1. Financial Markets & Institutions ECN 324 PHASE 1 REVIEW [Homework Questions]

2. TOPICS FOR CH 1 Financial Market Overview A.W HAT IS THE DIFFERENCE BETWEEN [C APITAL ] S URPLUS AND D EFICIT MARKETS B.W HAT IS THE DIFFERENCE BETWEEN P RIMARY AND S ECONDARY MARKETS ? C.W HAT IS THE DIFFERENCE BETWEEN M ONEY AND C APITAL MARKETS ? D.W HAT ARE THE THREE MAIN FUNCTIONS OF FINANCIAL MARKETS ?

3. TOPICS FOR CH 2 Interest Rates A.W HOM DEMANDS AND SUPPLIES FUNDS IN THE L OANABLE F UNDS T HEORY ? B.H OW DOES THE SUPPLY OF AND DEMAND FOR MONEY [ CREDIT ] IMPACT INTEREST RATES ? C.W HAT CAUSES CHANGES IN INTEREST RATES ? D.W HAT IS THE F ISHER E FFECT AND WHY IS IT IMPORTANT ?

4. TOPICS FOR CH 4 Federal Reserve System A.W HAT ARE THE PRINCIPAL OBJECTIVES OF THE F EDERAL R ESERVE S YSTEM ? B.H OW IS THE F EDERAL R ESERVE ORGANIZED ? C.W HAT IS THE FUNCTION OF THE F EDERAL O PEN M ARKET C OMMITTEE (FOMC)? D.W HAT ARE THE GOALS OF M ONETARY P OLICY ? F ISCAL P OLICY ? E.H OW DO CHANGES IN M ONETARY P OLICY AFFECT BUSINESS ? F.H OW DOES THEY F ED INCREASE ( DECREASE ) THE MONETARY BASE ?

5. TOPICS FOR CH 5 Monetary Theory & Policy A.H OW DO K EYNESIANS TREAT THE SUPPLY OF MONEY ? B.H OW DO M ONETARISTS TREAT THE SUPPLY OF MONEY ? C.W HY IS VELOCITY IMPORTANT ? D.W HAT DOES THE T HEORY OF R ATIONAL E XPECTATIONS SAY ABOUT THE EFFECTIVENESS OF GOVERNMENT POLICY INITIATIVES ? E.W HAT POLICY TOOLS CAN THE F EDERAL R ESERVE USE TO CONTROL INFLATION ?

6. TOPICS FOR CH 6 Money Markets A.W HAT ARE THE 4 MAIN TYPES OF MONEY MARKET INSTRUMENTS ? B.W HO ISSUES COMMERCIAL PAPER ? WHY ? C.H OW DOES THE R EPURCHASE ( REPO ) AGREEMENT WORK ? D.W HY ARE F ED F UNDS IMPORTANT TO FINANCIAL INSTITUTIONS ? E.W HAT ARE E URODOLLAR DEPOSITS AND WHY ARE THEY IMPORTANT ?

7. TOPICS FOR CH 7 Bond Markets A.H OW DOES THE F ED USE ITS INVENTORY OF TREASURY SECURITIES ? B.W HO ISSUES MUNICIPALS ? W HAT IS THEIR PRINCIPAL ATTRACTION TO AN INVESTOR ? C.W HAT ARE ZERO - COUPON BONDS ? W HY MIGHT BORROWERS PREFER THEM ? D.W HAT ARE THE TWO PRINCIPAL SOURCES OF RISK IN A BOND INVESTMENT ? E.W HAT ARE THE TWO SOURCES OF RISK WHEN INVESTING IN FOREIGN BONDS ?

8. TOPICS FOR CH 8 Bond Valuation & Risk A.W HAT CASH FLOWS ARE ASSOCIATED WITH BOND INVESTMENTS ? B.W HAT EFFECTS DO INTEREST RATE INCREASES ( DECREASES ) HAVE ON ; 1.M ARKET VALUES OF BONDS ? 2.C URRENT YIELDS ? 3.Y IELDS TO MATURITY ? C.W HAT DOES IT MEAN WHEN A BOND SELLS ; 1. AT PAR, 2. AT A DISCOUNT, 3. AT A PREMIUM ? D.H OW DO INCREASES IN EXPECTED INFLATION RATES AFFECT BOND YIELDS ?