Cecchetti Money Banking And Financial Markets Pdf
Money Banking and Financial Markets 4th Edition Cecchetti TEST BANKfor Money Banking and Financial Markets 4th Edition Cecchetti TEST BANK. Note: this is not a text book. File Format: PDF or WordALL CHAPTERS ARE INCLUDED.THIS IS A TEST BANK NOT A TEXTBOOK.THE TEST BANK USUALLY CONTAINS THE FOLLOWING TYPE OF QUESTIONSMULTIPLE CHOICE.TRUE AND FALSE.MATCHING.SHORT AND LONG ESSAY QUESTIONS.TEST BANK Money Banking and Financial MarketsAuthor: CecchettiEdition: 4th EditionPublisher: McGraw HillEducational Use: Exam Preparation.
Download at:banking and financial markets 4th edition pdf downloadmoney banking and financial markets cecchetti solutionsmoney banking and financial markets 4th edition solutionsmoney banking and financial markets cecchetti 4th edition pdfmoney banking and financial markets 5th edition cecchetti pdfcecchetti, money, banking and financial markets (5th edition)money banking and financial markets cecchetti pdf downloadmoney banking and financial markets 5th edition pdf. Money banking and financial markets 5th edition cecchetti solutions manual.1.Money Banking and Financial Markets 5th Edition CecchettiSOLUTIONS MANUALFull download at: Banking and Financial Markets 5th Edition CecchettiTEST BANKFull download at: 2Money and the Payments SystemConceptual and Analytical Problems1. Describe at least three ways you could pay for your morning cup of coffee. What arethe advantages and disadvantages of each?
(LO2)Answer: You could use money, a check, or a debit card.Money: This is the most likely to be accepted, but it means you have to replenishyour supply periodically.Check: The least likely to be accepted, and it means you have to walk around withyour checkbook. But the funds remain in your bank account for the time it takes thecheck to make its way through the clearing system.Debit Card: This is very convenient, and likely to be accepted.
But when theelectronic signal arrives at your bank later in the day, the funds are withdrawnimmediately from your account. (This is probably the cheapest option for themerchant).2. You are the owner of a small sandwich shop.
A buyer may offer one of severalpayment methods: cash, a check drawn on a bank, a credit card, or a debit card.Which of these is the least costly for you? Explain why the others are moreexpensive. (LO2)Answer: Cash is the cheapest option for the merchant; no information is requiredabout the buyer and no additional costs are imposed (though the merchant may needto guard against counterfeiting). Most merchants will ask for a government-issuedphoto ID in order to accept payment by check, requiring more time per transaction.Even with appropriate identification, the merchant does not know if funds are actuallyavailable in the check writer’s account. If not, the merchant will likely undergo acostly process of contacting the buyer and trying to coax the funds from theindividual.
A payment by credit card provides the merchant with more protection thandoes a check because the payment is made by the financial institution issuing thecard. However, the merchant pays the card issuer a fee (usually a percentage of thetransaction value) for the certainty of the payment. Finally, while a debit cardelectronically transfers funds from the buyer’s account to the merchant’s, this transferis not instantaneous and the buyer is likely already gone when the merchant maydiscover that the buyer did not have the funds available.3.
Explain how money encourages specialization, and how specialization improveseveryone’s standard of living. (LO1)Answer: Without money, people have to barter to exchange goods and services. Thisrequires a ―double coincidence of wants,‖ which makes it difficult to specialize. Inthe example in the text, a plumber is buying groceries; if the grocer doesn’t need aplumbing repair, but does need the outside of his store painted, the plumber maydecide to paint the store in order to pay for his groceries even though it is not what hedoes best.
When money is used, people are free to specialize in areas in which theyhave a comparative advantage, increasing the production of society as a whole, andimproving everyone’s standard of living.4.Could the dollar still function as the unit of account in a totally cashless society?(LO2)Answer: Yes. Using dollars and cents to quote prices and record debts does notdepend on cash being used as a means of payment. Dollars and cents may still serveas the standard measurement of value even if they are not themselves exchanged.5.
