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ashford_eco_316_week_1_to_week_5__entire_course_work.zip
Ashford ECO 316 Entire
Week 1 DQ 1
Money and Its Function
Week 1 DQ 2 Bond Price and Interest Rates
Week 1 Quiz 100% Score
Week 2 DQ 1 Models and Bond Pricing
Week 2 DQ 2 Risk and Reward
Week 2 Quiz 100% Score
Week 3 DQ 1 Stock and Derivative
Week 3 DQ 2 Foreign Exchange Rate
Week 3 Quiz 100% Score
Week 3 Assignment
– The day the machine went off
Week 4 DQ 1 Structure and Function of Fin inst
Week 4 DQ 2 Structure and Function of Federal
Week 4 Quiz 100% Score
Week 4 Assignment Bank Operations using T account
Week 5 DQ 1 Potential Money Multiplier
Week 5 DQ 2 Current Monetary Policy
Week 5 Quiz 100% Score
Week 5 finals –
The day the machine went off
Ashford ECO 316 Week 2 DQ 2 Risk and Reward x
Currently the interest yield on short term Treasury Bills is near zero. Longer term rates for mortgages are under 4%. Why would someone want to buy Treasury Bills as opposed to investing in mortgage backed securities? Explain in terms of risk factors (maturity, liquidity, default, etc.).
There are many reasons why a person would choose to invest in short-term treasury bills rather than mortgage backed securities, including risk, liquidity, maturity, and cost. As we all know, many mortgages went into default during the recession, so investors received lower payments than originally expected. Since mortgages are typically a long-term investment, there is a greater chance that borrowers would default on their loans at some point. Additionally, it is harder to find information regarding the types of loans contained in mortgage backed securities, so investors do not always understand exactly what they are getting. The time and effort it takes to investigate this information could cut into potential profits. Investing in a short-term treasury bill carries zero default risk since the government guarantees payment (Hubbard & O’Brien, 2012). The fact that these bills typically mature in one year means that your money will not be tied up for very long and is more liquid than a long-term investment. If you knew that you would need the money in a relatively short time frame, then it makes more sense to utilize a treasury bill since it will be easier to access the funds. It’s also easier to gather information on a government bill, so the information costs are likely to be less than the alternative. Another benefit of treasury bills is that there is no state or local income tax assessed on the interest income, as opposed to mortgage-backed securities (Treasury Direct, 2012), Even though the interest rates on treasury bills is a lot lower than mortgage backed securities, they can have more benefits than their long-term counterparts.
References:
Hubbard, R. & O’Brien, A. (2012).
Money, Banking, and the Financial System (1st ed.). Upper Saddle River, NJ: Pearson.
Treasury Direct. (11 October, 2012).
Treasury Bills: Tax Considerations. Retrieved from http://www.treasurydirect.gov/indiv/research/indepth/tbills/res_tbill_tax.htm
Ashford ECO 316 Week 3 Assignment The Day the Machine Went Off x
Running Head: THE DAY THE MACHINES WENT OFF 1
THE DAY THE MACHINES WENT OFF 4
The Day the Machine Went Off – Outline
ECO 316
1. The Day the Machines Went Off
Information technology, in its true essence has become the backbone of modern world. Several significant functions such as communication, security, monetary and financial transactions are entrusted to technological systems such as computers and super-computers. In the financial sector, technology has evolved to play a significant role. Several functions in the financial sector are performed by machines now to ensure convenience, speed and accuracy of the transactions. The heavy reliance of financial sector on machines makes it prone to dysfunction if the machines go off. This paper discusses the impact on financial sector if the machines stop working for a day.
2. Functions of Money
Money serves four important functions in an economy; a unit of value, medium of exchange, standard of deferred payments and store of value (Hubbard, 2012). To ensure smooth functioning, money as the medium of exchange, standard of deferred payments and store of value are extensively dependent on technology. In case of machines stopping working, these three functions and their sub-functions would be impacted severely.
3. Immediate Impact of Shutdown of Financial Institution
Financial institutions such as Fed are the backbone of the economy and any disruptions in their functioning would have rippling effect on the business and economy. As the technology-driven financial transactions would grind to a halt, the economy would also pause for the time till the financial institutions resume functionality. The impact of closing down of financial institution would be noteworthy on some areas that are discussed in detail in this section.
3.1 Inflation
To comprehend the impact of financial institutions closing down on inflation, the concept of supply and demand would be deployed. As the financial transactions halt, there would be a state of panic among public and prices of good would increase in the expectation of an emergency in country (Mohamed, 2012; Hale et al., 2012). This would cause inflation to soar.
4. Emergency Measures to Deploy
Emergency measures to ensure that economy doesn’t pause with the financial institutions would include; manual clearing of the transactions, use of back-up machines and transferring the data stored in financial institutions main server to new machines.
5. Primary Financial Institution
Fed is the primary financial institution that would be made functional at the earliest. Fed is the inventory of all the financial information and therefore, it has to be made online for all other financial institutions to resume work smoothly (Hubbard, 2012).
6. Conclusion
Financial institutions, owing to their complex and extensive functions are heavily dependent on machines. In case the machines go off, the entire economy would pause along with adverse effect on inflation, demand for gold, employment and interest rates.
References
Hale, G., Hobijn, B., & Raina, R. (2012, June 18).
Commodity prices and pce inflation. Retrieved from http://www.frbsf.org/publications/economics/letter/2012/el2012-14.html
Hubbard, R. (2012).
Money, Banking, and the Financial System . New York: Pearson.
Mohamed, I. A. (2012, April). The Impacts of Financial Policies on Inflation Rates in Sudan.
SSRN Working Paper Series, 1-25.
Ashford ECO 316 Week 3 DQ 1 stocks and derivative x
Describe how stock prices are determined in stock markets and how derivatives can be used to hedge or speculate on stock prices. Examples should include put and call options and stock index futures.
