On Moral Hazard and Macroeconomics
|
|
- Agatha Jones
- 2 years ago
- Views:
Transcription
1 On Moral Hazard and Macroeconomics Roger B. Myerson Brigham Young University March 2012 "A model of moral-hazard credit cycles" Journal of Political Economy 120(5): (2012). "On Keynes and the theory of banking" (2010 blog) These notes: 1
2 Introduction Macroeconomists have learned much since But the financial crisis of 2008 and its aftermath have shown that economists still need to learn more. I will explain why I think we should look to game theory and information economics, particularly theory of moral-hazard agency problems, for much of the new understanding that is needed. A loss of confidence in banks precipitated the economic crisis of So why did American economic policy in 2009 focus on a stimulus to increase aggregate demand instead of financial regulatory reform? Before game theory, traditional economists found it difficult to bring financial regulatory rules into their analytical framework. This conceptual bias led early macroeconomists to focus more on pricetheoretic constructs like aggregate demand and interest rates. 2
3 A General Theory without bank failures or credit rationing Much of macroeconomic theory follows from or responds to Keynes's General Theory of Employment, Interest and Money (1936). But the General Theory discusses of saving and investment at length without seriously considering financial intermediation or bank failures. His General Theory even ignores his own observations on how monetary policy can affect aggregate investment without changing interest rates. "There is normally a fringe of unsatisfied borrowers to whom a bank would be quite ready to lend if it were to find itself in a position to lend more. The existence of this unsatisfied fringe allows the Banking System a means of influencing the rate of investment supplementary to the mere changes in the short-term rate of interest." Keynes, Treatise on Money, Why did he omit this vital observation from his "General Theory"? Such credit rationing may have seemed theoretically indefensible in
4 Credit rationing from moral hazard Credit rationing may have seemed theoretically indefensible in 1936, but 35 years later, Stiglitz and Weiss (1981) derived it from moral hazard and adverse selection in finance. When an entrepreneur borrows from a bank to finance a new venture, the probability of its success may depend on entrepreneurial efforts that a bank cannot directly monitor. To motivate such hidden efforts, the borrower must anticipate substantial profit from his venture's success (moral hazard rents). This need to let borrowers keep enough profit from their success can impose an upper bound on the interest rate that banks can charge. So interest rates might not rise even when qualified eager borrowers cannot find funds. 4
5 The vital role of information economics Problems of getting people to choose hidden actions appropriately are called moral hazard. Problems of getting people to share hidden information honestly are called adverse selection. Such problems of agents having different information are analyzed by modern information economics, which first developed in 1970s, building on advances in game theory. Banks and other financial intermediaries earn profits by having better information about investments than their depositors, so a theory of banking depends on information economics. 5 "Twenty years ago, there was no microeconomic theory of banking, for the simple reason that the general equilibrium model was unable to explain the role of banks. Since then, a new asymmetric-information paradigm has emerged that has been useful in explaining the role of banks and pointing out weaknesses of the banking sector." X. Freixas, J.-C. Rochet (1997)
6 Adverse selection can make expert investors issue debt Entrepreneurs and industrialists have expertise about the potential profitability of their firm and its investment opportunities. When an investment opportunity requires outside financing, they may choose between issuing debt or new equity shares. Selling new equity can dilute the value of their own shares. Given any market price at which they can sell new equity shares, they are more likely to do so when their private information suggests that this price may be too high. Thus, outside investors see a firm's decision to issue new equity as bad news about the value of the firm (winner's curse). This inference decreases the price that outside investors are willing to pay for equity shares. Thus, entrepreneurs often find it better to issue debt, the value of which is less uncertain to investors. (Myers Majluf, 1984). 6
7 Deflation can cripple the economy's key experts This result of Myers and Majluf explains why financial and industrial leaders who have the best information about investment opportunities may tend to finance their investments largely by monetary debt. When prices are lower than was expected, however, these debts become harder to repay from the profits of real economic investments. Deflation causes a general decrease in the real net worth of the individuals who know the most about investment opportunities in the economy. When such entrepreneurs are overburdened by debt, they are less able to make new productive investments, which can cause a recession. Then inflation could help reduce the real burden of entrepreneurs' debts. So the vital role of price-level changes in Fisher's (1933) debt-deflation theory of depressions can be derived from adverse selection in finance. Proposal: The central bank should aim to keep the general price level or nominal GDP on a predictable long-term path. (DiTella: Why don't firms borrow in stock-index units?) 7