Give four examples of ACH transactions you might make. You receive your paycheck as an electronic transfer from your employer’saccount into your account, which may be at a bank different from youremployer’s.b. You schedule your monthly electric bill payment to be made automatically.c. You make your payments on your credit card to your bank by scheduling thepayment each month for the outstanding balance.d. You make your monthly car payment by arranging for the amount to be deductedfrom your checking account on the fourth day of each month.6.
As of July 2016, 19 European Union countries have adopted the euro, while theremaining member countries have retained their own currencies. What are theadvantages of a common currency for someone who is traveling through Europe?(LO1)Answer: Each country has the same unit of account, making it easier for a traveler tocompare prices in different countries.
The traveler also saves the costs of exchangingcurrencies.7. Why might each of the following commodities not serve well as money? Tomatoes are perishable and thus would not serve as a store of value.b. Bricks are heavy and bulky and will break easily. In addition, even though bricksbreak easily, they are not easily divisible into usable units.c. Cattle are not standardized in terms of weight and other potentially importantcharacteristics.8.
Despite the efforts of the United States Treasury and the Secret Service, someonediscovers a cheap way to counterfeit $100 bills. What will be the impact of thisdiscovery on the economy? (LO3)Answer: People will be unwilling to accept $100 bills as payment and will requirepayment via check, credit card, debit card, or electronic transfer instead, all of whichare more costly.
Theoretically, inflation could result if the supply of money wasincreased by a large enough amount.9. You receive a check drawn on another bank and deposit it into your checkingaccount. Even though this is a ―demand deposit‖ the funds are not immediatelyavailable for your use. Would your answer change if the check is drawn on theaccount of another customer of your own bank? (LO2)Answer: Funds drawn on another bank are not immediately available (i.e., ―ondemand‖) until the funds are transferred through the check-clearing process. So, whenyou deposit a check drawn on another bank, you must wait until your bank obtains thefunds from the other bank. However, if the check is drawn on an account at your ownbank, then the funds are internally transferred from the check writer’s account intoyour account, so the funds may be available almost immediately.10.
Over a nine-year period in the 16thcentury, King Henry VIII reduced the silvercontent of the British pound to one-sixth its initial value. Why do you think he didso? What do you think happened to the use of pounds as a means of payment? If youheld both the old and new pounds, which would you use first, and why? (LO1)Answer: King Henry needed to silver to pay for wars. The use of pounds as a meansof payment declined because people could not be sure how much silver each coincontained.
People spent the new coins first since the old coins had a higher intrinsicvalue.11. Under what circumstances might you expect barter to reemerge in an economy thathas fiat money as a means of payment? (LO2)Answer: You might expect an economy to revert to barter when the public losesconfidence in the fiat money issued by the government, perhaps because of over-useof the printing presses.12. You visit a tropical island that has only four goods in its economy – oranges,pineapples, coconuts and bananas. There is no money in this economy.
Draw a grid showing all the prices for this economy. (You should check youranswer using the n(n - 1)/2 formula where n is the number of goods.)b. An islander suggests designating oranges as the means of payment and unit ofaccount for the economy. How many prices would there be if her suggestionwere followed?c. Do you think the change suggested in part b is worth implementing?
Why orwhy not?Answer:a. There would be six prices in total.Oranges Pineapples Coconuts Bananas.OrangesPineapples Pineapples/OrangesCoconuts Coconuts/Oranges Coconuts/PineapplesBananas Bananas/Oranges Bananas/Pineapples Bananas/Coconutsb.
