Podcast
Questions and Answers
What advancements have enabled the enhanced ability of banks to create money in modern economies?
What advancements have enabled the enhanced ability of banks to create money in modern economies?
Advances in central banking, deregulation, financial innovation, globalization, technological advancements, and economic growth.
What is primarily responsible for the creation of most money?
What is primarily responsible for the creation of most money?
Commercial banks lending activities.
What entities affect how much money banks can create?
What entities affect how much money banks can create?
Along with central banks and regulators, many other factors act as masterminds.
What has the central bank implemented to maintain financial stability and prevent inflation?
What has the central bank implemented to maintain financial stability and prevent inflation?
What markets have taken a larger share of IPOs compared to the NYSE in recent years?
What markets have taken a larger share of IPOs compared to the NYSE in recent years?
What are some reasons why corporations issue their securities in financial markets in Asia and Europe?
What are some reasons why corporations issue their securities in financial markets in Asia and Europe?
What is a foreign bond?
What is a foreign bond?
What is a Eurobond?
What is a Eurobond?
What is eurocurrency?
What is eurocurrency?
How is the rate of return of a bond defined?
How is the rate of return of a bond defined?
What is being measured by the security's return, or in more precise terminology, the rate of return?
What is being measured by the security's return, or in more precise terminology, the rate of return?
What is 'interest rate risk'?
What is 'interest rate risk'?
When do bonds with maturity as short as the holding period, would have now interest rate risk?
When do bonds with maturity as short as the holding period, would have now interest rate risk?
When would the investor be exposed to reinvestment risk?
When would the investor be exposed to reinvestment risk?
What is the process of how banks make profits by selling liabilities with 1 set of characteristics, and using the proceeds to buy assets with a different set of characteristics, this process is known as?
What is the process of how banks make profits by selling liabilities with 1 set of characteristics, and using the proceeds to buy assets with a different set of characteristics, this process is known as?
How do banks make long-term loans by managing assets and liabilities?
How do banks make long-term loans by managing assets and liabilities?
What helps to classify items when analysing the T account account whether they are under assets or liabilities?
What helps to classify items when analysing the T account account whether they are under assets or liabilities?
What do banks use to transfer money from one another quickly and efficiently?
What do banks use to transfer money from one another quickly and efficiently?
What restricted the ability of these financial institutions to open branches, each state had its own regulations on the number and type of branches which could be open?
What restricted the ability of these financial institutions to open branches, each state had its own regulations on the number and type of branches which could be open?
What is a bank holding company, and why is it advantageous?
What is a bank holding company, and why is it advantageous?
What is a key realization behind the ATM financial innovation?
What is a key realization behind the ATM financial innovation?
What are the trade-offs in issuing bonds versus creating money?
What are the trade-offs in issuing bonds versus creating money?
What is actually the net result on bonds?
What is actually the net result on bonds?
What is the main goal of printing money?
What is the main goal of printing money?
When does the bank begin to initiate money creation?
When does the bank begin to initiate money creation?
The government seeks what help to issue bonds, and what capacity do those have?
The government seeks what help to issue bonds, and what capacity do those have?
What agreement is it between 2 parties to exchange 1 stream of interest payments for another, over a set period of time?
What agreement is it between 2 parties to exchange 1 stream of interest payments for another, over a set period of time?
What actions define a 'vanilla swap'?
What actions define a 'vanilla swap'?
If one company is demanding a higher fixed IR from the other company, what could this be indicative of?
If one company is demanding a higher fixed IR from the other company, what could this be indicative of?
Name three factors that make market-related trading and analytical activities easier for treasuries?
Name three factors that make market-related trading and analytical activities easier for treasuries?
What common metric is used as liquidity indicator, and what is it?
What common metric is used as liquidity indicator, and what is it?
What is designed to provide liquidity for professional traders for managing their portfolio risk in equities and commodities?
What is designed to provide liquidity for professional traders for managing their portfolio risk in equities and commodities?
Describe the impact a surprising burst of inflation has on borrowers and lenders.
Describe the impact a surprising burst of inflation has on borrowers and lenders.
Unexpected inflation will raise what cost?
Unexpected inflation will raise what cost?
Inflation is most likely to erode which types of profits?
Inflation is most likely to erode which types of profits?
What are the two distinct effects of a sudden burst of inflation according to the text?
What are the two distinct effects of a sudden burst of inflation according to the text?
In which entities is it most simple for banks to quickly have means of interbank loan settlement?
In which entities is it most simple for banks to quickly have means of interbank loan settlement?
If a foreign bank does not have an account at the Fed, how does it handle transfers?
If a foreign bank does not have an account at the Fed, how does it handle transfers?
What was the 90s-era trend among EME's, and what was expected from them?
What was the 90s-era trend among EME's, and what was expected from them?
The 2 stage pattern in a typical financial crises is what?
The 2 stage pattern in a typical financial crises is what?
What is the result often found of a lack of regulation and supervision?
What is the result often found of a lack of regulation and supervision?
What is the second stage in a full-blown crisis?
What is the second stage in a full-blown crisis?
Emergin markets often see many debt contracts in what currenices, which could lead to what?
Emergin markets often see many debt contracts in what currenices, which could lead to what?
Following financial turmoil after loans are unpaid and money supply goes bust, what action results within debtor nations?