The prices of stock are driven by the financial rule, “the price of a financial asset is equal to the present value of the payments to be received from owning it” Hubbard 2012, p. 163). Therefore, the price of stock is determined by using discount rate to calculate the present value of the stock. The discount rate utilized in calculating present value is the required return on equities that is, the expected return necessary to compensate for the risk of investing in stocks (Hubbard, 2012). The expected dividend yield is also utilized to calculate the price of the stock. The formula is;
Pt = (Det+1/(1 + rE)) + (Pet+1/(1 + rE))
where, Det+1is the annual dividend expected at the end of year, Pet+1 is expected stock price at the end of year and rE is the required return on equities.
Derivatives are the financial securities that allow firms and individual investors to make profit from the price movement of the underlying asset that is bond or stock. Hedging is reducing the risk that is associated with the price movement of stock and the derivatives reduce the uncertainty in the profits. In essence, derivatives work as the insurance for purchasing stocks thereby, promoting this activity. Similarly, derivatives are also used to speculate that is equivalent to placing bets on the movement of prices of assets such as stocks and bonds. Stock options such as call and put offer the flexibility and opportunity to earn profit on their stock. Call increases in value with an increase in the value of underlying asset and decreases with decrease in the value of underlying asset. Put increases in value when the underlying asset decreases in value and vice versa. These options allow the investor to earn profit when the price fluctuates in the market. Stock future index is another feature that allows for the underlying asset to be sold on a specified date and are traded in commodity market.
References:
Hubbard, R. & O’Brien, A. (2012). Money, Banking, and the Financial System (1st ed.). Upper Saddle River, NJ: Pearson.
Ashford ECO 316 Week 3 DQ 2 foreign exchange rates x
Use an example of a foreign currency and discuss how it has changed in price relative to the U.S. dollar over the last year. Discuss how exchange rates affect domestic economic activity. Include the supply and demand factors that moved the relative prices.
As of this moment, the exchange rate per Euro is $1.347, which means that it costs about $1.35 for each Euro (or $1 = .74 Euro). There have been many ups and downs in the exchange rate over the last year, but it looks like it there has been more depreciation of the dollar rather than appreciation (Reuters, 2013). Exchange rates affect domestic economic activity due to the fact that we import a large number of goods and services from other countries. In order to import these goods, companies have to pay with equivalent amounts of currency, so if the dollar depreciates the product will end up costing American consumers more money (Hubbard & O’Brien, 2012). Fluctuations in the exchange rate will also affect how the United States can sell its own goods overseas. It will be easier for the US to sell products if the dollar is weak because consumers can purchase more dollars with their foreign currency. Lastly, exchange rates affect domestic spending because U.S. companies may have to use foreign parts or labor, so they have to pay foreign currency in return.
Similar to interest rates and bond prices, the exchange rate can be affected by supply and demand. If the exchange rate for euro per dollar declines, then foreigners may want to buy more things from the United States, which increases their demand for dollars (Hubbard & O’Brien, 2012). As for the supply side, when the exchange rate is on the rise, the quantity of dollars supplied will also increase. If the exchange rate is high and favors the dollar instead, then the dollar supply will increase so households and firms can buy more Euros. Americans spending more money will certainly have an impact on our economy, as well as the foreign one.
References:
Hubbard, R. & O’Brien, A. (2012). Money, Banking, and the Financial System (1st ed.). Upper Saddle River, NJ: Pearson.
Reuters. (n.d.)
Currencies. Retrieved fromhttp://www.reuters.com/finance/currencies/
Ashford ECO 316 Week 4 Assignment Bank Operations using T accounts x
Running Head: BANK OPERATIONS 1
BANK OPERATIONS 3
Bank Operations using T accounts
ECO 316
Bank Operations using T accounts
Commercial Bank Balance Sheet
Assets Liabilities
Vault Cash +$100 Checkable deposits +$100
The deposit in the commercial bank of $100 is treated as asset by the bank and is listed as vault cash. As $100 is checking deposit, bank considers it a liability as well because the depositor can withdraw it anytime using ATM or visiting branch.
The required reserve ratio of 0.1 implies that bank has to hold 10% of the checkable deposit as reserves. This means that out of $100, $10 is considered required reserve and $90 is considered as excess reserves. Rewriting the T account,
Assets Liabilities
Required reserves +$10 Checkable deposits +$100
Excess reserves +$90
In order to generate income, the bank would want to loan out the excess reserves. Loaning the excess reserve would make following changes in T account;
Assets Liabilities
Required reserves +$10 Checkable deposits +$100
Loans +$90
After the loaned funds deposited in a different bank, the balance sheet of that bank would be;
Assets Liabilities
Required reserves +$9 Checkable deposits +$90
Excess reserves +$81
Ashford ECO 316 Week 4 DQ 1 structure and function of financ x
Contrast the structure and function of investment banks, mutual funds, hedge funds, pension funds and insurance companies. Support your discussion with examples from scholarly sources other than the course text, such as reputable news organizations, recognized trade groups, government sources, and the Ashford Online Library. Sources such as Investopedia and Wikipedia will not be accepted.
Contrast the structure and function of investment banks, mutual funds, hedge funds, pension funds and insurance companies.
Investment Banks- Their primary activities include providing advice on new issues, underwriting new security issues, and providing advice for mergers and acquisitions. Secondary activities include: Financial engineering including risk management, Research, and proprietary trading. The first three activities are central to investment banking, the secondary activities have emerged more recently.(Hubbard & O’Brien,2012, p.315).Investment banks differ from pension plans in that anyone can invest at an investment bank, a pension plan is solely created for a pool of employees. Investment banks interact with all 5 structures listed for this question; investment banks, mutual funds, hedge funds, insurance companies and pension plans.
