Solution manual for money banking financial markets institutions 2nd Edition for Brandl Michael.pdf

SOLUTION MANUAL for Money, Banking, Financial
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u Markets & Institutions 2nd Edition
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by Brandl Michael, All Chapters 1 - 24
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,TABLE OF CONTENTS u u u




Part I: MONEY AND ITS PRICES.
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1. Introduction and Overview.
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2. Money, Money Supply and Interest.
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3. Bonds, Loanable Funds & Interest Rates.
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4. Interest Rates in More Detail.
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Part II: MONEY AND OVERALL ECONOMY.
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5. Financial Markets through Time.
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6. Aggregate Supply & Aggregate Demand.
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7. Banks and Money.
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Part III: CENTRAL BANKS.
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8. Central Banks.
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9. Monetary Policy Tools.
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10. The Money Supply Process.
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11. Monetary Policy & Debates.
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Part IV: THE BANKING SYSTEM.
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12. Bank Management.
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13. Bank Risk Management & Performance.
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14. Banking Regulation.
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Part V: FINANCIAL MARKETS.
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15. Money Markets.
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16. Bond Markets.
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17. Stock Market & Efficiency.
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18. Mortgage Market.
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Part VI: GLOBAL FINANCIAL MARKETS.
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19. FX.
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20. Global Financial Architecture.
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Part VII: FINANCIAL INSTITUTIONS.
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21. Thrifts and Finance Companies.
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22. Insurance and Pensions.
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23. Mutual Funds.
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24. Investment Banks and Private Equity.
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, CHAPTER u2: uMoney, uMoney uSupply, uand uInterest

2-1 Section uReview

1. What uis uthe udifference ubetween umoney uand ucurrency? uWhen uare uthey uthe usame? uWhy umight uthey ube
udifferent?



ANS: uMoney uis uanything ugenerally uaccepted uin uexchange ufor ugoods u& uservices. uCurrency uis uissued uby ua
ubank uor uthe ugovernment, ubut ucurrency uis unot unecessarily umoney. uThey uare uthe usame uwhen uthey uare

uaccepted uin uexchange ufor ugoods uand uservices. uCurrencies ucan ustop ubeing umoney uif upeople udon’t uaccept

uthem uin uexchange ufor ugoods uand uservices. uIf ua ugroup uof upeople ustop uusing ucurrency uto uget ugoods uand

uservices ubut uinstead uuse ubananas, uthen uthe ubananas uare uthe umoney.



2. How umany uprices umust ua ubarter ueconomy uhave uif uthe ueconomy uhas ufour ugoods? uWhat uif uit uhas u400
ugoods? uExplain uwhy uhaving ua umoney uin uthe usecond ucase uis ubeneficial.



ANS: u4 ugoods u= u6 uprices; u400 ugoods u= u79,800 uprices. uMoney uallows uus uto uspecialize uand ureduce uour usearch
ucost. u Money uallows uus uto ureduce uthe unumber uof ustated uprices uwe uneed.



3. You uread ua unews ustory uabout ua ucountry uthat uis usuffering ufrom urapid, uongoing uincreases uin uthe ucost uof
uliving. uWhich ucharacteristic uof umoney uis ubeing udirectly unegatively uimpacted uin uthat ueconomy?



a. Unit uof uaccount

b. Medium uof uexchange

c. Store uof uvalue

d. Double ucoincidence uof uwants
ANS: uC
u



2-2 Section uReview

1. Bobby uis uconfused. uHe ustates: u“Since uprisoners uare unot uallowed uto usmoke uin uprisons uany ulonger,
Radford’s uexamples uof ucigarettes uin uPOW ucamps uno ulonger uapplies.” uHow uwould uyou uexplain uto uBobby
uhow uRadford’s ustory udemonstrates uthe uconcepts uof uthe ucriteria uof umoney, uas uwell uas uthe uimportance uof

uchanges uin uthe umoney usupply?



ANS: uAny uasset uthat uis uable uto ube ustandardized, udivisible, udurable uand uin udemand ucould ube ucurrency, uas
ulong uas uit uis ua umedium uof uexchange, uis ua uunit uof uaccount uand uhas ustore uof uvalue. u Cigarettes uwere umoney.

, 2. Proponents uof uthe uGold uStandard, uor uusing ugold uas umoney, uoften uargue uthat uit uwill ukeep uinflation uunder
ucontrol. uHow udoes uthe uexperience uof uEurope uin uthe usixteenth ucentury uraise udoubts uabout uthat uclaim?



ANS: uIf upeople ustart uto uhoard ugold uor usilver, uthere umay unot ube uenough umoney, uand uan ueconomy ucould
uslide uinto urecession. u If ugold uor usilver uincreases utoo urapidly uthe ueconomy ucould usuffer uinflation.



3. Ricardo uand uFriedman uagree uthat uif uthe umoney usupply uincreases u“too uquickly” uthe ufollowing uhappens:

a. The urate uof uinflation udecreases.

b. The urate uof ureal ueconomic ugrowth uincreases.

c. The urate uof uinflation uincreases.

d. The ulevel uof uemployment udecreases.
ANS: uC

2-3 Section uReview

1. A ucritic uof umoney ueconomics uonce ustated, u“if uyou ucannot umeasure uthe umoney usupply uaccurately, uit uisunot
uworth udiscussing uat uall.” uHow uwould uyou urefute uthis ustatement?



ANS: uDue uto uchanges uin ufinancial umarkets, ufinancial uinnovation uand uchanges uin uthe uway ubanks uoperate,uled
uto uthe udecline uin uthe uusefulness uof uM2 uas ua umonetary uaggregate.



2. Economists uare usearching ufor ua u“good” umeasurement uof uthe umoney usupply. uWhat uconstitutes ua ugood
umeasurement uof uthe umoney usupply?



ANS: uTo ueconomists, ua u“good” umeasurement uof uthe umoney usupply uis uone uthat uconforms uto ueconomic utheories
uregarding uinflation uand uthe ueconomy. uFor uexample, uif uthe umoney usupply u(according uto ua uparticular

umeasurement) uincreases ufaster uthan uthe ugrowth urate uof uthe ueconomy, uthen ueconomic utheory usuggests uthat

uinflation ushould uoccur. uOn uthe uother uhand, uif uthe umoney usupply u(according uto ua uparticular umeasurement)

uincreases utoo uslowly urelative uto uthe ugrowth urate uof uthe ueconomy, uthen ueconomic utheory usuggests uthat uthis

uwill uresult uin ua urecession. uWhen uthe umeasurement uof uthe umoney usupply ucoincides uwithuthese ueconomic

upredictions, uthen uthat uparticular umeasurement uhas uthe upotential uto ube ua u“good” umeasurement uof uthe umoney

usupply. uDuring ucertain uperiods uof utime, uboth uM1 uand uM2 uhave ubeen

considered uto ube u“good” umeasurements uof uthe umoney usupply. uHowever, uthere uhave ualso ubeen uperiods uofutime
uwhere uthe uchanges uin uM1 uor uM2 udid unot ucoincide uwith ueconomic utheory.



3. Which uof uthe ufollowing uis uthe ubroadest uor umost uinclusive umeasurement uof uthe umoney usupply?

a. M1

b. M2

c. M3

d. M0
ANS: u B