Following financial turmoil after loans are unpaid and money supply goes bust, what action results within debtor nations?
How have advances in central banking contributed to the increased capacity of banks to create money?
How have advances in central banking contributed to the increased capacity of banks to create money?
Explain how commercial banks contribute to economic growth and improved living standards.
Explain how commercial banks contribute to economic growth and improved living standards.
What factors are believed to weaken the dominance of US financial markets relative to those in Asia and Europe?
What factors are believed to weaken the dominance of US financial markets relative to those in Asia and Europe?
Define foreign bonds.
Define foreign bonds.
Contrast Eurobonds with Eurocurrencies, particularly regarding currency denomination.
Contrast Eurobonds with Eurocurrencies, particularly regarding currency denomination.
What formula is used to compute the rate of return for a bond?
What formula is used to compute the rate of return for a bond?
How does the number of payments from a bond affect how the Yield to Maturity changes during a single change in interest rates?
How does the number of payments from a bond affect how the Yield to Maturity changes during a single change in interest rates?
How is interest rate risk affected by bonds with holding periods that are shorter than their term to maturity?
How is interest rate risk affected by bonds with holding periods that are shorter than their term to maturity?
Explain reinvestment risk in the context of holding periods and bond maturities.
Explain reinvestment risk in the context of holding periods and bond maturities.
What is asset transformation and how do banks profit from it?
What is asset transformation and how do banks profit from it?
How do banks manage funds transfers between separate states using their Fed Accounts?
How do banks manage funds transfers between separate states using their Fed Accounts?
Define 'McFadden Act of 1927' and describe its relationship with the 'Douglas Amendment of 1956'.
Define 'McFadden Act of 1927' and describe its relationship with the 'Douglas Amendment of 1956'.
What financial innovations did banks use to circumvent restrictive branching regulations?
What financial innovations did banks use to circumvent restrictive branching regulations?
Explain the difference between 'Issuance of government bonds' and 'Creation of Money'.
Explain the difference between 'Issuance of government bonds' and 'Creation of Money'.
Explain the purpose of creating/printing money when it has been done by the Fed.
Explain the purpose of creating/printing money when it has been done by the Fed.
How does the creation/printing of money indirectly result in inflation?
How does the creation/printing of money indirectly result in inflation?
What is an interest rate swap and what is its initial purpose?
What is an interest rate swap and what is its initial purpose?
Explain the significance of the 'LIBOR forward curve' in the context of interest rate swaps.
Explain the significance of the 'LIBOR forward curve' in the context of interest rate swaps.
Why would one be willing to accept an equal exchange on an interest rate swap even if other rates seem more lucrative?
Why would one be willing to accept an equal exchange on an interest rate swap even if other rates seem more lucrative?
What four factors affect trading costs in an illiquid market?
What four factors affect trading costs in an illiquid market?
What are the pros and cons of using the 'trading volume' as a measure of liquidity?
What are the pros and cons of using the 'trading volume' as a measure of liquidity?
How can trade sizes and quote sizes be used to measure market depth?
How can trade sizes and quote sizes be used to measure market depth?
Define 'Price Impact Coefficient'
Define 'Price Impact Coefficient'
What is the effect of increased inflation on borrowers with nominal debts?
What is the effect of increased inflation on borrowers with nominal debts?
How does the Federal Reserve's credibility affect the cost of future borrowing?
How does the Federal Reserve's credibility affect the cost of future borrowing?
What happens if a foreign bank doesn't have a Fed account when their client transfers money to someone who banks at a US commercial bank?
What happens if a foreign bank doesn't have a Fed account when their client transfers money to someone who banks at a US commercial bank?
Why can't a foreign bank create a direct transferal of funds to Peg's bank?
Why can't a foreign bank create a direct transferal of funds to Peg's bank?
What are the 2 major types of liabilities on the Fed's balance sheet?
What are the 2 major types of liabilities on the Fed's balance sheet?
What is the 'Monetary base'?
What is the 'Monetary base'?
Is the Fed only creates an IOU but the person never gets their hands on it, does the IOU still exist?
Is the Fed only creates an IOU but the person never gets their hands on it, does the IOU still exist?
What is the primary way the Fed provides reserves to the banking system and how does this increase the money supply?
What is the primary way the Fed provides reserves to the banking system and how does this increase the money supply?
Describe the process by which the Treasury and Fed interact to influence the money supply.
Describe the process by which the Treasury and Fed interact to influence the money supply.
Do Fed Open Market Operations affect the monetary base?
Do Fed Open Market Operations affect the monetary base?
What are the 2 primary methods used to determine the monetary base?
What are the 2 primary methods used to determine the monetary base?
How do open market purchases increase the money supply?
How do open market purchases increase the money supply?
What are the three players involved in the money multiplier?
What are the three players involved in the money multiplier?
How has the Global Financial Crisis and Coronavirus crisis affected lending programs, and what would determine if the Fed could still control inflation?
How has the Global Financial Crisis and Coronavirus crisis affected lending programs, and what would determine if the Fed could still control inflation?
What were the main issues which results in the financial crisis in the first place?
What were the main issues which results in the financial crisis in the first place?
Describe the economic context in emerging markets that can lead to financial crises, including the concepts of 'financial liberalisation' and 'financial globalisation'.