8 Focusing on moral hazard in financial intermediation Moral hazard in financial intermediation has an essential fundamental role at the heart of any capitalist economy. Problems of moral hazard in banking were evident at many stages of the recent financial crisis. A successful economy requires industrial concentrations of capital that are vastly larger than any typical individual's wealth. The mass of small investors must rely on specialists to do the work of identifying good investment opportunities. Individuals who hold such financial power may be tempted to abuse it for their own personal profit. Bankers and other financial intermediaries borrow much of what they invest, but their incentives to invest well depend on their having a stake in the profits of their investments (bank capital). 8
9 Rules of bank regulation can create systemic risk Meyers-Majluf explains the adverse-selection reasons for debt, but moral hazard explains why those who control the firm must have some ownership stake in its profits. Regulatory capital requirements that are based on public information can help reduce the adverse-selection problem in selling new equity. Capital = Assets Liabilities = Owners' value. Under Basel rules, regulators let banks have less capital when they hold assets that are considered safe: Capital assets riskweights When some "safe" assets are not, first their high returns attract bank investment, and then the whole banking system is put at risk. Basel bank regulations emphasized scrutiny of foreign currency risks, but treated sovereign government debt in its own currency as safe. So the creation of the eurozone moved large international debts from a category that regulators scrutinized to a category that they ignored. 9
10 Banking rules make small-business credit particularly vulnerable Under Basel standards, bank capital requirements are reduced by holding highly rated marketable securities. But loans to small businesses and individuals are considered risky and entail maximal capital charges (unless "securitized"). So when capital is scarce, banks can avoid selling new equity by reducing loans to small business, instead buying marketable bonds from governments and large corporations. This amplified the effect of bank losses on credit to small-business. We should rethink the whole concept of basing capital requirements on the assessed riskiness of different assets. Systemic risk can be created by any regulatory attempts to identify "safe" assets that banks can buy with less capital. Proposal: Diversified loans to small business and individuals should not entail greater capital requirements than other investments. 10
11 No reason not to require more capital in banks Martin Hellwig and Anat Admati's new book Bankers' New Clothes argues that banks should be required to hold much more capital. 100 years ago, bank capital was regularly >20% of assets. Bankers argue that it is more costly to finance loans by capital (retaining profits or selling new bank stock) than by deposits. (Consider arguments of Modigliani-Miller, Myers-Majluf...) Raising capital reduces risk of bankruptcy costs for depositors and taxpayers, shifts risk to bank's owners, who may find it "expensive." This is no reason for taxpayers to vote for lower capital requirements! Proposal: Bank capital requirements should be a much larger fraction of total assets (>20%). Banks should not be allowed to distribute profits to shareholders until capital reaches these newly required levels 11
12 Can moral hazard in banking cause recessions? In "Moral-hazard credit cycles," I show how macroeconomic fluctuations can be driven by moral hazard in financial intermediation. I assume investors can find good investments only through bankers, who may be tempted to divert funds to their cronies' bad investments. Such behavior is efficiently deterred by promising big late-career rewards for bankers who consistently deliver successful investments. The promise of one big bonus at the end can motivate good behavior throughout an agent's career! This need to invest through intermediaries who have long-term career incentive plans can create complex macroeconomic dynamics. When there is a shortage of trusted financial intermediaries, aggregate investment is reduced, and employment may suffer; but then increased recruiting of young bankers can create a future surplus, as their responsibilities will grow until retirement under efficient incentive plans. The result: a cycle of booms and recessions. 12
13 Investment by young bankers Investments by 8 cohorts of middle-aged bankers 1.2 Investment by old bankers steady state Time period Investment amounts handled by different cohorts of bankers with 10-period careers, starting at time 1 with bankers investing only 80% of steady-state amounts. 13 (Parameters: n=10, ρ=0.1, M=0.33, A=0.36, b=0.327)
14 A final proposal for financial bankruptcy reform 14 In this model we find that, in a recession, a tax on workers to subsidize bankers may benefit workers by more than the tax. When banks fail, the economy suffers a loss of mid-career bankers. So there can be a real public benefit to preventing the failure of a major bank, which may be justification for a public bailout. But the possibility of a bailout can create new forms of moral hazard for banks, and can encourage creditors to lend carelessly. So we may need other alternatives between bailouts and bankruptcy (where creditors become the owners of the bank). Proposal: When a vital bank or financial institution is at risk of bankruptcy, the government should have power to convert some fraction of any of the bank's debts into equity, at an administratively determined price, provided that the government must also buy some proportionate amount of equity at the same price.