Mutual funds- Mutual funds sell shares that are comprised of a portfolio of investments, including stocks, bonds, money market securities and mortgages. There are many differ types of mutual funds that allow investors to concentrate on one specific are of the economy e.g. high-yield bonds, emerging markets, blue-chip stocks, etc. These are poplar investments and reduce risk by diversifying; therefore spreading the risk among the various holdings.
Hedge Funds- Hedge funds are similar to mutual funds in that they invest in a portfolio of investments. Typically a hedge fund only has 99 or fewer investors that are usually very wealthy. This small amount of investors allows less regulation and the investments are usually riskier than a typical mutual fund. Hedge funds have gained in popularity over the last few decades:
“During the last decade there has been a much greater expansion by hedge funds than by mutual funds. This rapid increase in the size of the hedge fund industry could be attributed to the relative absence of regulations regarding compensation contracts and trading strategies. Unlike mutual funds, hedge funds are able to charge an incentive fee that is a large proportion of the capital gain above a pre-specified hurdle rate because they are free from regulatory restrictions on the investment advisory contracts”( Deuskar et.al,2011).
Pension Funds – These invest the contributions of employees and employers into stocks, bond, and mortgages. “Pension funds can be thought of as deferred workers wages”( Hebb & Beeferman, 2008) .Pension funds then pay vested contributors a set amount, usually monthly, that acts as retirement income. Pension funds typically invest in corporate equities and mutual funds as their primary holdings.
Insurance companies – A financial intermediary that specializes in writing contracts to protect policy holders from risk of financial loss associated with particular events.( Hubbard & O’Brien, 2012, p.332). Most people are familiar with auto insurance, homeowners insurance, and life insurance. Insurance companies differ from the other business structures in that they primarily manage risk for both policy holders and themselves.
References:
Deuskar, P., Pollet, J. M., Wang, Z., & Zheng, L. (2011). The Good or the Bad? Which Mutual Fund Managers Join Hedge Funds?.
Review Of Financial Studies,
24(9), 3008-3024.
Hebb, T. M., & Beeferman, L. (2008).
US pension funds’ labour friendly investments. Rochester: doi:http://dx.doi.org/10.2139/ssrn.1123571
Hubbard, R. & O’Brien, A. (2012). Money, Banking, and the Financial System (1st ed.). Upper Saddle River, NJ: Pearson.
Ashford ECO 316 Week 4 DQ 2 structure and function of fed x
From the reading in Chapter 13 explain the reasons for the structure and function of the Federal Reserve System. What special problems does a central bank have to solve? Should Congress and the president be given greater authority over the Federal Reserve System?
The Federal Reserve System was established in 1913 as part of the Federal Reserve Act. Instead of being one bank located in a central location, the system is broken into twelve districts in which there is a Federal Reserve Bank in one city, as well as other branches within the district (Hubbard & O’Brien, 2012). Economic power within the system is divided among three different interest groups: bankers/business interests, states/regions, and government/private sector. Additionally, the districts are set up in a way that they serve both urban and rural areas that contain a diverse set of business fields. The reason that the power is divided as well as the country split into districts is so that no one person or entity has total economic power. This division of power can be thought of as yet another system of checks and balances set up within the government.
The role of the central bank is “to manage the banking system and the money supply,” as well as influence monetary and economic policy (Hubbard & O’Brien, 2012, pg. 395). In times of economic crisis we look to the Fed and the Board of Governors for direction and solutions. They are tasked with objectives such as regulating member banks, managing circulating currency, and adjusting the federal funds rate as needed. Of course, it is many people that are involved in making the decisions on behalf of the Fed, which again eliminates the possibility of one person having too much power.
Should the president and/or Congress be given more authority over the Federal Reserve System? I don’t believe so. Yes, it is necessary to have some political involvement, but we need to keep the system free from too much political influence in order to prevent one side from furthering their own agenda. The Fed is in place to benefit the public, not the politicians. Giving the president or Congress more control would only give them more power, which is something that the system was designed to avoid.
References:
Hubbard, R. & O’Brien, A. (2012). Money, Banking, and the Financial System (1st ed.). Upper Saddle River, NJ: Pearson.
Ashford ECO 316 Week 5 DQ 1 potential money multiplier x
Read the scenario below, and then answer questions 1 and 2. Refer to this week’s readings in the text, if needed.
Scenario: Bank A has an increase in deposits (or excess reserves) of $100M and the reserve requirement is 10% with other banks not holding reserves beyond the requirement.
· How much money can Bank A create by making loans?
· How much money can the banking system as a whole create? (Show calculation).
Since bank A has an increase in excess reserves and not required reserves, then they are free to lend out all $100M. In order to determine how much money the banking system as a whole can create, you can use the equation for the simple deposit multiplier. This multiplier can help you calculate “the ratio of the amount of deposits created by banks to the amount of new reserves created” (Hubbard & O’Brien, 2012, pg. 422). To find the multiplier you will divide 1 by the required reserve ratio of 10% (.10). A second way to solve this problem is take the amount of the increase in deposits and divide it by the percentage of reserves that must be retained. In our scenario the equation(s) would be:
ΔD = 100,000,000 / .10 = 1,000,000,000 or 100,000,000 x 10 = 1,000,000,000
If this was an increase in checkable deposits, then they would have to reserve $10M and then have $90M left to lend out.
The reason why the initial deposit can create so much more money is because of the process of multiple deposit creation, which is when funds keep getting recycled in a while through loans and deposits. When one bank loans out funds to one person, then that person may deposit them in another bank, who will then loan them out again, continuing the cycle. Checkable deposits keep getting created down the line, although the amount decreases each time due to reserve requirements (Hubbard & O’Brien, 2012). It is also important to note that it is not Bank A that is solely creating all of this money, but it is rather an effect of the banking system working together as a whole as funds transfer from one institution to the next.
References:
Hubbard, R. & O’Brien, A. (2012).
Money, Banking, and the Financial System (1st ed.). Upper Saddle River, NJ: Pearson.