Describe the economic context in emerging markets that can lead to financial crises, including the concepts of 'financial liberalisation' and 'financial globalisation'.
Summarize what happens under mismanagement concerning borrowing from abroad.
Summarize what happens under mismanagement concerning borrowing from abroad.
Why do countries of East Asia ran budget surpluses before their crises struck?
Why do countries of East Asia ran budget surpluses before their crises struck?
How are political leaders and supervisors complicit in lending arrangements?
How are political leaders and supervisors complicit in lending arrangements?
Explain the dynamics in financial markets after investors are losing confidence.
Explain the dynamics in financial markets after investors are losing confidence.
Explain what often leads to a 'Currency Mismatch' and how it can be devastating.
Explain what often leads to a 'Currency Mismatch' and how it can be devastating.
Why can't the country's central bank, in emerging and struggling countries, fight the current inflation?
Why can't the country's central bank, in emerging and struggling countries, fight the current inflation?
Outline the main steps that lead to a full-blown Currency crisis in a developing country.
Outline the main steps that lead to a full-blown Currency crisis in a developing country.
Following the East Asian Economies Miracle, many of their macroeconomic fundamentals were strong. What did it mean?
Following the East Asian Economies Miracle, many of their macroeconomic fundamentals were strong. What did it mean?
How did the structure of 'Chaebols' contribute to South Korea's financial crisis in the 1990s?
How did the structure of 'Chaebols' contribute to South Korea's financial crisis in the 1990s?
How did the Mexican economic crisis work?
How did the Mexican economic crisis work?
What are the 2 key factors that trigger speculative attacks?
What are the 2 key factors that trigger speculative attacks?
What is the main effect of the loss of confidence in a nation's wealth on the economy during a financial crisis?
What is the main effect of the loss of confidence in a nation's wealth on the economy during a financial crisis?
What are key indicators or characteristics of an Emerging Market economic crash?
What are key indicators or characteristics of an Emerging Market economic crash?
Why does the firm's collective asset value not rise as it is priced in the domestic currency?
Why does the firm's collective asset value not rise as it is priced in the domestic currency?
In times of currency collapse/financial crisis, what does that mean has most likely to happen for the banks?
In times of currency collapse/financial crisis, what does that mean has most likely to happen for the banks?
After a large speculative attack, what may happen?
After a large speculative attack, what may happen?
If I'm collecting fixed IR from Jim, that means I'm holding onto a fixed interest rate payment scheme initially. Thus after the swap, Jim pays this for me. What then is the process of the swap?
If I'm collecting fixed IR from Jim, that means I'm holding onto a fixed interest rate payment scheme initially. Thus after the swap, Jim pays this for me. What then is the process of the swap?
What is the primary role of the banking system?
What is the primary role of the banking system?
What impact does stable or unstable inflation have on the economy?
What impact does stable or unstable inflation have on the economy?
What is the money supply?
What is the money supply?
The increase in the labor market will do what?
The increase in the labor market will do what?
What are the three shifts in labor?
What are the three shifts in labor?
With there being many factors for why someone can't sell the product how can that be solved?
With there being many factors for why someone can't sell the product how can that be solved?
Did Phillips correct the theory?
Did Phillips correct the theory?
How does the modern Curve help Phillips?
How does the modern Curve help Phillips?
How have advances in central banking and globalization affected banks' ability to create money?
How have advances in central banking and globalization affected banks' ability to create money?
Who ultimately determines the extent to which banks use their potential to create money?
Who ultimately determines the extent to which banks use their potential to create money?
Name at least three factors that have caused the US financial market's dominance to weaken in recent years.
Name at least three factors that have caused the US financial market's dominance to weaken in recent years.
How do improvements in foreign financial markets and deregulation contribute to the shift away from the US market?
How do improvements in foreign financial markets and deregulation contribute to the shift away from the US market?
What is a 'foreign bond', and give an example.
What is a 'foreign bond', and give an example.
How does a Eurobond differ from a bond issued in the US by a foreign entity?
How does a Eurobond differ from a bond issued in the US by a foreign entity?
What key element always exists when creating Eurobonds or Eurocurrency?
What key element always exists when creating Eurobonds or Eurocurrency?
What is included in the rate of return for bonds beyond just interest?
What is included in the rate of return for bonds beyond just interest?
How does the interest-rate risk differ between short-term and long-term debt instruments, and why does this difference exist?
How does the interest-rate risk differ between short-term and long-term debt instruments, and why does this difference exist?
What risk is introduced if an investor's holding period is longer than the maturity of a bond?
What risk is introduced if an investor's holding period is longer than the maturity of a bond?
Savings deposits held by one person enabling a mortgage loan to another is an example of what crucial banking activity?
Savings deposits held by one person enabling a mortgage loan to another is an example of what crucial banking activity?
What is the primary result of the McFadden Act and state regulations?
What is the primary result of the McFadden Act and state regulations?
How do bank holding companies circumvent restrictive branching regulations?
How do bank holding companies circumvent restrictive branching regulations?
Why doesn't Treasury creation of money stimulate the economy much?
Why doesn't Treasury creation of money stimulate the economy much?
Explain why the creation/printing of money by the Fed doesn't directly lead to inflation.
Explain why the creation/printing of money by the Fed doesn't directly lead to inflation.
What common benchmark rate is at the center of vanilla swaps and what are vanilla swaps?
