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Chapter11.Givethedefinitionofthetermsbelow(a)financialintermediaryInstitutions(suchasbanks,insurancecompanies,mutualfunds,pensionfunds,andfinancecompanies)thatborrowfundsfrompeoplewhohavesavedandthenmakeloanstoothers.(b)federalreservesystemThecentralbankingauthorityresponsibleformonetarypolicyintheUnitedStates.(c)financialcrisisAmajordisruptioninfinancialmarkets,characterizedbyshapedeclinesinassetpricesandthefailuresofmanyfinancialandnonfinancialfirms.2.Canyouthinkofanyfinancialinnovationinthepast10yearsthathasaffectedyoupersonally?Inwhatway?Nowadays,Iammorelikelytointeractwithanautomatictellermachinewhenwithdrawingcashandelectronicpaymentsbecomemorepopularbecauseofthefinancialinnovation.Chapter21.Givethedefinitionofthetermsbelow(a)EurobondBondsdenominatedinacurrencyotherthanthatofthecountryinwhichtheyaresold.(b)risksharingTheprocessbywhichfinancialintermediariescreateandsellassetswithriskcharacteristicsthatpeoplearecomfortablewithandthenusethefundstheyacquirebysellingtheseassetstopurchaseotherassetsthatmayhavefarmorerisk.(c)moneymarketmutualfundsFundsthataccumulateinvestmentdollarsfromalargegroupofpeopleandtheninvestinshort-termsecuritiessuchasTreasurybillsandcommercialpaper.2.Whydoloansharksworrylessaboutmoralhazardinconnectionwiththeirborrowersthansomeotherlendersdo?Loansharkscanthreatentheirborrowerswithbodilyharmifborrowerstakeactionsthatmightjeopardizepayingofftheloan.Henceborrowersfromaloansharkarelesslikelytoengageinmoralhazard.Chapter111.Givethedefinitionofthetermsbelow(a)federalfundsrateTheinterestrateonovernightloansofdepositsattheFederalReserve.(b)LIBORTheinterestratechargedonshort-termfundsboughtorsoldbetweenlargeinternationalbanks.(c)callmoneyCallmoneyisminimum5%short-termfinancerepayableondemand,withamaturityperiodofonetofourteendaysorovernighttofortnight.Itisusedforinter-banktransactions.2.Theannualizedyieldis3%for91-daycommercialpaper,and3.5%for182-daycommercialpaper.Whatistheexpected91-daycommercialpaperrate91daysfromnow?(tip:forwardrate)LetAtheexpected91dayrate,91daysfromnow.Assumethatthe182dayrateistheaverageofthecurrent91dayrateandtheexpected91dayrate.(3+A)/2=3.53+A=7A=4Chapter121.Givethedefinitionofthetermsbelow(a)bondindentureDocumentaccompanyingabondthatspellsoutthedetailsofthebondissue,suchascovenantsandsinkingfundprovisions.Itstatestheleader’srightsandprivilegesandtheborrower’sobligations.(b)CDSAcreditdefaultswap(CDS)isafinancialswapagreementthattheselleroftheCDSwillcompensatethebuyer(usuallythecreditorofthereferenceloan)intheeventofaloandefault(bythedebtor)orothercreditevent.[(c)generalobligationbondBondsthataresecuredbythefullfaithandcreditoftheissuer,whichincludesthetaxingauthorityofmunicipalities.2.Whatkindsofrisksconfronttheinvestorswhoholdmunicipalbonds?Defaultratesarehigherduringperiodswhentheeconomyisweak.Unlikethefederalgovernment,localgovernmentscannotprintmoney,andtherearereallimitsonhowhightheycanraisetaxeswithoutdrivingthepopulationaway.Chapter13NASDAQ:Acomputerizednetworkthatlinksdealersaroundthecountrytogetherandprovidespricequotesonover-the-countersecurities.floortrader:Afloortraderisamemberofastockorcommoditiesexchangewhotradesonthefloorofthatexchangeforhisorherownaccount.After-hourstrading:After-hourstradingreferstothebuyingandsellingofsecuritiescompletedoutsideofregulartradinghours.2.SupposeMicrosoftistradingat$27.29pershare.Itpaysanannualdividendof$0.32pershare,andanalystshavesetaone-yeartargetpricearound$33.30pershare.Whatistheexpectedreturnofthisstock?Expectedreturn=(33.30+0.32-27.29)/27.29=23.2%Chapter14insuredmortgage:MortgageguaranteedbyeithertheFederalHousingAdministrationortheVeteransAdministration.Theseagenciesguaranteethatthebankmakingtheloanwillnotsufferanylossesiftheborrowerdefaults.CMO:Securitiesclassifiedbywhenprepaymentislikelytooccur.InvestorsmaybuyagroupofCMOsthatarelikelytomatureatatimethatmeetstheinvestors’needs.pass-through:pass-throughrelatestothetransactionprocessitself,whetheritinvolvesamortgageorotherloanproduct.2.Whatarediscountpoints,andwhydosomemortgageborrowerschoosetopaythem?Discountpointspaidwhenaloanisinitiatedresultinareducedinterestrate.Iftheborrowerplanstoholdontotheloanlongenoughforthevalueofthereducedinterestratetoexceedtheup-frontcostofthepoints,itisagoodideatoelecttopaythem.Chapter20fundfamily:fundfamilyincludesallthefundsmanagedbyoneinvestmentcompany.MMMF:MMMFreferstoaninnovativeinvestmentvehicleoriginatingintheUnitedStates.ThefundabsorbssmallinvestmentsandUSESthemtoinvestinmoneymarkets.12b-1fees:12b-1feesarefeespaidbyamutualfundoutoffundassetstocoverdistributionexpensesandsometimesshareholderserviceexpenses.2.Howdoesanindexfunddifferfromanactivelymanagedfund?Indexfunddonotrequiremanagerstochoosesecurities.Asaresult,thesefundstendtohavefarlowerfeesthanotheractivelymanagedfunds.Chapter21annuity：Ifwethinkoflifeinsuranceasinsuringagainstdeath,theannuitycanbeviewedasinsuringagainstlife.universallife:Universallifepoliciescombinethebenefitsofthetermpolicywiththoseofthewholelifepolicies.Themajorbenefitoftheuniversallifepolicyisthat