Ashford ECO 316 Week 5 DQ 2 current monetary policy x
After reading the Week Five required readings, address these questions in your post
· What are the current monetary policy goals?
· How has the Fed attempted to meet some of these goals? What have been the outcomes?
· Do you agree or disagree with the Fed taking action to intervene when the economy is not well-functioning? Why or why not?
The current monetary policy goals are divided into six separate items: price stability, high employment, economic growth, stability of financial markets and institutions, interest rate stability, and foreign-exchange market stability.
The goal for price stability is to keep inflation from causing too many fluctuations in the price level of goods. High inflation rates can make people hesitate before entering into long-term deals and causes money to lose its value (Hubbard & O’Brien, 2012).
High employment is a goal because unproductive workers and companies will not be able to contribute as much to the economy, especially since they are most likely having a hard time financially, so they are unable to buy a lot of goods and services. Economic growth is a goal because we want to find ways to increase the nation’s GDP at a stable rate in order to encourage people to spend and companies to hire more people. If the economy is strong, people will feel better about spending their money, whereas if it is weak then they will save more than they spend. This is tied to high employment because having more productive employees will increase the output.
The last three goals all have to deal with stability in the market, both foreign and domestic, as well as interest rates. It is important to achieve stability in our own market and institutions because it makes it easier to have a balance of savers and borrowers, meaning that there are more attractive investment opportunities available, as well as more people willing to lend money (Hubbard & O’Brien, 2012). As for the foreign market, it is important to try and keep the exchange rate of the dollar at a stable level so that businesses can more accurately plan for future transactions abroad. Finally, interest rate stability is important for one of the same reasons previously mentioned: keeping the rates stable will allow people to better plan their investments and borrowing needs.
The Fed attempts to meet these goals by utilizing the monetary policy tools at their disposal: open market operations, discount policy, reserve requirements, interest on reserve balances, and term deposit facilities. The last two were developed as a result of the recent financial crisis as tools to manage bank reserve holdings. The Fed has also used open market operations in order to influence the federal funds rate. In 2008, the Fed lowered the target for the rate and they ended up purchasing securities, which increased bank reserves (Hubbard & O’Brien, 2012).
I agree with the Fed taking action when the economy needs help because they are the experts on the situations and are better qualified than the average politician. I believe that they try to be unbiased, even though there may be times when they give into political influence. We may not always agree with the actions they take, but they have to take into account the entire country, so the needs of the many outweigh the needs of the few.
References:
Hubbard, R. & O’Brien, A. (2012).
Money, Banking, and the Financial System (1st ed.). Upper Saddle River, NJ: Pearson.
Ashford Week 1 Activity Quiz 100% Score x
1. Bonds are an example of
2. Banks, brokers, mutual funds, and insurance companies are all financial
3. A type of security that represents partial ownership in a firm is called equity or common
4. Stocks and bonds that have already been issued to the public are then traded in
5. To calculate your net worth you will subtract the value of your ___________ from the value of your __________.
6. My checking account deposits are an asset to me but a liability to
7. The central bank of the U.S. is the
8. The key interest rate that represents the cost of borrowing for banks is
9. The ease with which an asset can be turned into money is known as
10. Your _________ of assets can include money, stocks, bonds, and real estate
1. Bonds are an example of
securities
2. Banks, brokers, mutual funds, and insurance companies are all financial
intermediaries
3. A type of security that represents partial ownership in a firm is called equity or common
stock
4. Stocks and bonds that have already been issued to the public are then traded in
the secondary market
5. To calculate your net worth you will subtract the value of your ___________ from the value of your __________.
liabilities, assets
6. My checking account deposits are an asset to me but a liability to
my bank
7. The central bank of the U.S. is the
Federal Reserve
8. The key interest rate that represents the cost of borrowing for banks is
the Fed Funds rate
9. The ease with which an asset can be turned into money is known as
liquidity
10. Your _________ of assets can include money, stocks, bonds, and real estate
portfolio
Ashford Week 1 Quiz 100% Score x
1. If a bank grants you a mortgage, the mortgage is
2. Why do individuals hold money when it does not provide the services that, say, a house does
3. Which of the following is NOT a financial intermediary
4. Financial markets
5. If you purchase a Treasury bond, the Treasury bond is
6. Economists define liquidity as
7. When economists refer to the role of money as a unit of account, they mean that
8. The financial system is primarily a means by which
9. Economists define risk as
10. Fiat money
1 If a bank grants you a mortgage, the mortgage is
a liability to you, but an asset to the bank
2 Why do individuals hold money when it does not provide the services that, say, a house does
Money is the most liquid asset
3 Which of the following is NOT a financial intermediary
stock exchange
4 Financial markets
channel funds directly from lenders to borrowers
5 If you purchase a Treasury bond, the Treasury bond is
an asset to you, but a liability to the U.S. government
6 Economists define liquidity as
the ease with which an asset can be exchanged for money
7 When economists refer to the role of money as a unit of account, they mean that
money gives traders a way of measuring value in the economy
8 The financial system is primarily a means by which
funds are transferred from savers to borrowers
9 Economists define risk as
the chance that the value of financial assets will change from what you expect
10 Fiat money
is money that would have no value if it were not usable as money
Ashford Week 2 Quiz 100% Score x
1. The supply curve for bonds would be shifted to the left by
2. A one-year discount bond with a face value of $1000 that is currently selling for $900 has an interest rate of
3. Suppose that a new bond rating service is established that specializes in rating municipal bonds that had not previously been rated. The likely result would be
4. During a period of economic expansion, when expected profitability is high,
5. Suppose that Congress passes an investment tax credit. The likely result will be
6. If the federal government decreases its spending and doesn’t decrease taxes, the bond supply shifts to the
7. If the expected gains on stocks rise, while the expected returns on bonds do not change, then
8. Businesses
typically issue bonds to finance
9. Which of the following would NOT cause the demand curve for bonds to shift?
10. As a result of higher expected inflation
1. The supply curve for bonds would be shifted to the left by
a decrease in government borrowing
2. A one-year discount bond with a face value of $1000 that is currently selling for $900 has an interest rate of
11.1%.