What common benchmark rate is at the center of vanilla swaps and what are vanilla swaps?
Why do companies engage in swap transactions and what do they expect?
Why do companies engage in swap transactions and what do they expect?
Why do treasury bonds exhibit great liquidity and are important to trading?
Why do treasury bonds exhibit great liquidity and are important to trading?
What indicators are used to measure liquidity?
What indicators are used to measure liquidity?
How does 'short selling effectively work'?
How does 'short selling effectively work'?
What advancements have supported banks' enhanced ability to create money?
What advancements have supported banks' enhanced ability to create money?
Who significantly contributes to economic growth & improved living standards through lending activities?
Who significantly contributes to economic growth & improved living standards through lending activities?
What factors explain the weakening dominance of US financial markets compared to Asia and Europe?
What factors explain the weakening dominance of US financial markets compared to Asia and Europe?
What are instruments in foreign markets known as?
What are instruments in foreign markets known as?
What are Eurocurrencies?
What are Eurocurrencies?
What traits do you need to know when discussing Euro~ such as an Eurobond or Eurocurrency?
What traits do you need to know when discussing Euro~ such as an Eurobond or Eurocurrency?
Explain what the 'Rate of Return' on a bond is.
Explain what the 'Rate of Return' on a bond is.
Why is YTM (yield to maturity) not an accurate measure of the 'net' returns we receive from a bond?
Why is YTM (yield to maturity) not an accurate measure of the 'net' returns we receive from a bond?
What is 'reinvestment risk'?
What is 'reinvestment risk'?
What is 'asset transformation'?
What is 'asset transformation'?
On a simplified balance sheet for a bank (T account), what items fall under assets or liabilities?
On a simplified balance sheet for a bank (T account), what items fall under assets or liabilities?
What would happen to the reserve requirement if 100$ is deposited in the bank and the Reserve Requirement Ratio (RRR) is 10%
What would happen to the reserve requirement if 100$ is deposited in the bank and the Reserve Requirement Ratio (RRR) is 10%
How did the McFadden Act and state branching laws create a strong anticompetitive environment in commercial banking?
How did the McFadden Act and state branching laws create a strong anticompetitive environment in commercial banking?
In what ways did bank holding companies circumvent restrictive branching regulations?
In what ways did bank holding companies circumvent restrictive branching regulations?
In what way did ATMs serve as a financial innovation for banks?
In what way did ATMs serve as a financial innovation for banks?
Contrast how the government's issuance of bonds and the creation of money affect economic stimulus.
Contrast how the government's issuance of bonds and the creation of money affect economic stimulus.
Explain the main goal of printing money by the Fed.
Explain the main goal of printing money by the Fed.
How does printing money indirectly lead to inflation?
How does printing money indirectly lead to inflation?
What is the 'Libor Rate'?
What is the 'Libor Rate'?
In a typical swap transaction, who are the counterparties involved?
In a typical swap transaction, who are the counterparties involved?
What does a rise in the swap rate for LIBOR swapping indicate?
What does a rise in the swap rate for LIBOR swapping indicate?
What does it mean to be 'long' on an asset?
What does it mean to be 'long' on an asset?
What is treasury market liquidity?
What is treasury market liquidity?
Why is it hard to measure costs when markets are illiquid?
Why is it hard to measure costs when markets are illiquid?
Why is trading volume is an indirect measure of liquidity?
Why is trading volume is an indirect measure of liquidity?
What is 'bid-ask spread'?
What is 'bid-ask spread'?
What makes the US aid developing nations in the event of economic troubles?
What makes the US aid developing nations in the event of economic troubles?
What is the significance of this finding in understanding the mechanics behind short selling?
What is the significance of this finding in understanding the mechanics behind short selling?
Explain why the Futures market is described as being designed to provide liquidity.
Explain why the Futures market is described as being designed to provide liquidity.
Explain what the big benefit to institutional investors and traders are when dealing with index funds.
Explain what the big benefit to institutional investors and traders are when dealing with index funds.
In a Futures contract why is it said you will be exposed to the entire market index?
In a Futures contract why is it said you will be exposed to the entire market index?
When would a borrower likely short the futures market?
When would a borrower likely short the futures market?
Explain the overall results of inflation
Explain the overall results of inflation
What is Gross debt?
What is Gross debt?
The increase in price levels causes reduction, as the nominal GDP increases. This affects the wealth of all involved, both the holder/ payors of US Gov. debt to which it is being paid, what happens?
The increase in price levels causes reduction, as the nominal GDP increases. This affects the wealth of all involved, both the holder/ payors of US Gov. debt to which it is being paid, what happens?
What is one way to tell when a government is ready to cause deflation?
What is one way to tell when a government is ready to cause deflation?
What happens as a result of the sudden burst of inflation?
What happens as a result of the sudden burst of inflation?
What does the ex-post real yield for the 10-year Treasury indicate about government borrowing during a specific period?
What does the ex-post real yield for the 10-year Treasury indicate about government borrowing during a specific period?
Explain the most simplified form of money making.
Explain the most simplified form of money making.
What is the definition of a foreign bank, in US context?
What is the definition of a foreign bank, in US context?
What do central bank's reserve ratios do?
What do central bank's reserve ratios do?
Who would usually need the local banks out of the commercial banking system, to generate funds for bank accounts?
