- Study guides, Class notes & Summaries

The foreign exchange market - -is the market in which participants are able to buy, sell, exchange and speculate on currencies. -Foreign exchange markets - -are made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors. -The foreign exchange market - -is considered the largest financial market in the world. -Foreign Exchange Market - -A market is a market for converting the currency of one country into that of...

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6 pages

Written in 2022/2023

LiamXavier

Facts that theory of term and structure of interest rates must explain - -1- interest rates on bonds of different maturities move together over time 2- When short term interest are low, yield curve have an upward slope. When short term interest are high, yield curve have an downward slope. 3- Yield curve almost always slope upward -liquidity premium theory (ex) - -- Suggests that since investors are risk averse, they will demand a greater premium for securities with longer maturity per...

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12 pages

Written in 2022/2023

LiamXavier

Monetary theory - -Explores the effect of money supply -Monetary policy - -The fed's control over money supply -Stock - -Amount measured at a point in time -Income - -Is a flow; amount measured at a period in time -Demand for money - -Relationship between the interest rate -Interest foregone - -Opportunity cost of holding money -Equation of exchange - -The quantity of money MxV=PxY -Velocity of money - -The average number of times per year each dollar is used to purchase fi...

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1 pages

Written in 2022/2023

Grade A+

LiamXavier

demand for money - -The relationship between the interest rate and how much money people choose to hold -more - -more the goods and services exchanged the _____ the money demanded -greater - -the demand for money is ____ when price level is high -earns no interest - -disadvantage of money -inversely - -quantity of money demanded is ____ related to market interest rate -downward - -money demand curve slopes ______ -lower - -Lower the interest rate, ______ the opportunity cost of...

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5 pages

Written in 2022/2023

LiamXavier

What determines aggregate prices and output? - -Aggregate demand and supply -What determines interest rates in the short-run? - -The Fed controls interest rate -How does fiscal policy affect the economy (Arrow) - -G up -> D up -> p,y up T up -> Y-T down -> C down -> D down -> p,y down -How does the stock market affect the economy? (Arrow) - -S up -> W up -> C up -> D up -> y,p up -How does money "matter" (impact the economy) in the short-run? ) (Arrow...

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2 pages

Written in 2022/2023

Grade A

LiamXavier

15-1: Explain how the demand and supply of money determine the market interest rate - --The opportunity cost of holding money is the higher interest forgone by not holding other financial assets instead. -Along a given money demand curve, the quantity of money demanded relates inversely to the interest rate. -The demand for money curve *shifts rightward* as a result of an *increase in the price level, an increase in real GDP, or an increase in both.* -Demand for Money - -The money demand c...

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2 pages

Written in 2022/2023

Grade A+

LiamXavier

Monetary theory - -Explored the effect of the money supply on the economy's price level -Monetary Policy - -The FED's control over the money supply -Stock - -An amount measured at a point in time -Income - -An amount measured per period of time -Demand for money - -A relationship between the interest rate and how much money people want to hold. -Higher; greater - -The _____ the economy's price level! the ______ the demand for money. -Money - -Allows people to carry out econo...

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1 pages

Written in 2022/2023

LiamXavier

1960s-1980s The Great ___________? - -Inflation -1980s-2007 The Great ___________? - -Moderation -2007-2010 The Great _____________? - -Recession -Dual Mandate Two Elements - -Price Stability and Maximum Employment -What is Monetary Policy? - -actions undertaken by a central bank to influence the availability and cost of money and credit. -Price Stability - -If inflation is too high decrease money supply (tighten) -Economic Growth - -If demand weakens and the economy is in a re...

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7 pages

Written in 2022/2023

Grade A+

LiamXavier

Fed can stimulate the economy by... - -creating a loose-money policy and engages in: (increasing level of spending) 1.) buying government securities 2.) lowering the discount rate 3.) lowering the reserve requirement -The Fed can constrain economic activity when... (correcting high inflation) - -it creates a tight money policy and: (reduce money supply) 1.) sells government securities 2.) raises the discount rate 3.) increases the reserve requirement -the trade off in monetary po...

