SOLUTION MANUAL
b b
Money,Banking,FinancialMarkets&Institutions
b b b b b
2ndEditionforBrandlMichael,AllChapters1-24
b b b b b b b b b
,TABLE OF CONTENTS b b
Part I: MONEY AND ITS PRICES.
b b b b b
1. IntroductionandOverview. b b
2. Money,Money Supply and Interest. b b b b
3. Bonds, Loanable Funds & InterestRates. 4. b b b b b bb
Interest Rates in More Detail.
b b b b b
Part II: MONEY AND OVERALL ECONOMY.
b b b b b
5. FinancialMarketsthrough Time. b b b
6. Aggregate Supply& AggregateDemand. 7. b b b b bb
Banks and Money.
b b b
PartIII: CENTRAL BANKS.
b b b
8. CentralBanks. b
9. MonetaryPolicyTools. b b
10. The Money Supply Process. 11. b b b b b
Monetary Policy & Debates. Part IV:
b b b b b b
THE BANKING SYSTEM.
b b b
12. BankManagement. b
13. BankRisk Management &Performance. 14. b b b b bb
BankingRegulation.
b b
PartV: FINANCIALMARKETS.
b b b
15.MoneyMarkets. 16.
b b bb
Bond Markets.
b b
17. Stock Market& Efficiency. 18.
b b b b bb
MortgageMarket.
b b
PartVI:GLOBALFINANCIALMARKETS. 19. FX.
b b b b bb b
20. GlobalFinancialArchitecture. Part b b b
VII:FINANCIALINSTITUTIONS.
b b b
21. ThriftsandFinanceCompanies. 22. b b b bb
Insuranceand Pensions.
b b b
23. MutualFunds. b
24. InvestmentBanks andPrivateEquity. b b b b
, CHAPTER 2: Money, Money Supply, and Interest b b b b b b
2-1 Section Review b
What is the difference between money and currency? When are they the same?
1. b b b b b b b b b b b b
Why might they bedifferent?
b b b b
ANS: Money is anything generally accepted in exchange for goods & services.
b b b b b b b b b b b
Currency is issued by a bank or the government, but currency is not necessarily
b b b b b b b b b b b b b b
money. They are the same when they are accepted in exchange for goods and
b b b b b b b b b b b b b b
services. Currencies can stop being money if people don’t acceptthem in exchange
b b b b b b b b b b b b
for goods and services. If a group of people stop using currency to get goods and
b b b b b b b b b b b b b b b b
services but instead use bananas, then the bananas are the money.
b b b b b b b b b b b
2.How many prices must a barter economy have if the economy has four goods?
b b b b b b b b b b b b b
What if it has 400goods? Explain why having a money in the second case is
b b b b b b b b b b b b b b b
beneficial.
b
ANS: 4 goods = 6 prices; 400 goods = 79,800 prices. Money allows us to specialize
b b b b b b b b b b b b b b b
and reduce our searchcost. Money allows us to reduce the number of stated prices
b b b b b b b b b b b b b b
we need.
b b
3. You read a news story about a country that is suffering from rapid, ongoing
b b b b b b b b b b b b b
increases in the cost ofliving. Which characteristic of money is being directly
b b b b b b b b b b b b
negatively impacted in that economy?
b b b b b
a. Unit of account b b
b. Medium of exchange b b
c. Store of value b b
d. Double
coincidence of
b b
b wantsANS: C b
2-2 Section Review b
1. Bobby is confused. He states: “Since prisoners are not allowed to smoke in prisons any
b b b b b b b b b b b b b b
longer, Radford’s examples of cigarettes in POW camps no longer applies.”
b b bb bb b b b b b b b
bHow would you explain to Bobby how Radford’s story demonstrates the
b b b b b b bb b bb bb b
concepts of the criteria of money, as well as the importance ofchanges in the
b bb b b bb bb bb bb bb b bb b b b b
, money supply?
b b
ANS: Any asset that is able to be standardized, divisible, durable and in demand could
b b b b b b b b b b b b b b
be currency, as long as it is a medium of exchange, is a unit of account and has
b b b b b b b b b b b b b b b b b b
store of value. Cigarettes were money.