Who would usually need the local banks out of the commercial banking system, to generate funds for bank accounts?
What happens when there are international banks in operation??
What happens when there are international banks in operation??
Why is the central banks considered the most important?
Why is the central banks considered the most important?
What constitutes a liability that will affect the balance sheet?
What constitutes a liability that will affect the balance sheet?
How have central banking, deregulation and technological growth contributed to a greater money supply in modern economies?
How have central banking, deregulation and technological growth contributed to a greater money supply in modern economies?
According to the content how do commercial banks create money?
According to the content how do commercial banks create money?
How has the increased money supply affected economic development and living standards?
How has the increased money supply affected economic development and living standards?
What has been the recent trend regarding US financial market dominance compared to other countries?
What has been the recent trend regarding US financial market dominance compared to other countries?
Name three reasons why corporations are choosing to issue their securities in financial markets in Asia and Europe as opposed to the US.
Name three reasons why corporations are choosing to issue their securities in financial markets in Asia and Europe as opposed to the US.
Why have the improvements in some foreign financial markets occurred?
Why have the improvements in some foreign financial markets occurred?
Define Eurobonds. How are they different from Eurocurrencies?
Define Eurobonds. How are they different from Eurocurrencies?
What is meant by the 'rate of return' in finance? How does it differ from 'yield to maturity'?
What is meant by the 'rate of return' in finance? How does it differ from 'yield to maturity'?
Why do short-term debt instruments have substantially less interest rate risk?
Why do short-term debt instruments have substantially less interest rate risk?
Describe the concept of reinvestment risk for an investor holding a short-term bond.
Describe the concept of reinvestment risk for an investor holding a short-term bond.
What is the concept of asset transformation?
What is the concept of asset transformation?
Explain how a bank transforms a savings deposit into a mortgage loan.
Explain how a bank transforms a savings deposit into a mortgage loan.
What is the purpose of T account in finances?
What is the purpose of T account in finances?
What is the role of a Fed account in fund transfers between banks in separate states?
What is the role of a Fed account in fund transfers between banks in separate states?
How does the reserve requirement impact a bank's ability to create loans when it gains deposits?
How does the reserve requirement impact a bank's ability to create loans when it gains deposits?
Describe the historical context behind the high number of small banks in the US.
Describe the historical context behind the high number of small banks in the US.
Bank holding companies circumvent branchings regulations how?
Bank holding companies circumvent branchings regulations how?
How do ATMs serve as a financial innovation that gets around restrictive branching laws?
How do ATMs serve as a financial innovation that gets around restrictive branching laws?
What part does the Fed play when bonds are created to both raise funds for the government and inject liquid reserves into the economy?
What part does the Fed play when bonds are created to both raise funds for the government and inject liquid reserves into the economy?
Explain the purpose and mechanics of an interest rate swap between two parties.
Explain the purpose and mechanics of an interest rate swap between two parties.
Describe how treasuries are used in trading and analytical activities.
Describe how treasuries are used in trading and analytical activities.
Describe the relationship between liquidity and transaction costs, with emphasis on a liquid market.
Describe the relationship between liquidity and transaction costs, with emphasis on a liquid market.
How can trading volume be an indicator of market liquidity, and what is a limitation of using it as such?
How can trading volume be an indicator of market liquidity, and what is a limitation of using it as such?
According to the content what are three ways to measure market liquidity?
According to the content what are three ways to measure market liquidity?
Explain short selling and potential gains and losses.
Explain short selling and potential gains and losses.
What is meant by a 'rolling over debt'?
What is meant by a 'rolling over debt'?
What is The [ability of a government to service debt is closely related to its tax base]?
What is The [ability of a government to service debt is closely related to its tax base]?
How can inflation affect government debt, both positively and negatively?
How can inflation affect government debt, both positively and negatively?
What has been US experience on the relationship between inflation and the national debt?
What has been US experience on the relationship between inflation and the national debt?
Name three factors that determine liquidity and explain how they affect it?
Name three factors that determine liquidity and explain how they affect it?
What does the author say are reasons leading to Asian financial crisis?
What does the author say are reasons leading to Asian financial crisis?
According to the author what 2 things might be done when the IMF gets involved in a financial crisis?
According to the author what 2 things might be done when the IMF gets involved in a financial crisis?
What causes the currency crises?
What causes the currency crises?
When faced with a looming currency crisis that it can't tackle directly explain what choices are available to a government?
When faced with a looming currency crisis that it can't tackle directly explain what choices are available to a government?
Why would countries denominate debt in foreign markets?
Why would countries denominate debt in foreign markets?
What is meant by the phrase and how is it significant: 'The main result is essentially the loss of confidence which has far-reaching impacts.'?
What is meant by the phrase and how is it significant: 'The main result is essentially the loss of confidence which has far-reaching impacts.'?
What is the author trying to convey about 'limited resources' in stages of a financial crisis?
What is the author trying to convey about 'limited resources' in stages of a financial crisis?
What are the key reasons that Emerging market economies are unable to navigate the international financial system?
What are the key reasons that Emerging market economies are unable to navigate the international financial system?
What will financial liberalization by itself NOT necessarily result in?
What will financial liberalization by itself NOT necessarily result in?
What 2 factors would avoid a booming loan market and subsequent bank bust?
What 2 factors would avoid a booming loan market and subsequent bank bust?