15 Conclusion: incorporating finance into macroeconomics Paul Krugman's view of what economists have to do: "First, they have to face up to the inconvenient reality that financial markets fall far short of perfection, that they are subject to extraordinary delusions and madness of crowds. Second, they have to admit that Keynesian economics remains the best framework we have for making sense of recessions and depressions. Third, they'll have to do their best to incorporate the realities of finance into macroeconomics." Paul Krugman, NYTimes, 6 Sept 2009 I agree strongly with Krugman's third point, that economists need to incorporate finance into macroeconomic theory. But we are unlikely to do this by using an old Keynesian theory that was developed when economists had no analytical models of banking or financial markets. 15
16 Conclusion: applying information economics in macro In Keynes' day, differences among traders' information were "market imperfections," but now economists regularly analyze problems of trust among people with different information. In particular, when information is costly, members of a crowd may rationally choose to rely on the expertise of others, whose temptation to mislead must be countered by greater long-run rewards from maintaining a good reputation. A collapse in the supply of such good reputations would indeed be a crisis. 16
17 References "A model of moral-hazard credit cycles" Journal of Political Economy 120(5): (2012). "On Keynes and the theory of banking" (2010 blog) These notes: 17
* Author's address: Economics dept, University of Chicago, 1126 East 59th Street, Chicago, IL 60637.
RETHINKING THE PRINCIPLES OF BANK REGULATION: A REVIEW OF ADMATI AND HELLWIG'S BANKERS' NEW CLOTHES by Roger B. Myerson *, December 2013 http://home.uchicago.edu/~rmyerson/research/newcloth.pdf Abstract.
Chapter 13 Money and Banking
Chapter 13 Money and Banking Multiple Choice Questions Choose the one alternative that best completes the statement or answers the question. 1. The most important function of money is (a) as a store of
Key learning points I
Key learning points I What do banks do? Banks provide three core banking services Deposit collection Payment arrangement Underwrite loans Banks may also offer financial services such as cash, asset, and
the actions of the party who is insured. These actions cannot be fully observed or verified by the insurance (hidden action).
Moral Hazard Definition: Moral hazard is a situation in which one agent decides on how much risk to take, while another agent bears (parts of) the negative consequences of risky choices. Typical case:
Chapter 1. Why Study Money, Banking, and Financial Markets?
Chapter 1 Why Study Money, Banking, and Financial Markets? Why Study Money, Banking, and Financial Markets To examine how financial markets such as bond, stock and foreign exchange markets work To examine
Debt Overhang and Capital Regulation
Debt Overhang and Capital Regulation Anat Admati INET in Berlin: Rethinking Economics and Politics The Challenge of Deleveraging and Overhangs of Debt II: The Politics and Economics of Restructuring April
Economic Factors Affecting Small Business Lending and Loan Guarantees
Order Code RL34400 Economic Factors Affecting Small Business Lending and Loan Guarantees February 28, 2008 N. Eric Weiss Analyst in Financial Economics Government & Finance Division Economic Factors Affecting
What three main functions do they have? Reducing transaction costs, reducing financial risk, providing liquidity
Unit 4 Test Review KEY Savings, Investment and the Financial System 1. What is a financial intermediary? Explain how each of the following fulfills that role: Financial Intermediary: Transforms funds into
What s on a bank s balance sheet?
