Describe an appropriate investment


Question 1. A household with very bad credit wants a credit card. Describe two possible options that might be available to them.

Question 2.

a. If a corporation wants to lend to another corporation in the direct money market and wants to assume no default risk, describe an appropriate investment.

b. If a SSU wants to lend in the direct money market and wants to assume no default risk, describe an appropriate investment (other than the one you described in a).

Question 3. Describe two ways that the Federal Reserve influences financial markets.

Question 4. Describe how the goals of banking regulation differ in the U.S. compared to Jamaica.

Question 5.

a. If a household would like to buy a house during the time that the yield curve is inverted (downward sloping), what would you recommend to this DSU for financing their house?

b. If a commercial bank has a bundle of mortgages during the time that the yield curve is inverted (downward sloping), do you believe that the bank should quickly sell the bundle to FNMA or hold onto it anticipating an increase in its value? Why?

Question 6.

a. An investor is deciding whether to invest in a stock mutual fund or to select his own stock portfolio. Name two disadvantages of investing in the stock mutual fund instead of selecting his own stocks.

b. Regarding the investor in 6a, name two disadvantages of selecting his own stocks instead of investing in the mutual fund.

Question 7.

a. Describe two ways that defined benefit plans and defined contribution plans are similar.

b. Describe two ways that defined benefit plans and defined contribution plans are different.

Question 8.

a. A psychic tells a true believer that he will die in a freak accident within the next year. The believer is concerned about providing as much money as possible for his family and is on a very tight budget. What type of life insurance would you expect him to buy? Explain why.

b. An individual would like to add equipment to update his machine shop but he already has significant debt, and cannot afford a down payment to buy the equipment. Describe the most likely financial institution that could help him, and explain how.

Question 9.

a. Does the existence of FDIC encourage moral hazard on the part of a commercial bank? Explain.

b. Explain an argument that supports laissez-faire rather than economic regulation.

Question 10.

a. Why would a central bank want the reserve rate to be high?

b. Why would a central bank want the reserve rate to be low?

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Finance Basics: Describe an appropriate investment
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