SOLUTION MANUAL
Money, Banking, Financial Markets & Institutions
2nd Edition for Brandl Michael, All Chapters 1 - 24
,TABLE OF CONTENTS
Part I: MONEY AND ITS PRICES.
1. Introduction and Overview.
2. Money, Money Supply and Interest.
3. Bonds, Loanable Funds & Interest Rates. 4.
Interest Rates in More Detail.
Part II: MONEY AND OVERALL ECONOMY.
5. Financial Markets through Time.
6. Aggregate Supply & Aggregate Demand. 7.
Banks and Money.
Part III: CENTRAL BANKS.
8. Central Banks.
9. Monetary Policy Tools.
10. The Money Supply Process.
11. Monetary Policy & Debates.
Part IV: THE BANKING SYSTEM.
12. Bank Management.
13. Bank Risk Management & Performance. 14.
Banking Regulation.
Part V: FINANCIAL MARKETS.
15. Money Markets. 16.
Bond Markets.
17. Stock Market & Efficiency. 18.
Mortgage Market.
Part VI: GLOBAL FINANCIAL MARKETS. 19.
FX.
20. Global Financial Architecture. Part
VII: FINANCIAL INSTITUTIONS.
21. Thrifts and Finance Companies.
22. Insurance and Pensions.
23. Mutual Funds.
24. Investment Banks and Private Equity.
, CHAPTER 2: Money, Money Supply, and Interest
2-1 Section Review
1.What is the difference between money and currency? When are they the
same? Why might they bedifferent?
CORRECT ANSWER :
Money is anything generally accepted in exchange for goods &
services. Currency is issued by a bank or the government, but currency is not
necessarily money. They are the same when they are accepted in exchange for
goods and services. Currencies can stop being money if people don’t
acceptthem in exchange for goods and services. If a group of people stop using
currency to get goods and services but instead use bananas, then the bananas
are the money.
2.How many prices must a barter economy have if the economy has four
goods? What if it has 400goods? Explain why having a money in the second
case is beneficial.
CORRECT ANSWER :
4 goods = 6 prices; 400 goods = 79,800 prices. Money allows us
to specialize and reduce our searchcost. Money allows us to reduce the number
of stated prices we need.
3. Youread a news story about a country that is suffering from rapid, ongoing
increases in the cost ofliving. Which characteristic of money is being directly
negatively impacted in that economy?
a. Unit of account
b. Medium of exchange
c. Store of value
d. Double
coincidence of
wantsCORRECT ANSWER : C
2-2 Section Review
1. Bobby is confused. He states: “Since prisoners are not allowed to smoke in
prisons any longer, Radford’s examples of cigarettes in POW camps no
longer applies.” How would you explain to Bobby how Radford’s story
, demonstrates the concepts of the criteria of money, as well as the
importance ofchanges in the money supply?
: Any asset that is able to be standardized, divisible, durable and in
CORRECT ANSWER
demand could be currency, as long as it is a medium of exchange, is a unit of
account and has store of value. Cigarettes were money.
Money, Banking, Financial Markets & Institutions
2nd Edition for Brandl Michael, All Chapters 1 - 24
,TABLE OF CONTENTS
Part I: MONEY AND ITS PRICES.
1. Introduction and Overview.
2. Money, Money Supply and Interest.
3. Bonds, Loanable Funds & Interest Rates. 4.
Interest Rates in More Detail.
Part II: MONEY AND OVERALL ECONOMY.
5. Financial Markets through Time.
6. Aggregate Supply & Aggregate Demand. 7.
Banks and Money.
Part III: CENTRAL BANKS.
8. Central Banks.
9. Monetary Policy Tools.
10. The Money Supply Process.
11. Monetary Policy & Debates.
Part IV: THE BANKING SYSTEM.
12. Bank Management.
13. Bank Risk Management & Performance. 14.
Banking Regulation.
Part V: FINANCIAL MARKETS.
15. Money Markets. 16.
Bond Markets.
17. Stock Market & Efficiency. 18.
Mortgage Market.
Part VI: GLOBAL FINANCIAL MARKETS. 19.
FX.
20. Global Financial Architecture. Part
VII: FINANCIAL INSTITUTIONS.
21. Thrifts and Finance Companies.
22. Insurance and Pensions.
23. Mutual Funds.
24. Investment Banks and Private Equity.
, CHAPTER 2: Money, Money Supply, and Interest
2-1 Section Review
1.What is the difference between money and currency? When are they the
same? Why might they bedifferent?
CORRECT ANSWER :
Money is anything generally accepted in exchange for goods &
services. Currency is issued by a bank or the government, but currency is not
necessarily money. They are the same when they are accepted in exchange for
goods and services. Currencies can stop being money if people don’t
acceptthem in exchange for goods and services. If a group of people stop using
currency to get goods and services but instead use bananas, then the bananas
are the money.
2.How many prices must a barter economy have if the economy has four
goods? What if it has 400goods? Explain why having a money in the second
case is beneficial.
CORRECT ANSWER :
4 goods = 6 prices; 400 goods = 79,800 prices. Money allows us
to specialize and reduce our searchcost. Money allows us to reduce the number
of stated prices we need.
3. Youread a news story about a country that is suffering from rapid, ongoing
increases in the cost ofliving. Which characteristic of money is being directly
negatively impacted in that economy?
a. Unit of account
b. Medium of exchange
c. Store of value
d. Double
coincidence of
wantsCORRECT ANSWER : C
2-2 Section Review
1. Bobby is confused. He states: “Since prisoners are not allowed to smoke in
prisons any longer, Radford’s examples of cigarettes in POW camps no
longer applies.” How would you explain to Bobby how Radford’s story
, demonstrates the concepts of the criteria of money, as well as the
importance ofchanges in the money supply?
: Any asset that is able to be standardized, divisible, durable and in
CORRECT ANSWER
demand could be currency, as long as it is a medium of exchange, is a unit of
account and has store of value. Cigarettes were money.