Powerful domestic business interests are easily encouraged to what?
Powerful domestic business interests are easily encouraged to what?
According to the author where do large financial imbalances place a nation and its economy?
According to the author where do large financial imbalances place a nation and its economy?
In Stage 2 Currency Crises give the dilemma what happens, what do they do as an option to improve.
In Stage 2 Currency Crises give the dilemma what happens, what do they do as an option to improve.
How can currency devaluation both relieve and exacerbate a country's debt burden depending on how debt is managed?
How can currency devaluation both relieve and exacerbate a country's debt burden depending on how debt is managed?
What is result from a loss of investor confidence within a country?
What is result from a loss of investor confidence within a country?
How can economists determine if there are problems in the economy while analyzing business cycle?
How can economists determine if there are problems in the economy while analyzing business cycle?
What makes an economy's short-run aggregate supply curve upwards sloping?
What makes an economy's short-run aggregate supply curve upwards sloping?
The text lists 3 variables that cause the SRAS curve to shift what are they?
The text lists 3 variables that cause the SRAS curve to shift what are they?
If there is a negative supply shock what is the affect on the AS curve?
If there is a negative supply shock what is the affect on the AS curve?
What is an economy with no output gap called?
What is an economy with no output gap called?
The author mentions factors other than those listed for Phillips curve what are they?
The author mentions factors other than those listed for Phillips curve what are they?
The author mentions that the financial innovation comes as a response to demands can also have what origin type?
The author mentions that the financial innovation comes as a response to demands can also have what origin type?
What key advancements have supported the enhanced ability of banks to create money in modern economies?
What key advancements have supported the enhanced ability of banks to create money in modern economies?
What are two main reasons corporations might choose to issue securities in financial markets outside of the U.S. (Asia and Europe)?
What are two main reasons corporations might choose to issue securities in financial markets outside of the U.S. (Asia and Europe)?
How does the regulatory environment contribute to the weakening of American financial markets compared to those in Asia and London?
How does the regulatory environment contribute to the weakening of American financial markets compared to those in Asia and London?
Explain how is a Eurobond different from a Foreign Bond?
Explain how is a Eurobond different from a Foreign Bond?
Explain why Yield to Maturity (YTM) isn't an accurate measure of the net returns we receive from a bond.
Explain why Yield to Maturity (YTM) isn't an accurate measure of the net returns we receive from a bond.
In the context of short-term bonds, why might reinvestment risk become a concern for an investor?
In the context of short-term bonds, why might reinvestment risk become a concern for an investor?
How do banks profit through 'asset transformation'?
How do banks profit through 'asset transformation'?
Explain how the McFadden Act and state branching regulations limited competition in the commerical banking industry.
Explain how the McFadden Act and state branching regulations limited competition in the commerical banking industry.
Why is creating money to replace bonds not considered 'introducing anything' new to the economy?
Why is creating money to replace bonds not considered 'introducing anything' new to the economy?
According to the document, why is the concept of 'printing money' useful?
According to the document, why is the concept of 'printing money' useful?
In what situation does replacing illiquid bonds with liquid reserves by the Fed lead to demand-pull inflation?
In what situation does replacing illiquid bonds with liquid reserves by the Fed lead to demand-pull inflation?
What is the primary difference between a 'vanilla' interest rate swap and other types of interest rate swaps?
What is the primary difference between a 'vanilla' interest rate swap and other types of interest rate swaps?
What economic factors could indicate that the LIBOR rate is expected to rise?
What economic factors could indicate that the LIBOR rate is expected to rise?
In finance, what does the vast liquidity of treasuries allow market participants to do?
In finance, what does the vast liquidity of treasuries allow market participants to do?
In a liquid market, transaction costs are minimized and specific elements of the trade, such as size or timing, dont greatly affect the market. What are 3 measures used to evaluate liquidity?
In a liquid market, transaction costs are minimized and specific elements of the trade, such as size or timing, dont greatly affect the market. What are 3 measures used to evaluate liquidity?
Explain how the price impact coefficient can be a useful measure of liquidity.
Explain how the price impact coefficient can be a useful measure of liquidity.
How can high trading volume data be interpreted both as an indicator of high liquidity and low liquidity?
How can high trading volume data be interpreted both as an indicator of high liquidity and low liquidity?
How does short selling work in a liquid market and what does liquidity provide for the individual short selling the commodity?
How does short selling work in a liquid market and what does liquidity provide for the individual short selling the commodity?
Why would a big investor short the futures market in a scenario where they are currently long in a huge portfolio of assets and a major market-moving event is about to occur?
Why would a big investor short the futures market in a scenario where they are currently long in a huge portfolio of assets and a major market-moving event is about to occur?
Summarize how does inflation affects debt burdens for borrowers and lenders.
Summarize how does inflation affects debt burdens for borrowers and lenders.
Flashcards
Enhanced Money Creation
Enhanced Money Creation
Banks' enhanced ability to create money is supported by advancements in central banking, deregulation, and technological progress.
Banks Control Money
Banks Control Money
Commercial banks control money creation potential, fulfilling it through lending activities independently.
Creation of Money Benefits
Creation of Money Benefits
Facilitates economic transactions, provides credit, and drives investment, improving living standards.
