporations, governments, municipalities and other incorporated bodies can raise capital by channeling savings of the investors into productive ventures and secondary markets is where investors can sell their securities to other investors for cash, thus reducing the risk of investment and maintaining liquidity in the system.

This will enable financial institutions and markets to better execute their important function that is to monitor investments and exert corporate governance. Their control can compel firms to pursue activities which generate higher value and retain investor’s confidence which is essential for continuous flow of capital

A financial intermediary, by definition, is responsible for the process of transferring money from economic agents with a surplus of funds to economic agents with a deficit of funds, and is known as financial intermediation. This is achieved by means of a financial security, such as stocks and bonds. The mechanism that allows the trade of such financial securities is known as a financial market. Financial markets aim to facilitate the raising of capital, as well as the transfer of risk between economic agents and also international trade. Typically, the borrower will issue a receipt, or financial security, to the lender that promises to pay back the capital gained. Securities such as these can be freely bought or sold within financial

A well functioning financial system is necessary for enhancing the efficiency of intermediation, which is achieved by mobilizing domestic savings, channeling them into productive investment by identifying and funding good business opportunities, reducing information, transaction, and monitoring costs and facilitating the diversification of risk. This results in efficient allocation of resources, contributing to a more rapid accumulation of physical and human capital, and faster technological progress, which in turn lead to higher economic growth. Anxious to