3. Suppose that a new bond rating service is established that specializes in rating municipal bonds that had not previously been rated. The likely result would be
a decrease in the equilibrium interest rate
4. During a period of economic expansion, when expected profitability is high,
the supply curve of bonds shifts to the right
5. Suppose that Congress passes an investment tax credit. The likely result will be
the supply curve for bonds will shift to the right
6. If the federal government decreases its spending and doesn’t decrease taxes, the bond supply shifts to the
left and the equilibrium interest rate falls
7. If the expected gains on stocks rise, while the expected returns on bonds do not change, then
the equilibrium interest rate will rise
8. Businesses
typically issue bonds to finance
spending on new plant and equipment
9. Which of the following would NOT cause the demand curve for bonds to shift?
a change in the price of bonds
10. As a result of higher expected inflation
the demand curve for loanable funds shifts to the right, the supply curve for loanable funds shifts to the left, and the equilibrium interest rate usually rises.
Ashford Week 3 Quiz 100% Score x
1. Forward transactions would be useful to
2. One implication of the efficient markets hypothesis is that investors should
3. Hedgers are primarily interested in
4. Suppose you plan to hold a stock for one year. You expect that, in one year, it will sell for $30 and pay a dividend of $3 per share. If your required return on equity is 10%, what is the most you should be willing to pay for the share today
5. The rate of return of a stock held for one year equals
6. According to the efficient markets hypothesis, who is most likely to benefit from frequently moving funds from one asset to another
7. The required return on equity for an individual stock includes which of the following?
8. Excess volatility refers to
9. Speculators in derivatives markets
10. The difference between a firm’s assets and its liabilities is known as
1. Forward transactions would be useful to
a business wanting to know the cost of its funds on future loans
2. One implication of the efficient markets hypothesis is that investors should
hold a diversified portfolio of assets.
3. Hedgers are primarily interested in
reducing their exposure to the risk of price fluctuations
4. Suppose you plan to hold a stock for one year. You expect that, in one year, it will sell for $30 and pay a dividend of $3 per share. If your required return on equity is 10%, what is the most you should be willing to pay for the share today
$30
5. The rate of return of a stock held for one year equals
the dividend yield plus the rate of capital gain
6. According to the efficient markets hypothesis, who is most likely to benefit from frequently moving funds from one asset to another
your broker
7. The required return on equity for an individual stock includes which of the following?
all of the above
8. Excess volatility refers to
the larger movements in market prices of stock than in their fundamental values
9. Speculators in derivatives markets
accept risk transferred to them by hedgers
10. The difference between a firm’s assets and its liabilities is known as
equity
Ashford Week 4 Quiz 100% Score x
1. Any reserves beyond what is required are called
2. In banking, the spread refers to the difference between the
3. Required reserves are
4. Excess reserves equal
5. In managing its liabilities to deal with liquidity problems, banks trade off
6. Securitization refers to
7. An most important service provided by underwriters is
8. If you have a checking account at First National Bank, the account is
9. Short-term loans between banks are called
10. When investment banks buy or sell securities on their own account, it’s called
1. Any reserves beyond what is required are called
excess reserves
2.
In banking, the spread refers to the difference between the
average interest rate earned on assets and the average interest rate paid on liabilities
3. Required reserves are
the portion of demand deposits and NOW accounts banks must hold
4. Excess reserves equal
total reserves less required reserves
5. In managing its liabilities to deal with liquidity problems, banks trade off
the need for available funds to meet deposit outflows against the desire for greater profit
6. Securitization refers to
selling directly to investors loans or securities that were formerly held by financial intermediaries
7. An most important service provided by underwriters is
lowering of information costs
8. If you have a checking account at First National Bank, the account is
an asset to you and a liability to First National
9. Short-term loans between banks are called
federal funds
10. When investment banks buy or sell securities on their own account, it’s called
proprietary trading
Ashford Week 5 Quiz 100% Score x
1. If the Fed purchases $1 million in securities from the nonbank public, the monetary base will rise by $1 million
2. If the Fed buys securities worth $10 million, then
3. The percentage of deposits that banks must hold as reserves is called the
4. If the Fed purchases $50,000 in T-bills from a bank, by how much will the bank’s excess reserves increase
5. Most of the increase in the monetary base between 2007 and 2012 was due to increases in
6. The aggregate M1 consists of
7. Open market operations generally involve
8. Which of the following assumptions made in deriving the simple deposit multiplier is unrealistic
9. The Fed has the greatest control over which of the following
10. The Fed’s portfolio of securities consists principally of
1. If the Fed purchases $1 million in securities from the nonbank public, the monetary base will rise by $1 million
whether the public holds the proceeds as currency or deposits them as checkable deposits
2. If the Fed buys securities worth $10 million, then
bank reserves will increase by $10 million
3. The percentage of deposits that banks must hold as reserves is called the
required reserve ratio
4. If the Fed purchases $50,000 in T-bills from a bank, by how much will the bank’s excess reserves increase
by $50,000
5. Most of the increase in the monetary base between 2007 and 2012 was due to increases in
excess reserves
6. The aggregate M1 consists of
currency plus checkable deposits in financial institutions
7. Open market operations generally involve
the Fed buying and selling U.S. government securities
8. Which of the following assumptions made in deriving the simple deposit multiplier is unrealistic
Banks loan out all of their excess reserves
9. The Fed has the greatest control over which of the following
the nonborrowed monetary base
10. The Fed’s portfolio of securities consists principally of
U.S. Treasury obligations
Ashford eco 316 Week 5 finals The Day the Machines Went Off x
Running Head: THE DAY THE MACHINE WENT OFF 1
THE DAY THE MACHINE WENT OFF 10
The Day the Machines Went Off
ECO 316
The Day the Machine Went Off
Use of information technology is continuously increasing and touches all aspects of human life. Information technology plays vital role across all major industries which results in economic development and defies geographical boundaries. Financial industry also got benefited with the use of advance technology and resulting in increasing development processes. Similar to other industries, financial sector also use advanced machinery and equipment to perform functions at great speed and enhanced accuracy. Banking sector utilizes technology for internal functions such as processing of transactions, book keeping and balancing and the deployment of technology is further advanced to all customer dealing processes. These processes comprises of internet banking, auto trailer machine, mobile banking etc. Such technologies infuse convenience and accessibility to perform banking transactions. Technology and machinery have altered the way banking operations are performed.