The Capital Markets Initiative January 2014 TO: Interested Parties FROM: David Hollingsworth and Lauren Oppenheimer RE: Capital Requirements and Bank Balance Sheets: Reviewing the Basics What s on a bank
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
ECON 4110: Sample Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Economists define risk as A) the difference between the return on common
2.5 Monetary policy: Interest rates
2.5 Monetary policy: Interest rates Learning Outcomes Describe the role of central banks as regulators of commercial banks and bankers to governments. Explain that central banks are usually made responsible
Lecture 7: Savings, Investment and Government Debt
Lecture 7: Savings, Investment and Government Debt September 18, 2014 Prof. Wyatt Brooks Problem Set 1 returned Announcements Groups for in-class presentations will be announced today SAVING, INVESTMENT,
PBL: Macroeconomics. Competency: Aggregate Demand and Supply. Competency: Consumption and Saving
Competency: Aggregate Demand and Supply 1. Define aggregate demand and aggregate supply. 2. Describe the individual components of aggregate demand and aggregate supply. 3. Describe the problem that leakages
Homework 5: The Monetary System and Inflation
Homework 5: The Monetary System and Inflation Solutions 1. Be sure to read your copy of the Wall Street Journal every weekday, looking especially for items related to the material in this course. Find
International Monetary Policy
International Monetary Policy 2 Preliminary concepts 1 Michele Piffer London School of Economics 1 Course prepared for the Shanghai Normal University, College of Finance, April 2011 Michele Piffer (London
RISK ASSESSMENT FOR SMALL BUSINESS. Terry S. Campbell, Community Development Officer Department of Development & Technology
RISK ASSESSMENT FOR SMALL BUSINESS Terry S. Campbell, Community Development Officer Department of Development & Technology Date: March 25, 2004 1 Counseling Tool Outline - Cover Page - Outline - Introduction
Business Studies - Financial Planning and Management Study Notes. Financial Planning and Management Study Notes:
Business Studies - Financial Planning and Management Study Notes Financial Planning and Management Study Notes: The Role of Financial Planning: The strategic role of financial management: Organisational
Chapter 2. Practice Problems. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Chapter 2 Practice Problems MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Assume that you borrow $2000 at 10% annual interest to finance a new
PROPERTY/CASUALTY INSURANCE AND SYSTEMIC RISK
PROPERTY/CASUALTY INSURANCE AND SYSTEMIC RISK Steven N. Weisbart, Ph.D., CLU Chief Economist President April 2011 INTRODUCTION To prevent another financial meltdown like the one that affected the world
3/22/2010. Chapter 11. Eight Categories of Bank Regulation. Economic Analysis of. Regulation Lecture 1. Asymmetric Information and Bank Regulation
Chapter 11 Economic Analysis of Banking Regulation Lecture 1 Asymmetric Information and Bank Regulation Adverse Selection and Moral Hazard are the two concepts that underlie government regulation of the
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Suvey of Macroeconomics, MBA 641 Fall 2006, Final Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Modern macroeconomics emerged from
Bank lending in contemporary Thailand
Bank lending in contemporary Thailand by Pati Buddhavibul, Ph.D. Presentation outline 1.Motives for the study 2.Research question and objectives 3.Theoretical framework 4.Research design 5.Data interpretation
LIST OF MAJOR LEADING & LAGGING ECONOMIC INDICATORS
APRIL 2014 LIST OF MAJOR LEADING & LAGGING ECONOMIC INDICATORS Most economists talk about where the economy is headed it s what they do. Paying attention to economic indicators can give you an idea of
Macroeconomics Series 2: Money Demand, Money Supply and Quantity Theory of Money
Macroeconomics Series 2: Money Demand, Money Supply and Quantity Theory of Money by Dr. Charles Kwong School of Arts and Social Sciences The Open University of Hong Kong 1 Lecture Outline 2. Determination
QUIZ IV Version 1. March 24, 2004. 4:35 p.m. 5:40 p.m. BA 2-210
NAME: Student ID: College of Business Administration Department of Economics Principles of Macroeconomics O. Mikhail ECO 2013-0008 Spring 2004 QUIZ IV Version 1 This closed book QUIZ is worth 100 points.
I. Introduction. II. Financial Markets (Direct Finance) A. How the Financial Market Works. B. The Debt Market (Bond Market)
University of California, Merced EC 121-Money and Banking Chapter 2 Lecture otes Professor Jason Lee I. Introduction In economics, investment is defined as an increase in the capital stock. This is important
Part 10. Small Business Finance and IPOs
Part 10. Small Business Finance and IPOs In the last section, we looked at how large corporations raised money. In this section, we will examine some of the financing issues facing small and start-up businesses.
4 Macroeconomics LESSON 6
4 Macroeconomics LESSON 6 Interest Rates and Monetary Policy in the Short Run and the Long Run Introduction and Description This lesson explores the relationship between the nominal interest rate and the
Financial Intermediation and Credit Policy in Business Cycle Analysis. Mark Gertler and Nobuhiro Kiyotaki NYU and Princeton
Financial Intermediation and Credit Policy in Business Cycle Analysis Mark Gertler and Nobuhiro Kiyotaki NYU and Princeton Motivation Present a canonical framework to think about the current - nancial
Federal Reserve Monetary Policy
Federal Reserve Monetary Policy To prevent recession, earlier this decade the Federal Reserve s monetary policy pushed down the short-term interest rate to just 1%, the lowest level for many decades. Long-term
CFS. Syllabus. Certified Finance Specialist. International benchmark in Finance profession
CFS Certified Finance Specialist Syllabus International benchmark in Finance profession Certified Finance Specialist Summary: This award will provide candidates the opportunity to gain advanced level knowledge
Finance and Economics Course Descriptions
Finance and Economics Course Descriptions Finance Course Descriptions FIN 250 Financial Management This course addresses the theory and practice of financial management and the role of the Financial Manager.