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2 pages

Written in 2022/2023

Grade A+

LiamXavier

Discount Rate - -The interest rate financial institutions pay to the Federal Reserve to borrow reserves -Federal Open Market Committee(FOMC) - -A policy-making group within the Federal Reserve System that directs the open market operations of the system -Federal Reserve System - -The Central Banking system and monetary authority of the US, made up of regional Federal reserve banks and the federal reserve board of governors which supervises and examines state chartered member banks, regulat...

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6 pages

Written in 2022/2023

Grade A+

LiamXavier

According to the elasticity approach a domestic currency depreciation does what to the CA - -TYPICALLY, it narrows the CA, unless the marshall-lerner condition is met -What is the martial lerner condition and how is it satisfied? - -The marshall lerner condition suggests that a domestic currency depreciation can, sometimes, particularly in the short-run, when elasticities are high enough, lead to a widening of the CA. This is satisfied when sum of the absolute values of import demand and expo...

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3 pages

Written in 2022/2023

Grade A+

LiamXavier

According to Smith, how does the debasement of coins affect individuals? - -Debasement of coins leaves individuals with less value. Each coin they have is worth less because there is less precious metal in the actual coin, allowing the issuer to repay debts incompletely. -What were the twin weaknesses of the U.S. financial system that produced banking panics in the 19th and early 20th centuries? - -Banks were divided by state lines and unregulated shadow banking industry emerged -Among the...

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5 pages

Written in 2022/2023

Grade A

LiamXavier

motivations to want to hold money balances - --transactions demand -precautionary demand -asset demand -transactions demand - --holding money as a medium of exchange to make payments -the level varies directly with nominal GDP -precautionary demand - --holding money to meet unplanned expenditures and emergencies -asset demand - --holding money as a store of value instead of other assets such as certificates of deposit, corporate bonds, and stocks -the demand for money curve - --as...

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2 pages

Written in 2022/2023

Grade A+

LiamXavier

Markets in which funds are transferred from those who have excess funds available to those who have a shortage of funds available are called ________ _______. - -financial markets -A key factor in producing high economic growth is ______-______ ________ ________. - -well-functioning financial markets -The bond markets are important because they are the markets where _______ _______ _____ _______. - -interest rates are determined -The prices paid for borrowing funds (usually expressed as...

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6 pages

Written in 2022/2023

LiamXavier

inflation targeting - -a system in which the central bank attempts to achieve a certain rate of change in the overall price level within some period is referred to as -the taylor rule - -implies that the nominal federal funds rate should be increased if there is a positive output gap or a positive inflation gap -disadvantage of inflation targeting - -it reduces the flexibility of the central bank -benefit of following rules other than discretion - -they would not be able to pursue time-...

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3 pages

Written in 2022/2023

Grade A+

LiamXavier

Financial markets promote economic efficiency by - -channeling funds from savers to investors. -The bond markets are important because they are - -the markets where interest rates are determined. -The interest rate on Baa (medium quality) corporate bonds is _____, on average, than other interest rates, and the spread between it and other rates became _____ in the 1970s. - -higher; larger -High interest rates might _____ purchasing a house or car but at the same time high interest rates ...

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4 pages

Written in 2022/2023

Grade A+

LiamXavier

Which is the most effective solution when planning for retirement? - -Start as soon as possible to maximize savings -The marketing mix, also known as the Four Ps of Marketing, consists of product, price, promotion, and _[blank]_. - -Place -Which type of expense can change based on use or volume? - -Variable -Joe works full time as a carpenter and brings home $3,000 per month. He owes a total of $1,500 in fixed expenses every month, which includes items such as rent and insurance. If ...

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5 pages

Written in 2022/2023

LiamXavier

when one part to a transaction knows more than another, the situation is one of - -asymmetric information -when people or firms that are worse than average risks are most likely to enter a contract that is offered to everyone, the problem is called - -adverse selection -a bank offers credit cards with a 25% interest rate, when its competitors' cards have just a 15% interest rate. despite the high rate, the bank finds itself losing money because many of its customers fail to repay the bala...

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6 pages

Written in 2022/2023

Grade A+

LiamXavier