Finance Homework

Assignment Chapter 02

PLEASE give me the typed answers to the questions at the end of chapter in your book under the following headings: (Due date: February 02, 2018)  

Critical thinking

Point/counter point

Interpreting financial News

Managing in Financial Markets

PLEASE DO NOT GIVE ME THE TYPED ANSWERS TO THE QUESTIONS BELOW!

Advanced Questions

11, 12, 13, 15, 17,19,20,22 and 23 (No written submission but you should be ready to answer the question if your name is called upon in the class when we discuss these questions in the class.)

Questions

11. mpact of Stock Market Crises. During periods when investors suddenly become fearful that stocks are overvalued, they dump their stocks, and the stock market experiences a major decline. During these periods, interest rates also tend to decline. Use the loanable funds framework discussed in this chapter to explain how the massive selling of stocks leads to lower interest rates.
12. Impact of Expected Inflation. How might expectations of higher global oil prices affect the demand for loanable funds, the supply of loanable funds, and interest rates in the United States? Will this affect the interest rates of other countries in the same way? Explain.
13. Global Interaction of Interest Rates. Why might you expect interest rate movements of various industrialized countries to be more highly correlated in recent years than in earlier years?
14. Impact of September 11. Offer an argument for why the terrorist attack on the United States on September 11, 2001 could have placed downward pressure on U.S. interest rates. Offer an argument for why that attack could have placed upward pressure on U.S. interest rates.
15. Decomposing Interest Rate Movements. The interest rate on a one-year loan can be decomposed into a one-year risk-free (free from default risk) component and a risk premium that reflects the potential for default on the loan in that year. A change in economic conditions can affect the risk-free rate and the risk premium. The risk-free rate is normally affected by changing economic conditions to a greater degree than the risk premium. Explain how a weaker economy will likely affect the risk-free component, the risk premium, and the overall cost of a one-year loan obtained by (a) the Treasury, and (b) a corporation. Will the change in the cost of borrowing be more pronounced for the Treasury or for the corporation? Why?
16. Impact of Economic Crises on Interest Rates. When economic crises in countries are due to a weak economy, local interest rates tend to be very low. However, if the crisis was caused by an unusually high rate of inflation, interest rates tend to be very high. Explain why.
17. U.S. Interest Rates During the Credit Crisis. During the credit crisis, U.S. interest rates were extremely low, which enabled businesses to borrow at a low cost. Holding other factors constant, this should result in a higher number of feasible projects, which should encourage businesses to borrow more money and expand. Yet, many businesses that had access to loanable funds were unwilling to borrow during the credit crisis. What other factor changed during this period that more than offset the potentially favorable effect of the low interest rates on project feasibility, therefore discouraging businesses from expanding?
18. Impact of Stock Market Uncertainty. Consider a period in which stock prices are very high, such that investors begin to think that stocks are overvalued and their valuations are very uncertain. If investors decide to move their money into much safer investments, how do you think this would affect general interest rate levels? In your answer, use the loanable funds framework by explaining how the supply or demand for loanable funds would be affected by the investor actions, and how this force would affect interest rates.
19. Impact of the European Economy.  Use the loanable funds framework to explain how European economic conditions might affect U.S. interest rates.