9. Short-Term Liquidity Analysis. Operating Cash Conversion Cycle
9. Short-Term Liquidity Analysis. Operating Cash Conversion Cycle 9.1 Current Assets and 9.1.1 Cash A firm should maintain as little cash as possible, because cash is a nonproductive asset. It earns no
PRACTICE- Unit 6 AP Economics
PRACTICE- Unit 6 AP Economics Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The term liquid asset means: A. that the asset is used in a barter exchange.
FINANCIAL DOMINANCE MARKUS K. BRUNNERMEIER & YULIY SANNIKOV
Based on: The I Theory of Money - Redistributive Monetary Policy CFS Symposium: Banking, Liquidity, and Monetary Policy 26 September 2013, Frankfurt am Main 2013 FINANCIAL DOMINANCE MARKUS K. BRUNNERMEIER
Brief Report on Closing of Accounts (connection) for the Term Ended March 31, 2007
MARUHAN Co., Ltd. Brief Report on Closing of (connection) for the Term Ended March 31, 2007 (Amounts less than 1 million yen omitted) 1.Business Results for the term ended on March, 2007 (From April 1,
At the end of Chapter 10, you will be able to answer the following:
1 Objectives for Chapter 10 The Circular Flow Model At the end of Chapter 10, you will be able to answer the following: 1. Explain the basic circular flow model. 2. Define "consumption" and "saving" 3.
Lecture 16: Financial Crisis
Lecture 16: Financial Crisis What is a Financial Crisis? A financial crisis occurs when there is a particularly large disruption to information flows in financial markets, with the result that financial
A SCOTTISH CURRENCY? 5 Lessons from the Design Flaws of Pound Sterling
A SCOTTISH CURRENCY? 5 Lessons from the Design Flaws of Pound Sterling 2 A SCOTTISH CURRENCY? CONTENTS A Scottish Currency? 3 The design flaws of the pound: 4 1. The amount of money in the economy depends
Lecture 2: The nature of financial intermediation:
Lecture 2: The nature of financial intermediation: The issue of why financial intermediaries exist is a puzzle for the complete markets paradigm of Arrow and Debreu. As we describe in this lecture, the
CHAPTER 11. AN OVEVIEW OF THE BANK OF ENGLAND QUARTERLY MODEL OF THE (BEQM)
1 CHAPTER 11. AN OVEVIEW OF THE BANK OF ENGLAND QUARTERLY MODEL OF THE (BEQM) This model is the main tool in the suite of models employed by the staff and the Monetary Policy Committee (MPC) in the construction
GEORGIA PERFORMANCE STANDARDS Personal Finance Domain
GEORGIA PERFORMANCE STANDARDS Personal Finance Domain Page 1 of 8 GEORGIA PERFORMANCE STANDARDS Personal Finance Concepts SSEPF1 The student will apply rational decision making to personal spending and
ECONOMIC GROWTH* Chapter. Key Concepts
Chapter 5 MEASURING GDP AND ECONOMIC GROWTH* Key Concepts Gross Domestic Product Gross domestic product, GDP, is the market value of all the final goods and services produced within in a country in a given
Economic Systems. 1. MARKET ECONOMY in comparison to 2. PLANNED ECONOMY
Economic Systems The way a country s resources are owned and the way that country takes decisions as to what to produce, how much to produce and how to distribute what has been produced determine the type
BPE_MAC1 Macroeconomics 1 Spring Semester 2011
Masaryk University - Brno Department of Economics Faculty of Economics and Administration BPE_MAC1 Macroeconomics 1 Spring Semester 2011 Tutorial Session 4-18.03.2011, 11:05-11:50 a.m. Matching a. financial
Economics. Social Studies Curriculum Framework. Revised 2006 Amended June 2009
Economics Social Studies Curriculum Framework Revised 2006 Course Title: Economics Course/Unit Credit: 0.5 Course Number: 4743000 Teacher Licensure: Please refer to the Course Code Management System (https://adedata.arkansas.gov/ccms/)
Yes, you can. There are no assurances that a stock will increase in value. Several factors can affect the value of your stocks:
EBNY Financial, LLC Kevin Kautzmann, CFP Certified Financial Planner 80 Fifth Avenue #1403 New York, NY 212-269-2625 kevin@ebnyfinancial.com www.ebnyfinancial.com Investing in Stocks Page 1 of 5, see disclaimer
1 (a) Calculation of net present value (NPV) Year 1 2 3 4 5 6 $000 $000 $000 $000 $000 $000 Sales revenue 1,600 1,600 1,600 1,600 1,600
