The degree of electronic trading increases and trading may become exclusively electronic or remain a mix off loor trading and electronic, often called a hybrid. The owners are shareholders and they do not derive their income from trading on the floor.

Ignoring commissions and transfer fees, Table 1 shows that the price would increase from $870.41 to $900.64. What about liquidity? Suppose immediately after the purchase of this bond, factors in the market for this bond cause its liquidity to decline.

The yield on commercial paper is higher by a few basis points than the yield on certificates of deposit for the same maturity. The higher yield available on commercial paper is attributable to the poorer liquidity relative to certificates of deposit.

A bank issues an obligation to depositors in which it agrees to pay 8% guaranteed for one year. With the funds it obtains, the bank can invest in a wide range of financial assets. What is the risk if the bank uses the funds to invest in common stock?

1. Mr. Buffet went on to warn that too high an assumed return on pension assets risks litigation for a company’s chief financial officer, its board, and its auditors. Why? 2. Does the legislation require every corporation to establish a pension fund?

Bidders higher in yield than the stop yield are not distributed any of the new issue. Such bidders are said to have “missed” or were “shut out.” At what yield is a winning bidder awarded the security? All U.S. Treasury auctions are single-price auctions.

1. a. What is the primary asset in which savings and loan associations invest? b. Why were banks in a better position than savings and loan associations to weather rising interest rates? 2. What federal agency regulates the activities of credit unions?

If the credit spread increases—investors say that the spread has “widened”—the market price of the debt obligation will decline. The risk that an issuer’s debt obligation will decline due to an increase in the credit spread is called credit spread risk.

Suppose there is a financial Asset ABC, which is the underlying asset for a futures contract with settlement six months from now. You know the following about this financial asset and the futures contract: 1. In the cash market, ABC is selling for $80.

The size of an ETF portfolio is most likely related to its liquidity; bigger ETFs are more liquid. The change in the size of the portfolio as measured by the number of ETF units outstanding demonstrates that ETFs are an “open-end” investment structure.

The rate determined in the federal funds market is the major factor that influences the rates paid on all the other money market instruments described in this chapter. Depository institutions (commercial banks and thrifts) are required to maintain reserves.

1. In general, duration is the approximate percentage price sensitivity of a financial asset to a 100 basis point change in interest rates around some initial level of required yield. 2. Your broker is recommending that you purchase U.S. government bonds.

1. Explain the ways in which a depository institution can accommodate withdrawal and loan demand. 2. How did the Glass-Steagall Act impact the operations of a bank? 3. How did the Gramm-Leach-Bliley Act of 1999 expand the activities permitted by banks?

For example, suppose that a corporation needs long-term funds to build a plant or acquire equipment. Rather than raising long-term funds immediately, the corporation may elect to postpone the offering until more favorable capital market conditions prevail.

A market is operationally efficient if it offers investors reasonably priced services related to buying and selling. A market is price efficient if at all times prices fully reflect all available information that is relevant to the valuation of securities.

Such tenders are based only on quantity, not yield. The auction results are determined by first deducting the total noncompetitive tenders and nonpublic purchases (such as purchases by the Federal Reserve itself) from the total securities being auctioned.

The CTC is initially calculated based on projections of utility usage and the ability to collect revenues. However, actual collection experience may differ from initial projections. Because of this, there is a “true-up” mechanism in these securitizations.

The premium Acme Insurance Company agrees to pay Goldman Sachs each year is $300,000. a. Suppose at the time that it is necessary to determine if a payment must be made by Goldman Sachs, LIBOR is 9%. How much must Goldman Sachs pay Acme Insurance Company?

1. The potential advantages of using derivative instruments rather than cash market instruments. 2. The three major factors that have integrated financial markets through out the world. 3. What is meant by the institutionalization of financial markets.

1. What is the payoff from this option if at the expiration date the price of Asset G is $90 and the price of Asset H is $125? 2. What is the pay of from this option if at the expiration date the price of Asset G is $90 and the price of Asset H is $105?