In similar manner, other industries also utilize technology in internal and external processes. Online money transaction facility has changed the way of shopping. Unlike earlier, when people were required to carry cash and check to make payments, now shopping can be done just by swapping a card and online from the comfort of home. Different electronic machineries have become an integral part of the daily life and it is difficult to imagine world without computers, internet, and other electronic devices. This paper intends to discuss the impact on the financial sector in case the machines stop working. The paper elaborates impact of machinery dysfunction on economic development and the subsequent impact on inflation, unemployment, demand for commodities, and interest rate. The paper further discusses impact of dysfunction of machineries on central bank and money market along with deliberation upon emergency measures and important institutions that would have to be functional on priority basis.
2. Functions of Money
Money is an essential part of human life; people earn it and spend it for exchange of goods. According to economists four essential functions of money are: measurement of value, medium of exchange or trade, standard of differed payments, and store of value (Hubbard, 2012). Money defines the value of products and services that are traded in economy hence money function as unit of value. This function will work in absence of machineries. Money plays vital role in all transactions of goods and services by performing function as medium of exchange. Companies produced or manufactured goods and traded them in exchange of money. People also perform their services in exchange of money. Money is commonly acceptable as medium of exchange.
In modern economy, credits are paid only in the form of money. Money maintained deferred payments in a manner that creditor and debtor both do not incur loss. People can save their value in the form of money; saving value in any other form is very difficult. Money can be saved and used in future at the time of requirements. Technology and machinery facilitates all three functions of money i.e. medium of exchange or trade, standard of differed payments, and store of value. In case machines stopped working it will be difficult for people to trade online, and from cards. People will be unable to withdraw their money from the banks as well as from the ATMs. Complete trading cycle is depended on money and in absence of money it will not be possible to make payments for goods and services. Earning of companies and employees will be stopped due to failure of banking transactions machineries. People will be unable to make pay credits and used their savings. Thereby dysfunction of machines will impact the whole economy in no time.
3. Immediate Impact of Shutdown on Financial System
Information technology has become integrated part of modern world by performing several financial functions with more speed and accuracy. Financial institutions are essential part of economy and dysfunction of machines and technology of financial institutions would result in damaging the functioning of economy and businesses. The moment machines and technology will stop working, all technology driven financial transactions would be halt. The major impacts of shutdown of financial system are discussed below:
3.1 Inflation:
Prices of goods and inflation depend upon the supply and demand of goods in the market. Rise in inflation reflects the loss of value of money that is main medium of exchange in economy. The time when banking institutions would be unable to process any transactions there will be uncertainties and doubts among people. People would be in stage of panic as they are not sure about future situations (Mohamed, 2012, April). People with some cash will try to buy goods quickly because they are not sure about condition of future trading. Retailers and wholesalers would not be in position to buy goods from the manufacturers or companies because inaccessibility to the money. Retailers who have inventory of products would try to sell their goods at much higher cost in order to generate more money. Overall machinery failure creates a sense of emergency among public that will result in rising of inflation.
3.2 Unemployment in Financial Institutions:
Employment is important indicator of economic; rise in unemployed people shows the declining performance of economy. At the time when all machineries and technology deployed in financial institutions will stop functioning number of unemployed people will go up. There are two main reasons for the rise in unemployment. First, people who are performing technical operations, managing and maintaining machineries will have no job to do. All works at financial institutions would be performed manually hence there will be no requirement of technical staff. Second, in absence of accessibility to money, people who are working on hourly wages such as labors, cleaners will not get ample work; people would prefer to do their own work in order to save their cash.
3.3 Lack of functioning Central Bank:
Central bank regulates and monitors other banks to control financial system of economy. Central bank is most important player in American economy hence any impact on functioning of central bank will impact overall economy. In absence technology disbursement of credit would be slow which will decrease the supply of money in market and to the other banks. Technology provides immense support to bank in delivering customized services with full efficiency (Gallagher and Andrew, 2007). In present competitive environment customers are more demanding; they look for quick solutions to their problems which only can be possible with the help of technology.
In absence of technology all banking works needed to be done manually which is a time consuming process. At the moment technology will stop functioning there would be a lot of confusion in terms of work allocation, individual responsibilities and job processes. Employee’s task would not be clear, who is going collect check, who is responsible to maintain the records, and who is going to make payments to the public. This confusion will decrease the efficiency and functioning of all banks including central banks.
3.4 Demand of Paper Money:
Over period of time, payment system has evolved significantly due to implementation of advance technology. Earlier, people were able to make payments only in cash or check but now they are able to make payments by card, mobiles, and online transfers. Any failure of machineries can push the payment system towards two to three decades back and people would be able to transact only in hard cash or through check. Machinery failure will increase the demand of paper money significantly which would be difficult for banks to manage due to manual work, slow operations and poor supply of money from central bank. E-commerce business is also gaining popularity; presently a good percentage of people do online shopping by using online payment facility. Dysfunction of machineries will stop such transactions and those customers will end up buying products in exchange of cash.