Answers Fundamentals Level Skills Module, Paper F9 Financial Management December 2011 Answers 1 (a) Calculation of net present value (NPV) Year 1 2 3 4 5 6 $000 $000 $000 $000 $000 $000 Sales revenue 1,600
Borrowing Money for Your Business
Borrowing Money for Your Business After you have developed a cash flow analysis and determined when your business will make profit, you may decide you need additional funding. Borrowing money is one of
Your Window on Investing
Your Window on Investing Diversification Your Best Defence If you pay attention to the financial media, investment is all about shares. But the bond market is just as important. If shares are the sword
Financial Management
Different forms business organization Financial Management Sole proprietorship Partnership Cooperative society Company Private limited Vs Public limited company Private co min- two and max fifty, Pub Ltd
4. The minimum amount of owners' equity in a bank mandated by regulators is called a requirement. A) reserve B) margin C) liquidity D) capital
Chapter 4 - Sample Questions 1. Quantitative easing is most closely akin to: A) discount lending. B) open-market operations. C) fractional-reserve banking. D) capital requirements. 2. Money market mutual
New Keynesian Theory. Graduate Macroeconomics I ECON 309 Cunningham
New Keynesian Theory Graduate Macroeconomics I ECON 309 Cunningham New Classical View of Keynesian Economics Failure on a grand scale. Made up of ad hoc assumptions, not built on a strong foundation of
1. State and explain two reasons why short-maturity loans are safer (meaning lower credit risk) to the lender than long-maturity loans (10 points).
Boston College, MF 820 Professor Strahan Midterm Exam, Fall 2010 1. State and explain two reasons why short-maturity loans are safer (meaning lower credit risk) to the lender than long-maturity loans (10
Sources of, and raising short-term finance
E. BUSINESS FINANCE 1. Sources of, and raising short-term finance 2. Sources of, and raising long-term finance 3. Internal sources of finance and dividend policy 4. Gearing and capital structure considerations
ECON 4110: Money, Banking and the Macroeconomy Midterm Exam 2
ECON 4110: Money, Banking and the Macroeconomy Midterm Exam 2 Name: SID: MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following
Exercise Sheet 1. Solution 1.1. One year chart
Exercise Sheet 1 Exercies 1.1 Use the monthly data on historical prices in Yahoo to plot the share price of LloydsTSB over the past year. If you had invested 10,000 in LloydsTSB in October 2007 what would
How to Assess Your Financial Planning and Loan Proposals By BizMove Management Training Institute
How to Assess Your Financial Planning and Loan Proposals By BizMove Management Training Institute Other free books by BizMove that may interest you: Free starting a business books Free management skills
http://angel.bfwpub.com/section/content/default.asp?wci=pgt...
Hmwk 14 1. Let's find out what counts as money. In this chapter, we used a typical definition of money: A widely accepted means of payment. Under this definition, which people are using money in the following
Stock Market Game Test
Stock Market Game Test A test of basic economic concepts and institutions related to saving, investing, risk, the stock market, and productivity 1. A personal investment such as purchasing stocks or corporate
Money and Capital in an OLG Model
Money and Capital in an OLG Model D. Andolfatto June 2011 Environment Time is discrete and the horizon is infinite ( =1 2 ) At the beginning of time, there is an initial old population that lives (participates)
Commentary: What Do Budget Deficits Do?
Commentary: What Do Budget Deficits Do? Allan H. Meltzer The title of Ball and Mankiw s paper asks: What Do Budget Deficits Do? One answer to that question is a restatement on the pure theory of debt-financed
Uncertainty and Insurance
Uncertainty and Insurance A risk averse consumer is willing to pay for insurance. If consumption levels are 100, 200 and 400, with probabilities 1/6, 1/2, 1/3, respectively, then expected value of cons.
