The liquidity preference theory focuses on the supply of or demand for liquidity assets. Most financial institutions follow this theory and framework. Select one: True False
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Q: 5
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The liquidity preference theory focuses on the supply of or
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- In 2008 there was an increase in uncertainty about the quality of structured financial products that were backed by mortgages (MBS - mortgaged backed securities). So that the market for these securities dried up (became less liquid). What policies the government could do to jump start (improve liquidity of) the marketDefine and discuss the portfolio-balance effect in terms of Quantitative Easing and its impact on bond and stockSuppose the interest rate rises. Using both the supply and demand for bonds and the liquidity preference frameworks, discuss whether this event is likely to reflect good economic news or is a sign of trouble
- financial markets that function well: a. increase the ease of converting common stocks into bonds b. reduce riskiness of most assets continually c. continually increase the liquidity of most assets d. including available information in asset pricesAs a result of this flight to liquidity, the interest rate in the 20-year Treasury bonds market ________________ ( decreases/ remains the same/ increases) , while the interest rate in the T-bill market ________________ ( decreases/ remains the same/ increases) . Consequently, the default risk premium spread ________________ ( decreases/ remains the same/ increases)How did higher returns securities in the secondary mortgage market contribute to the liquidity crisis and global recession?
- The Federal Open Market Committee (FOMC) is one branch of Federal Reserve System responsible for: Group of answer choices Approving discount rate Setting Federal Funds Rate Target Range Recommending Discount rateStock prices fell throughout much of 2007 and 2008 and many investors decided to switch their funds into the bond market. What only about 30 percent of surveyed investors knew was that as bond prices rise, interest rates a. fall in reaction to the decreased demand for bonds. b. rise in reaction to the increased demand for bonds. c. fall in reaction to the increased demand for bonds. d. rise in reaction to the decreased demand for bonds.Which of the following events will NOT increase the demand for assets? A. Increase in asset liquidity B. Increase in the asset return relative to other assets C. Decline in wealth D. Decrease in the asset riskiness relative to other assets
- Which of the following statements is incorrect?a. Holdings of liquid assets (or access to credit from financial institutions) reduce the likelihood of financial distress.b. Financial imbalances and asset price crashes have been the key source of recessions in the U.S. in recent past.c. The 1918-1919 Great Influenza pandemic did not lead to an economic depression, although it caused significant fatalities around the world.d. L-shaped recovery pattern in Greece in the aftermath of 2007-2009 global financial crisis was in part due to the unavailability of monetary policy tools to the Greek authorities (because of Euro membership)What are the general implications for banks increasing loans and investing less in government securities, other things being the same? Increase in return on assets and increase in liquidity Increase in return on assets and decrease in liquidity Decrease in return on assets and increase in liquidity Decrease in return on assets and decrease in liquidity What are the general implications for banks holding more capital as a percentage of asset rather than less, other things being the same? Increase in return on equity and increase in safety Increase in return on equity and decrease in safety Decrease in return on equity and increase in safety Decrease in return on equity and decrease in safety Which of the following is (are) correct? In general, banks will invest more in treasury securities during weak economic conditions In general, banks will extend more loans during weak economic conditions Both of the above Neither a or b PLEASE WRI TE…Treasury securities are less liquid than debt securities issued by a small firm. true or false