Declining US Dominance
Declining US Dominance
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Shifting IPO Dominance
Shifting IPO Dominance
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Global Securities Issuance
Global Securities Issuance
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Foreign Bonds
Foreign Bonds
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Eurobond
Eurobond
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Total Value of Swap
Total Value of Swap
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Trading in liquid market
Trading in liquid market
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The Quote Size
The Quote Size
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Rate of Return
Rate of Return
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Interest Rate Swap
Interest Rate Swap
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Interest Rate Risk
Interest Rate Risk
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Short Term Bonds
Short Term Bonds
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Reinvestment Risk
Reinvestment Risk
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Asset Transformation
Asset Transformation
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Repressed Competition
Repressed Competition
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Bank Holding Companies
Bank Holding Companies
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Automated Teller Machines
Automated Teller Machines
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Issuance of Bonds-Debt
Issuance of Bonds-Debt
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Creation of Money to Replace Bonds.
Creation of Money to Replace Bonds.
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Printing money
Printing money
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Printing of money by the Fed.
Printing of money by the Fed.
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Printing money purpose.
Printing money purpose.
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US Treasury
US Treasury
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Competition repressed.
Competition repressed.
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Financial Crises Origination
Financial Crises Origination
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Financial Borrowing problems.
Financial Borrowing problems.
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Speculative Attack
Speculative Attack
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Devaluation Of Currency
Devaluation Of Currency
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Additional Factors that play role in crisis.
Additional Factors that play role in crisis.
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Main cause for financial crises.
Main cause for financial crises.
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Denominating debt in Foriegn currency.
Denominating debt in Foriegn currency.
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Moral hazard.
Moral hazard.
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Currency crisis
Currency crisis
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Sharp Collapse of Markets.
Sharp Collapse of Markets.
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Economies Falling Apart.
Economies Falling Apart.
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Debt Deflation
Debt Deflation
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The Fed Role for the country.
The Fed Role for the country.
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What it boils down to.
What it boils down to.
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Universal banking
Universal banking
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Financial institutions
Financial institutions
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Government Bonds
Government Bonds
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US Banking Structure
US Banking Structure
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Branching Restrictions
Branching Restrictions
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Bypass Branching Laws
Bypass Branching Laws
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Bank Holding Company
Bank Holding Company
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Main Goal of Money Printing
Main Goal of Money Printing
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YTM
YTM
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Participants of a swap
Participants of a swap
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LIBOR
LIBOR
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Treausury
Treausury
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Open Market Sale
Open Market Sale
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Open Market Purchases
Open Market Purchases
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Financial Liberalisation
Financial Liberalisation
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Unforseen economic crisis
Unforseen economic crisis
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Fed account
Fed account
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Study Notes
Money Creation and Modern Economies
- Banks' enhanced ability to create money is a major contributor to the increased money supply seen in modern economies.
- This monetary creation is supported by:
- Advances in central banking.
- Deregulation.
- Financial innovation.
- Globalization.
- Technological advancements.
- Economic growth.
- Commercial banks, not the treasury or the Federal Reserve, are the original source of created money.
- Factors including the Fed influence how much money banks can create.
- Banks control the potential for money creation and fulfill the capacity themselves.
Money Creation Impact and Financial Markets Weakening
- Commercial banks' lending activities significantly contribute to economic growth and improved living standards.
- This facilitates economic transactions and provides essential credit for business expansion, infrastructure development, and investment in innovation.
- The increased money supply has enabled higher productivity, greater access to goods and services, and overall quality of life, including better health and education.
- Central banks and regulators need to carefully manage credit expansion to maintain financial stability and prevent inflation.
- The financial system's ability to create money advances economic development.
- US financial markets' dominance has weakened:
- US has lost its international dominance in manufacturing.
- US stock and bond markets have reduced sales of newly issued corporate securities.
- London and Hong Kong handle a larger share of IPOs than NYSE since the 2000s.
- Public companies listing on US exchanges have decreased, while in other countries it has increased.
- The US markets are losing their edge because other countries can adopt technology quicker, and the tighter immigration controls in the US following 9/11 and perceptions that listing on US exchanges would expose foreign securities issuers to greater risks of lawsuits
- Burdensome financial regulation in the US, stemming from accounting scandals (Sarbanes-Oxley Act), prompts companies to seek financial markets elsewhere.
- The cost of complying with these new rules is greater in the US than in foreign countries.
- Increased savings and deregulation in countries like Japan contribute to improvements in foreign financial markets.
- American financial and industrial markets are weakening from strict regulations and slow tech adaption, when compared to Asia and London.
International Bond Markets
- Foreign bonds are instruments issued in a domestic market by a foreign entity in the market's currency to raise capital.
- For example, a German company issues a foreign bond in the US denominated in USD.
- A segment of US railroads in the 19th century was financed Bonds, sold in Britain and denominated in Pounds.
- A Eurobond is bonds denominated in a currency other than that of the country in which it is sold.
- For example, a bond issued in Britain and denominated in USD.
- The Eurobond Market is larger than the US corporate bond market; over 80% of new international bond issues are Eurobonds, with rapid market growth.
- Eurocurrencies are foreign currencies deposited in banks outside their home country.
- The most important is the Eurodollar ( depositing USD in foreign banks outside the US).
- Eurobonds and the Euro (currency) are distinct and bear no correlation.
- The only exception is when a bond dominated in Euros, is sold outside the countries in which the Euro is the domestic currency.