4 What Are the Exit Options for
CHAPTER 4 What Are the Exit Options for your Business? Choosing the optimum exit option for your business is a vital part of exit strategy planning. In this chapter we: examine briefly the various exit
CHAPTER 20 LONG TERM FINANCE: SHARES, DEBENTURES AND TERM LOANS
CHAPTER 20 LONG TERM FINANCE: SHARES, DEBENTURES AND TERM LOANS Q.1 What is an ordinary share? How does it differ from a preference share and debenture? Explain its most important features. A.1 Ordinary
Selecting sources of finance for business
Selecting sources of finance for business by Steve Jay 08 Sep 2003 This article considers the practical issues facing a business when selecting appropriate sources of finance. It does not consider the
Dealing With Your Banker &
Dealing With Your Banker & Other Lenders Your financing The success or failure of your business will depend on whether or not you have enough capital to: buy the equipment and inventory you need; pay overhead
Importance of Credit Rating
Importance of Credit Rating A credit rating estimates ability to repay debt. A credit rating is a formal assessment of a corporation, autonomous governments, individuals, conglomerates or even a country.
account statement a record of transactions in an account at a financial institution, usually provided each month
GLOSSARY GLOSSARY Following are definitions for key words as they are used in the financial life skills resource. They may have different or additional meanings in other contexts. A account an arrangement
Note: Each multiple choice question is worth four (4) points. Problems 18-20 carry twelve (12) points each.
Money, Banking, and Financial Markets (Econ 353) Midterm Examination I February 7, 2002 Name SSN Note: Each multiple choice question is worth four (4) points. Problems 18-20 carry twelve (12) points each.
Saving and Investing. Chapter 11 Section Main Menu
Saving and Investing How does investing contribute to the free enterprise system? How does the financial system bring together savers and borrowers? How do financial intermediaries link savers and borrowers?
Financial Ratios and Quality Indicators
Financial Ratios and Quality Indicators From U.S. Small Business Administration Online Women's Business Center If you monitor the ratios on a regular basis you'll gain insight into how effectively you
performance of a company?
How to deal with questions on assessing the performance of a company? (Relevant to ATE Paper 7 Advanced Accounting) Dr. M H Ho This article provides guidance for candidates in dealing with examination
Chapter 11 Money and Monetary Policy Macroeconomics In Context (Goodwin, et al.)
Chapter 11 Money and Monetary Policy Macroeconomics In Context (Goodwin, et al.) Chapter Overview In this chapter, you will be introduced to a standard treatment of the banking system and monetary policy.
VISUAL 1 TERMS OF MODERN FINANCIAL MARKETS
VISUAL 1 TERMS OF MODERN FINANCIAL MARKETS Instruments Asset-backed security Credit default swap Bond Common stock Mortgage-backed security Mutual fund Option Futures contract Subprime mortgage Institutions
1 (a) Net present value of investment in new machinery Year 1 2 3 4 5 $000 $000 $000 $000 $000 Sales income 6,084 6,327 6,580 6,844
Answers Fundamentals Level Skills Module, Paper F9 Financial Management June 2013 Answers 1 (a) Net present value of investment in new machinery Year 1 2 3 4 5 $000 $000 $000 $000 $000 Sales income 6,084
With lectures 1-8 behind us, we now have the tools to support the discussion and implementation of economic policy.
The Digital Economist Lecture 9 -- Economic Policy With lectures 1-8 behind us, we now have the tools to support the discussion and implementation of economic policy. There is still great debate about
Reading the balance of payments accounts
Reading the balance of payments accounts The balance of payments refers to both: All the various payments between a country and the rest of the world The particular system of accounting we use to keep
Chapter 18. MODERN PRINCIPLES OF ECONOMICS Third Edition
Chapter 18 MODERN PRINCIPLES OF ECONOMICS Third Edition Fiscal Policy Outline Fiscal Policy: The Best Case The Limits to Fiscal Policy When Fiscal Policy Might Make Matters Worse So When Is Fiscal Policy
The default rate leapt up because:
The financial crisis What led up to the crisis? Short-term interest rates were very low, starting as a policy by the federal reserve, and stayed low in 2000-2005 partly due to policy, partly to expanding
The Simple Analytics of Systemic Liquidity Risk Regulation
DSF Policy Paper Series The Simple Analytics of Systemic Liquidity Risk Regulation Enrico Perotti and Javier Suarez March 2011 DSF Policy Paper, No. 10 The Simple Analytics of Systemic Liquidity Risk Regulation
CHAPTER 17. Financial Management
CHAPTER 17 Financial Management Chapter Summary: Key Concepts The Role of the Financial Manager Financial managers Risk-return trade-off Executives who develop and implement their firm s financial plan
