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How do economist define a "bubble"? Provide an example of an asset market that you think could be the next bubble and explain why?
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- Provide an example of an asset market that you think could be an economist's definition of market bubble and explain why?Can the risk of a housing bubble be averted?Use the following graphic to describe the interactions between markets when there is recession caused by a financial crisis and how might the risk premium evolve in such a situation.
- Currently the Federal Reserve is gradually raising interest rates. What challenges come with doing that in an economically healthy way? If they were lowering rates, what challenges would come with that?How do economists define equilibrium in financial markets?Central banks have injected moral hazard into global markets through 'bail-outs' and as lenders of last resort, which skews investor behavior toward risky assets because the downside of risk is being underwritten by the central banks. Thus, bubbles occur, and bubbles are bound to burst. Critically discuss this statement in 2000-3000 words.
- Suppose the U.S. Treasury issued $50 billion of short-term securities and sold them to the public. Other things held constant, what would be the most likely effect on short-term securities' prices and interest rates? a. Prices and interest rates would both rise. b. Prices would rise and interest rates would decline. c. Prices and interest rates would both decline. d. Prices would decline and interest rates would rise. e. There is no reason to expect a change in either prices or interest rates.D3) Why would banks use more equity to invest in their assets, knowing that it would scare off a lot of shareholders? What is wrong with this statement? Do they usually start using equity as investments when they can not use anymore money from depositors which forces them to use it? Are banks allowed to hold equity has an investment? One of your fellow students was specifically looking at the Equity Multiplier calculated from the Balance Sheet from your assignment for this week, which went up by a lot in only one year between 2019 and 2020. Why do you think this happened? "Bank equity capital is a source of funding for asset growth and also function to provide confidence for bank creditors that they will get their funds back."Discuss the other types forecasting methods that financial analyst use to predict future revenues.
- Discuss the concept of duality in economics, where concepts like risk and return represent dual aspects of investment decisions. Provide examples from financial markets.P b. Show (by changing demand curves accordingly) in the following graphs what happens in the financial markets when the default risk is high. D1 S1 Treasury bond P D1 S1 Corporate bondSuppose that Intel is considering building a new chip-making factory a. Assuming that Intel needs to borrow money in the bond market, why would an increase in interest rates affect Intel’s decision about whether to build the factory? b. If Intel has enough of its own funds to finance the new factory without borrowing, would an increase in interest rates still affect Intel’s decision about whether to build the factory? Explain!