3.5 Interest Rates:
Interest rates are percentage charged by the lender on total money that is landed. Similarly banks pay interest rate on the money deposited by individuals to their banks. Interest rates are governed by central bank according to the economic conditions and value of money. In case when inflation is expected to rise, chances are that central bank increases interest rates. Central bank increases interest rates to govern value of money, liquidity of money in market, cash reserve in banks and control inflation. Increase in interest rates will de-motivate creditors to borrow money, this eliminate some manual work burden from banks in absence of machineries. Rise in interest rate will also occur due to increasing demands of goods due to machinery failure at financial institutions.
3.6 Demand of Gold:
Prices of gold are governed by various factors such as demand and supply of metal in the market, gold policy of central bank, economic conditions and value of money. Due to failure of technology and machineries the economic conditions will be in bad shape. Inflation will also increase which will increase the price of gold. Economic conditions also governed the value of currency and any decrease in value of US dollar will increase the price of gold. Gold is considered as precious metal used for hedging against economic uncertainties (Hale et al., 2012). When functioning of financial institutions will be impacted by dysfunction of machineries, economic uncertainties would go up and people who have money will prefer to invest in gold. This increase in demand of gold would result in higher prices of gold.
3.7 Barter:
Money is important aspect of economy as it is the main medium of trade. People rely on financial institutions for supply of money. People have to rely on barter system for trade of necessary products and services in absence of proper supply of money due dysfunction of machineries. Barter system works on demands or necessity of both parties involve in trading. In barter system both parties involve in trading should offer goods or service desired by second party (O’Sullivan and Steven, 2003). This characteristic makes barter system inefficient. Reliance on barter system will damage the trade because it does not consider value of goods or service instead based on needs and requirements of people. Financial institutions will not be in position to fulfill the demand of money hence people have to rely on barter system for their basic needs.
4. Emergency Measures to Deploy
Sudden stop in functioning of financial institutions will create emergency situation. Dysfunction of machineries at banks will stop all monetary transactions taking place via online or with the help of machines. It is essential to deploy some emergency measures to prevent the possible damages to economy that would cause due to machinery failure. Such measures prevent functioning of financial institutions from pause. Such emergency measures would consist of:
4.1 Manuel Functioning:
In absence of machinery, it will be good to perform transactions manually instead pausing all the transactions thus stopping economy. Manual transactions will decrease the speed significantly and may cause huge trouble to the customers as they have to go to the banks to withdraw money. However manual transactions will protect economy from major potential threats such as rising inflations, unemployment, rising cost of goods and services, and especially barter system.
4.2 Back-up Machineries:
It is recommended that financial institutions should keep buffer of all important machineries and back-up of data in order to avoid any trouble in functioning. In case of emergency bank can transfer back-up data from main server to new machines. Back-up machines will certainly attract some cost but benefits are enormous.
4.3 Emergency Team of Technical Staff:
Financial institutions should keep emergency team that and repair and replace machinery on urgent basis. It is not necessary to keep such team on permanent basis; outsourcing and contracting could be possible options for financial institutions to get efficient service at low cost.
5. Primary Financial Institution
Federal bank is the main financial institution that governs economy of country and control functioning of other financial institutions. Federal bank maintains back-up of all financial data hence it is important to first make federal bank online. Federal bank also lends money to other financial institutions and maintains flow of money. Therefore making other financial institutions online will not resolve problem quickly. Other financial institutions can be back online subsequent to federal bank. Online functioning of Federal bank can also protect economy from major threats that might emerge due to panic among people and economic uncertainties; it will make people calm and have patience for some time to improve the situation till all financial institutions come back online.
6. Conclusion
From the above discussion it is concluded that machinery plays vital role in fast and efficient functioning of financial institutions. Dependency of financial institutions on machinery has increased significantly and all major financial processes are directly or indirectly linked with machines. Any halt in functioning of such machines will impact economy significantly. It will increase inflation and unemployment, prices of commodities will rise along with interest rate. Technology will stop functioning of federal bank which will impact whole economy of country significantly. It is important to take emergency measures to mitigate the impact of machinery failures on economy. Such emergency measures could be manual functioning, back-up of important machineries and team of technicians. These measures will protect economy from any major adverse impact. Machineries have become important aspects of daily life and it is used across all business to perform functions more efficiently. Any failure of machine has negative impacts depending upon the business and function of machine.
References
Hale, G., Hobijn, B., & Raina, R. (2012, June 18). Commodity prices and pce inflation. Retrieved from http://www.frbsf.org/publications/economics/letter/2012/el2012-14.html
Hubbard, R. (2012). Money, Banking, and the Financial System . New York: Pearson.
Mohamed, I. A. (2012, April). The Impacts of Financial Policies on Inflation Rates in Sudan. SSRN Working Paper Series , 1-25.
O’Sullivan, A. and Steven M. S. (2003). Economics: Principles in Action. USA: Pearson Prentice Hall.
T. J. Gallagher and J. D. Andrew. (2007). Financial Management; Principles and Practice. Upper Saddle River, NJ: Freeload Press, In.
Ashford ECO 316 Week 1 DQ 1 Money and its function x
Discuss how the money supply is measured and the four key functions of money discussed in the text Chapter 2 and in the Feducation: Money and Inflation video. Use examples from everyday life (e.g. saving, spending, accounting) in your post.
Money serves four functions in our economy: medium of exchange, unit of account, store of value, and standard of deferred payment. A medium of exchange is when someone accepts money in return for something else. For example, when I go buy a new pair of shoes I will exchange money for the shoes, instead of trading something else of similar value. Money as a unit of account means that “each good has a single price quoted in terms of the medium of exchange” (Hubbard & O’Brien, 2012, p.28). Using the same measure of value on goods and services will make it clear as to the single cost of the product, which is easier than trying to figure out how to pay with other items of different value. What if I went to buy those shoes again and the price was two chickens, but I didn’t have any chickens? I would have to figure out what else I had on hand that would be of comparable value.