7. Which of the following is not an important stock exchange in the United States? a. New York Stock Exchange
Econ 20B- Additional Problem Set 4 I. MULTIPLE CHOICES. Choose the one alternative that best completes the statement to answer the question. 1. Institutions in the economy that help to match one person's
Econ 330 Exam 1 Name ID Section Number
Econ 330 Exam 1 Name ID Section Number MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) If during the past decade the average rate of monetary growth
A Beginner s Guide to the Stock Market
A beginner s guide to the stock market 1 A Beginner s Guide to the Stock Market An organized market in which stocks or bonds are bought and sold is called a securities market. Securities markets that deal
Causes and Consequences of Growing Inequality and what can be done about it. Joseph E. Stiglitz Brussels March 2014
Causes and Consequences of Growing Inequality and what can be done about it Joseph E. Stiglitz Brussels March 2014 Inequality has been growing within most countries around the world But the level of inequality
MEASURING GDP AND ECONOMIC GROWTH CHAPTER
MEASURING GDP AND ECONOMIC GROWTH CHAPTER Objectives After studying this chapter, you will able to Define GDP and use the circular flow model to explain why GDP equals aggregate expenditure and aggregate
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
ECON 3303 Money and Banking Exam 1 Spring 2013 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A corporation acquires new funds only when
Europe s Financial Crisis: The Euro s Flawed Design and the Consequences of Lack of a Government Banker
Europe s Financial Crisis: The Euro s Flawed Design and the Consequences of Lack of a Government Banker Abstract This paper argues the euro zone requires a government banker that manages the bond market
Will the U.S. Economy Catch the Japanese Disease?
Will the U.S. Economy Catch the Japanese Disease? Alan C. Stockman University of Rochester and NBER alan@stockman.net Prepared for the November 2002 meeting of the Shadow Open Market Committee 1. Japanese
Chapter 12. Aggregate Expenditure and Output in the Short Run
Chapter 12. Aggregate Expenditure and Output in the Short Run Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics Aggregate Expenditure (AE)
INSTITUTIONAL INVESTORS, THE EQUITY MARKET AND FORCED INDEBTEDNESS
INSTITUTIONAL INVESTORS, THE EQUITY MARKET AND FORCED INDEBTEDNESS Jan Toporowski Economics Department The School of Oriental and African Studies University of London Published in in S. Dullien, E. Hein,
Activity Sheet 1: What is a Stock?
Activity Sheet 1: What is a Stock? Stocks represent a share of ownership in a publicly held company. Private companies do not issue stock. As a stockholder, the investor has a claim on the assets of the
Chapter 14: Savings and Investing Savings and Investing
Savings and Investing Consumers can use any money left over from purchasing goods and services toward savings or investing. Saving means putting money aside for future use. Investing is using savings to
11/6/2013. Chapter 16: Government Debt. The U.S. experience in recent years. The troubling long-term fiscal outlook
Chapter 1: Government Debt Indebtedness of the world s governments Country Gov Debt (% of GDP) Country Gov Debt (% of GDP) Japan 17 U.K. 9 Italy 11 Netherlands Greece 11 Norway Belgium 9 Sweden U.S.A.
authority increases money supply to stimulate the economy, people hoard money.
World Economy Liquidity Trap 1 Liquidity Trap Liquidity trap refers to a state in which the nominal interest rate is close or equal to zero and the monetary authority is unable to stimulate the economy
Account a service provided by a bank allowing a customer s money to be handled and tracks money coming in and going out of the account.
Account a service provided by a bank allowing a customer s money to be handled and tracks money coming in and going out of the account. Account fee the amount charged by a financial institution for the
EC 341 Monetary and Banking Institutions, Boston University Summer 2, 2012 Homework 3 Due date: Tuesday, July 31, 6:00 PM.
EC 341 Monetary and Banking Institutions, Boston University Summer 2, 2012 Homework 3 Due date: Tuesday, July 31, 6:00 PM. Problem 1 Questions 1, 4, 6, 8, 12, 13, 16, 18, 22, and 23 from Chapter 8. Solutions:
Supplemental Unit 5: Fiscal Policy and Budget Deficits
1 Supplemental Unit 5: Fiscal Policy and Budget Deficits Fiscal and monetary policies are the two major tools available to policy makers to alter total demand, output, and employment. This feature will
Practice Problems Mods 25, 28, 29
Practice Problems Mods 25, 28, 29 Multiple Choice Identify the choice that best completes the statement or answers the question. Scenario 25-1 First National Bank First National Bank has $80 million in