The Money and Capital Markets Midterm-

The following topics will be covered on this examination:

1. Definitions of all rates/markets we are following in the market monitoring project.

2. Why are the money and capital markets important?

3. What factors characterize the instruments of the money and capital markets?

4. What are the two ways money can be exchanged in the economy?

5. What is the composition of the global money and capital markets? Be prepared to identify and define major market segments (ie. fixed income; equity and derivatives). What are the major differences between fixed income and equity?

6. Describe the instruments of the money markets, including treasury bills; commercial paper; federal funds; repurchase agreements; certificates of deposit; Eurodollar. Differentiate between interest bearing and discount instruments.

7. Be prepared to discuss the following from the report, Financial globalization: Retreat or reset?: What is financial depth? What does it tell us about a country's economy and financial system?What are the components of financial assets?; what are the recommendations for market participants to navigate the new financial landscape?

8. What are the functions of the Federal Reserve? How is the Federal Reserve organized; how does it operate and especially how do they control monetary policy? What is meant by the "dual mandate?" How do we follow the Fed in the money and capital markets?

9. Why is the New York Federal Reserve considered the most powerful of the district banks?

10. The important role of banks as financial intermediaries. What is financial intermediation? What are the benefits of this process? What is spread banking? Why is spread banking inherently risky for a depository institution? What are the two main types of liabilities of a bank?

11. What is securitization? Why is securitization an important theme in the money and capital markets?

12. Discuss the difference between "active" and "passive" portfolio management. What is the trend in the money and capital markets today?

13. How does the Fed administer discount window borrowings? How has this process changed? Why did the Fed make these changes?

14. What is the federal funds futures market? How well does the fed funds futures market predict future moves by the Fed? How can market participants utilize this market?

15. What are derivatives? Define the five different types of derivatives. What is a credit default swap? How did the credit default swap contribute to the recent financial crisis? What benefits do derivatives, like the credit default swap, provide the market? (Refer to article: Too Bad Not to Fail.)

16. What role did the credit rating agencies play in the financial crisis? Why are credit ratings so important to the proper functioning of the money and capital markets? (Refer to article: Too Bad Not to Fail.)

17. Discuss the "too big to fail" philosophy. How did "moral hazard" contribute to the financial crisis? (Refer to article: Too Bad Not to Fail.)

18. What is "stretch for yield"? Be prepared to cite examples of this phenomenon in today's money and capital markets and refer to its effects on the rates and relationships we are following.

19. What is a "flight to quality"? Be prepared to cite examples of this phenomenon in today's money and capital markets and refer to its effect on the rates and relationships we are following.

20. What is the yield curve? Why is it so important to the study of the money and capital markets?  What type of yield curve maximizes a bank's net interest margin?

21. What are the key trends in the money and capital markets over our base period (2/16-2/17)? Has the market followed these trends this semester? What trends are evident this semester?

22. What are credit differentials? Why are they important to the study of the money and capital markets? What has happened to credit differentials over the last year? This semester?

23. What is the term structure of interest rates? How do we study this? What has happened over the last year? This semester?

24. What are international interest rate differentials? How do we study this? What has happened over the last year? This semester?

25. What are the key fundamental factors affecting the money and capital markets today?

26. What are the important economic indicators that influence market behavior? Be prepared to cite specific economic indicators that have influenced the money and capital markets this semester. And why?

27. Describe the role of the Federal Reserve in the money and capital markets this semester. How did we follow the Fed this semester?

28. Supply and demand are important fundamental factors to monitor in the money and capital markets. What do we mean by supply and demand in the money and capital markets?

29. Why is the US Treasury so important to the study of the money and capital markets? When following the markets, what should we follow in terms of the US Treasury's activities? What is meant by the term "crowding out?"

30. How does the Treasury auction system work? Why did the Treasury change from a multiple price to a single price system? What is when-issued trading?

31. How do we categorize investors in the money and capital markets?Who are the major institutional investors in the money and capital markets?

32. We also study international factors in our market monitoring project. What has occurred this semester in the Eurozonethis semester?