Financial Markets And Institutions

Directions:
Answer the following questions on a separate document. Explain how you
reached the answer or show your work if a mathematical calculation is
needed, or both. Submit your assignment using the assignment link above.
This homework assignment is worth 20 points. Responses should be at
least 75 words for each question.

1) Describe an economic tradeoff faced by the Fed in achieving its economic policy objectives.

2) What are recognition and implementation lags? How do these influence security prices?

3) Why might the Fed’s monetary policy depend on the fiscal policy that is implemented?

4)
Stock market conditions serve as a leading economic indicator. Assuming
the U.S. economy is in an expansion. what are the implications of this
indicator? Why might this indicator be inaccurate?

5)
Assess the economic situation today. Is the current administration more
concerned with reducing unemployment or inflation? Does the Fed have a
similar opinion? If not, is the administration publicly criticizing the
Fed? Is the Fed publicly criticizing the administration? Explain.

6)
What type of organization issues commercial paper? Given the short-term
nature of commercial paper, why would ratings agencies assign ratings
to them?

7)
The maximum maturity of commercial paper is 270 days. Why would an
organization issue commercial paper rather than longer-term securities,
even if it needs funds for a long period of time?

8)
Assume an investor purchased a three-month T-bill with a $10,000 par
value for $9,650 and sold it 45 days later for $9,770. What is the
yield?

9)
A money market security that has a par value of $10,000 sells for
$8,784.20. Given that the security has a maturity of two years, what is
the investor’s required rate of return?

10)
A U.S. investor obtains British pounds when the pound is worth $1.27
and invests in a one-year money market security that provides a yield of
3.5% (in pounds). At the end of one year, the investor converts the
proceeds from the investment back to dollars at the prevailing spot rate
of $1.29 per pound. Calculate the effective yield.