Another function of money is that it acts as a store of value, which means that you don’t have to spend it all at once and can put some of it away for another day. An example of this is when I get paid and decide to put a portion of my paycheck in my savings account. I don’t need the money now, so I will save it for some point in the future when I do need it. When it comes time to use it, the money will still hold the same face value as it did when I put it into the account, but its purchasing power will be adjusted for inflation (Snippet, 2013). Finally, money acts as a standard of deferred payment, which means that it acts as an agreed upon unit by which debts will be paid in the future for a product received now. A common example of this is a car loan; when you buy a car you will likely take out a loan to pay for it. The bank gives you the funds to buy the car and you agree to pay them back with money over the course of the loan period.
The fact that money is use as a unit of account means that it can be measured in some way; however, it is not just cash that is measured. The most basic measure of money, referred to as M1, includes cash, checking accounts, and traveler’s checks. These forms of money are the most liquid. The next measure, referred to as M2, includes everything in M1 plus savings accounts, short-term time deposits, and money market accounts. These accounts are also liquid, but not as easily convertible as the accounts in M1. According to our text there is no consensus as to which measure is more effective (Hubbard & O’Brien, 2012).
References:
Hubbard, R. & O’Brien, A. (2012).
Money, Banking, and the Financial System (1st ed.). Upper Saddle River, NJ: Pearson.
Snippet, U. O., & C. (2013).
Feducation: Money and Inflation. Federal Reserve Bank of St. Louis | Economic Data, Monetary Rates, Economic Education. Retrieved from http://www.stlouisfed.org/education_resources/feducation-money-and-inflation/
Ashford ECO 316 Week 1 DQ 2 Bond Price and Interest rate x
Explain why there is an inverse relationship between the price of bonds and the relevant interest rate. Explain the effect of each of the following upon interest rates and upon the price of bonds:
· Maturity
· Risk
· Inflation
Bond prices and yields to maturity have an inverse relationship, meaning that an increase in one results in a decrease in the other. When interest rates on new bonds go up, the prices of existing bonds fall, and vice versa. If you have a bond at a rate of 7% and new bonds have a rate of 10%, then the price of your bond falls because it will “become less desirable to investors” (Hubbard & O’Brien, 2012, p.69). After all, who will want a bond that’s paying a lower rate than what’s currently available? You would have to calculate the market price of your bond in order to make it attractive to other investors, and that new price will probably be lower than the face value. On the flip side, if you have a bond at a rate of 7% and rates fall to 5%, then your bond will be more attractive since it is offering the better deal.
Other factors can affect interest rates and the price of bonds, such as maturity, risk, and inflation. Having a longer maturity means that interest rate changes will have a bigger impact on your investment since it covers a longer time period. If your bond is carrying a below-market rate for many years, then the price will have to be lowered in order to try and sell it to another investor (Hubbard & O’Brien, 2012). Interest rate risk is tied into maturity because there is less likelihood of having significant rate changes in a short-term bond; but that risk increases the longer the bond is held. Inflation affects rates and bond prices because it reduces the purchases power of your interest payments and principal. Inflation can cause bond prices to fall if interest rates are not adjusted accordingly because they don’t hold as much value anymore, so there will be less demand for them. If interest rates are raised to account for inflation, then people will want to buy bonds at the higher rate instead.
Reference:
Hubbard, R. & O’Brien, A. (2012).
Money, Banking, and the Financial System (1st ed.). Upper Saddle River, NJ: Pearson.
Ashford ECO 316 Week 2 DQ 1 Models and Bond Pricing x
Choose a particular bond and explain how the interest rate is determined using the three models of bond interest rates presented in Chapter 4.
An example of a coupon bond is one issued by Verizon Communications Inc:
Price: 138.74
Coupon (%): 8.750
Maturity Date: 1-Nov-2018
Yield to Maturity (%): 2.595
Current Yield (%): 6.307
Fitch Ratings: A
Coupon Payment Freq: Semi-Annual
First Coupon Date: 1-May-2009
Type: Corporate
Callable: No
The classic model of supply and demand will have an effect on interest rates because we are trying to find the balance, or equilibrium, between the two sides. If demand for bonds increases, then the price will increase and the interest rate will decrease. If demand decreases, then so will the price, but interest rates will increase. Factors such as wealth, expected returns, risk, liquidity, and information costs can cause the demand to shift (Hubbard & O’Brien, 2012). Shifts in the supply curve will have similar effects, depending on the direction. Factors that may cause supply to shift are expected pretax profitability, business tax, inflation expectation, and government borrowing trends.
Using the bond market model we can explain changes in interest rates by looking at activity over a business cycle or using the Fisher effect. During a business cycle there are periods of expansion and recession. If there is a recession, then individuals will have less wealth, so demand for bonds will decrease. Businesses will also have a gloomy outlook on future profits, so supply of bonds will also decrease. Both shifts will result in higher bond prices and lower interest rates, as long as supply shifts more than demand. The Fisher effect explains how expected real interest rate will not change because nominal rates will change “point for point with changes in the expected inflation rate” (Hubbard & O’Brien, 2012, pg. 105). For example, if the nominal rate is 7% and the expected inflation rate is 4%, then the expected real interest rate is 3%; however, if inflation is likely to increase to 5%, then the nominal rate will increase to 8%, which leaves the real interest rate at 3%.
The loanable funds model looks at how money flows between the United States and other foreign markets. The world real interest rate is determined by the international capital market, and the size of the economies could have the potential to influence this rate. The behaviors of smaller economies are less likely to affect others, so they will probably have no effect on the world rate; however, in these instances the world and domestic rates would be the same in order to ensure the lender or borrower is getting the best deal. The behavior of large economies could affect other foreign markets, so they could influence the world interest rate in order to generate more funds for international lending/borrowing.
References:
Hubbard, R. & O’Brien, A. (2012).
Money, Banking, and the Financial System (1st ed.). Upper Saddle River, NJ: Pearson.
Current bond information courtesy of Yahoo! Finance.