Eurobond Market vs The Eurodollar
- Foreign Bond is a bond issued by a foreign party.
- Both Eurobonds and Eurocurrencies involve a currency mismatch.
- Eurobond is a bond denominated in a foreign currency.
- Eurocurrency is a currency deposited in foreign banks outside of the home country’s jurisdiction.
Security's Rate of Return and Yield to Maturity
- An accurate measure of a bond or security's financial performance during a time period is the security's rate of return.
- Rate of Return formula = (Amount of each payment + change in the security's value) / Purchase price
- Also referred to as Capital Gains + Interest Gains, divided by Purchase Price
- The rate of return includes interest and fluctuations in bond price.
- The yield to maturity (YTM) is not a completely accurate measure because it only considers payments received - not price.
- YTM is the annualised return % applied on the face value of the bond, not the price.
- The face value impacts bond returns.
- Fluctuations in bond price impact yearly returns.
Bond Qualities and Value Calculations
- A change in face value is paid back regardless of change in price for a 1 year maturity bond.
- A change in face value affects returns from the moment the bond is issued to maturity for a 3 year bond.
- An increase in interest rates (equivalent to the YTM increase) has a differential effect on the value of payments.
- Fixed interest payments, constant coupon rates, constant face value and differing maturitieis equals differing bond prices.
- differing maturity of bonds creates differing bond values.
- Coupon payments don't affect bond values
Interest Rate and Reinvestment Risk
- The term interest rate risk defines the level of risk associated with an asset's return from interest rate changes.
- Managers of financial institutions are significantly concerned with managing interest rate risk.
- Short term debt instruments have substantially less interest rate risk than long term debt instruments. Bonds terms as short as a holding period have no interest rate risk.
- If the holding period is longer than the maturity of the bond, then Reinvestment Risk is present.
- This arises as the investor needs to reinvest the proceeds from the short term bond.
Reinvestment Risk: Scenarios
- Scenario 1: 2-year holding, 2-year maturity, at 10%, yields 20% returns.
- Scenario 2: 2-year holding, 1-year maturity bond at 10%, rates rise to 20% yields 32% returns.
- Annualised returns in case 1 were 10%, while case 2 saw 16% returns due to rate fluctuation.
- The converse is true for falling interest rates.
- Investors must consider the price risk unless keeping a bond until maturity.
- Reinvesting money into new bonds means paying a different price.
Bank's Profit, Asset Transformation, and T Accounts
- Banks profit by selling liabilities with one set of characteristics and buying assets with a different set of characteristics, which is known as asset transformation.
- Banks borrow short and lend long, making long term loans and funding them with short term deposits.
- A T account assists in analysing bank operations via a simplified T account which models a balance sheet.
- Analysing the T account means classifying items as assets or liabilities based on balance sheets.
- Funds are transferred from one bank to another using their Federal Reserve account.
- Banks gain an equal sum of reserves in conjunction with a sum of deposits.
- Gains from deposits are subject to reserve requirements, which the reserve requirement ratio dictates.
- A $100 deposit and 10% reserve requirement yields a $10 reserve increase and $90 excess reserves The reserves and deposits will not go to Fed, which is now Bank's liability! This is because this influence is still there in the Fed.
US Banking and Regulatory Restriction
- The US has about 6000 banks, the industry isn't dominated by a few large entities.
- The 10 largest US banks hold under 70% of the assets in their industry.
- Past regulations restricted branch openings by financial institutions, with each state having its own regulations.
- The McFadden Act of 1927 (put national and state banks on equal footing) and Douglas Amendment of 1956 effectively prohibited banks from branching across state lines
- The McFadden Act and state branching regulations promoted strong anticompetitive forces, allowing small banks continued existence
- The American public has historically been hostile to large banks.
- Laws restrict US bank expansion = many bank of all sizes exist = anti-competition
- Competition can be repressed via financial innovations
- The bank holding company is a corporation owning distinct companies, allowing circumvention of the regulation that banks may own a controlling stake. = Bank holding companies engage in banking-related sectors like advice, data processing, and transmission = Bank holding companies have dramatically increased, owning almost all large banks and over 90% of commercial deposits.
- If you get to the ATMs by banks can not be considered as an actual bank branch and need simply provide a Fee for each transaction.
Bond Issuance and Monetary Concepts
Issuing bonds covers government spending, doesn't relate to stimulus directly.
- Bond issuance increases burden on future generations of debt, will eventually need repaid using the economy's funds.
- Creating money replaces idle resources (bonds) with liquid reserves, not introducing anything NEW
- Money was the resource itself.
- Stimulus depends on proportion the bond the government is seeking to put out into the economy.
- There is nothing inherently bad about creating money if the aftereffects are managed,addressing inflation.
- Printing is mainly used to replace idle resources making them more stimulate. The bank begins their version creating money which can lead the to the market and can also lead to demand-pull inflation.
- Government must spend wisely or they risk implicating everyone.
- A major goal is to replace idle resources with money that more people have an extra reserve.
- The Feds role to is to restore the funds that the primary traders, may be have the funds when buying from The economy.
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Description
Explore how banks create money and its impact on modern economies. The money creation is supported by advances in central banking and technological advancements. Understand commercial banks' role as the source of created money and how they influence the money supply and financial markets.