There would be three prices—pineapples/oranges, coconuts/oranges andbanana/oranges.c. In the case of this four-good economy, there is only a small gain by usingoranges as a unit of account. The gains would be significantly bigger in aneconomy with more goods. If the islanders think the range of goods in theireconomy is likely to expand, then it is probably worth implementing the change.One of the drawbacks to consider would be the danger that more people wouldgrow oranges, due to their special status, thus pushing up the prices of the otherfruits in terms of oranges.13. Consider again the tropical island described in Problem 12.
Under whatcircumstances would you recommend the issue of a paper currency by thegovernment of the island? What advantages might this strategy have over the use oforanges as money? (LO1)Answer: The islanders must have enough confidence in their government to acceptnotes backed only by a government decree that have no intrinsic value themselves.The have to believe that these notes will be widely accepted by other islanders asfinal payment for goods and services and in settlement of debts. They must trust thatthe government will not print too much of the money and undermine its value.Some advantages of the paper money over commodity money in the form of orangesinclude: being easier to carry, longer lasting and more divisible. Most importantly, itwould be the government that would control the supply of money on the island asonly the government could print new notes, while any of the islanders might decide togrow more oranges.14.
What factors should you take into account when considering using the followingassets as stores of value? Real estatec. Government bondsAnswer:a. The potential for the price of gold to rise, the ability to buy and sell goldeasily and any costs associated with storage and security.b. The rate at which real estate is appreciating and is likely to appreciate in thefuture; how easy or difficult it is to sell real estate; the housing services youcould receive from holding the real estate.c.
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The potential appreciation in nominal value of the stock; the historicalvolatility of the stock price; the volume of the stock being traded on thesecondary market to gauge its liquidity.d. The rate of return on the bonds – including any potential capital gain as wellas interest payments.When assessing an asset as a store of value, the primary things to consider are the riskand return of the asset and its liquidity.15.Under what circumstances might money in the form of currency be the best optionas a store of value? (LO1)Answer: If there were deflation in the economy, then paper currency would increasein value. When deflation occurs, overall prices in the economy are falling and so thecurrency you hold has more purchasing power. During periods of falling prices ofgoods and services, prices of assets often fall too and so currency might be anattractive option as a store of value.16. Suppose a significant fall the price of certain stocks caused the market makers inthose stocks to experience difficulties with their funding liquidity. Under whatcircumstances might that development lead to liquidity problems in markets for otherassets?
(LO3)Answer: Faced with difficulties in borrowing money, the market makers in the stocksmay decide to hold more cash to ensure their ability to meet clients’ demands. This,in turn, reduces loans available for other market participants potentially causing themto alter their behavior and could lead to funding liquidity problems throughout thefinancial system. Moreover, to fund itself, the market maker might try to sell otherassets, depressing their prices and spreading the disruption.17.Consider an economy that only produces and consumes two goods - food andapparel. Suppose the inflation rate based on the consumer price index is higherduring the year than that based on the GDP deflator. Assuming underlying tastes andpreferences in the economy stay the same, what can you say about food and apparelprice movements during the year?
(LO3)Answer: Since the two price indices yield different inflation rates with preferencesremaining constant, the relative price of the two goods must have changed. In other.words, the price of one of the goods must have gone up by a greater percentage thanthe other. For example, suppose the price of food went up by 10% while the price ofapparel went up by 20%. This would induce consumers to substitute away fromapparel to food. As a fixed weight index, the CPI would not take this substitution intoaccount while the GDP deflator would, as it is calculated on the basis of what isactually purchased. Therefore, the CPI inflation rate would be higher than the ratecalculated from the GDP deflator.18. Assuming no interest is paid on checking accounts, what would you expect to seehappen to the relative growth rates of M1 and M2 if interest rates rose significantly?(LO3)Answer: When interest rates rise, you would expect that people would shift fundsfrom checking accounts into savings accounts, as the opportunity cost of holdingfunds in a non-interest bearing account has risen.
Checking accounts are acomponent of M1 while both checking and some savings accounts are included inM2. Therefore, any shift from checking to savings accounts would depress growth inM1 to a greater degree than growth in M2, leading to a relative increase in the M2growth rate.19.