b b b b b b
b b
Money,Banking,FinancialMarkets&Institutions
b b b b b
2ndEditionforBrandlMichael,AllChapters1-24
b b b b b b b b b
,TABLE OF CONTENTS b b
Part I: MONEY AND ITS PRICES.
b b b b b
1. IntroductionandOverview. b b
2. Money,Money Supply and Interest. b b b b
3. Bonds, Loanable Funds & InterestRates. 4. b b b b b bb
Interest Rates in More Detail.
b b b b b
Part II: MONEY AND OVERALL ECONOMY.
b b b b b
5. FinancialMarketsthrough Time. b b b
6. Aggregate Supply& AggregateDemand. 7. b b b b bb
Banks and Money.
b b b
PartIII: CENTRAL BANKS.
b b b
8. CentralBanks. b
9. MonetaryPolicyTools. b b
10. The Money Supply Process. 11. b b b b b
Monetary Policy & Debates. Part IV:
b b b b b b
THE BANKING SYSTEM.
b b b
12. BankManagement. b
13. BankRisk Management &Performance. 14. b b b b bb
BankingRegulation.
b b
PartV: FINANCIALMARKETS.
b b b
15.MoneyMarkets. 16.
b b bb
Bond Markets.
b b
17. Stock Market& Efficiency. 18.
b b b b bb
MortgageMarket.
b b
PartVI:GLOBALFINANCIALMARKETS. 19. FX.
b b b b bb b
20. GlobalFinancialArchitecture. Part b b b
VII:FINANCIALINSTITUTIONS.
b b b
21. ThriftsandFinanceCompanies. 22. b b b bb
Insuranceand Pensions.
b b b
23. MutualFunds. b
24. InvestmentBanks andPrivateEquity. b b b b
, CHAPTER 2: Money, Money Supply, and Interest b b b b b b
2-1 Section Review b
What is the difference between money and currency? When are they the same?
1. b b b b b b b b b b b b
Why might they bedifferent?
b b b b
ANS: Money is anything generally accepted in exchange for goods & services.
b b b b b b b b b b b
Currency is issued by a bank or the government, but currency is not necessarily
b b b b b b b b b b b b b b
money. They are the same when they are accepted in exchange for goods and
b b b b b b b b b b b b b b
services. Currencies can stop being money if people don’t acceptthem in exchange
b b b b b b b b b b b b
for goods and services. If a group of people stop using currency to get goods and
b b b b b b b b b b b b b b b b
services but instead use bananas, then the bananas are the money.
b b b b b b b b b b b
2.How many prices must a barter economy have if the economy has four goods?
b b b b b b b b b b b b b
What if it has 400goods? Explain why having a money in the second case is
b b b b b b b b b b b b b b b
beneficial.
b
ANS: 4 goods = 6 prices; 400 goods = 79,800 prices. Money allows us to specialize
b b b b b b b b b b b b b b b
and reduce our searchcost. Money allows us to reduce the number of stated prices
b b b b b b b b b b b b b b
we need.
b b
3. You read a news story about a country that is suffering from rapid, ongoing
b b b b b b b b b b b b b
increases in the cost ofliving. Which characteristic of money is being directly
b b b b b b b b b b b b
negatively impacted in that economy?
b b b b b
a. Unit of account b b
b. Medium of exchange b b
c. Store of value b b
d. Double
coincidence of
b b
b wantsANS: C b
2-2 Section Review b
1. Bobby is confused. He states: “Since prisoners are not allowed to smoke in prisons any
b b b b b b b b b b b b b b
longer, Radford’s examples of cigarettes in POW camps no longer applies.”
b b bb bb b b b b b b b
bHow would you explain to Bobby how Radford’s story demonstrates the
b b b b b b bb b bb bb b
concepts of the criteria of money, as well as the importance ofchanges in the
b bb b b bb bb bb bb bb b bb b b b b
, money supply?
b b
ANS: Any asset that is able to be standardized, divisible, durable and in demand could
b b b b b b b b b b b b b b
be currency, as long as it is a medium of exchange, is a unit of account and has
b b b b b b b b b b b b b b b b b b
store of value. Cigarettes were money.
b b b b b b