If money growth is related to inflation, what would you expect to happen to theinflation rates of countries that join a monetary union and adopt a common currencysuch as the euro? (LO3)Answer: Once countries join a monetary union, they effectively share a commonmoney supply. Given the link between money growth and inflation, you wouldexpect the inflation rates of these countries to converge.20. Why might one doubt that current new forms of digital money, such as Bitcoin, willreplace more traditional fiat currencies? (LO2)Answer: These private digital currencies currently do not fulfill the three keyfunctions of money—means of payment, unit of account, and store of value21. Is the challenge of making ―time consistent‖ policy unique to fiat-based papermoney?
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(LO2)Answer: No. Even if the value of money is linked to a commodity such as gold, thegovernment could abolish this current commitment at a point in the future such as in atime of crisis. For example, the United States exited the Gold Standard in 1933,allowing the price of gold to vary in dollar terms for the first time in a century.Data Exploration1. Find the most recent level of M2 (FRED code: M2SL) and of the U.S. Population(FRED code: POP). Compute the quantity of money divided by the population. (Notethat M2 is measured in billions of dollars and population is in thousands ofindividuals.) Do you think your answer is large?
(LO1)Answer: In June 2016, the value of M2 was $12,811 billion. The total population was323.9 million, resulting in M2 per capita of $39,551. This seems like a lot, but M2includes money market mutual fund shares, money market deposit accounts, small-denomination time deposits, checking accounts, and traveler’s checks in addition tocurrency in the hands of the public.
It also includes holdings by businesses, inaddition to households.2. Reproduce Figure 2.3 from 1960 to the present, showing the percent change from ayear ago of M1 (FRED code: M1SL) and M2 (FRED code: M2SL). Comment on thepattern over the last five years. Would it matter which of the two monetaryaggregates you looked at?
(LO3)Answer: The data plot of Figure 2.3 is:.M1 is relatively volatile so it may be less reliable for indicating important underlyingtrends.3. Which usually grows faster: M1 or M2?
Produce a graph showing M2 (FRED code:M2SL) divided by M1 (FRED code: M1SL). When this ratio rises, M2 outpaces M1,and vice versa. What is the long-run pattern? Is the pattern stable? (LO3)Answer: The plot of the ratio M2/M1 appears below.
Over the long run, M2 hasusually grown faster than M1, but this pattern is not stable. In particular, M2 growthfell relative to M1 growth after the recession of the early 1990s and after the financialcrisis of 2007-09. Later in the book, we will see that both periods were characterizedby heightened caution on the part of banks.4. Traveler’s checks are a component of M1 and M2.
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Money Banking And Finance Pdf
Using FRED, produce a graph ofthis component of the monetary aggregates (FRED code: TVCKSSL). Explain thepattern you see.
(LO1)Answer: The indicated data plot is:.The use of traveler’s checks has declined since the mid-1990s. Traveler’s checkswere essentially prepaid checks drawn on the account of a widely-recognized issuer.As such, they were convenient for making payments when voyaging away from thegeographical area covered by your bank. Merchants in other areas who lackedfamiliarity with banks outside their own locations might be unwilling to accept yourpersonal check.
Money Banking And Financial Markets Cecchetti Solutions
The rise of nationwide banking and the proliferation of credit anddebit cards have reduced the demand for traveler’s checks.5. Plot the annual inflation rate based on the percent change from a year ago of theconsumer price index (FRED code: CPIAUCSL). Comment on the average andvariability of inflation in the 1960s, the 1970s, and the most recent decade.
(LO3)Answer: The indicated data plot is:.The variability of inflation in the 1960s was reasonably low in the first part of thedecade, then rising with the trend of inflation toward the end. In the 1970s, inflationwas highly variable and averaged well above the 1960s norm. Over the decade to2016, inflation was variable mostly during the financial crisis of 2007-2009.