1. Describe an economic trade off faced by the Fed in achieving its economic policy objectives.
2. What are recognition and implementation lags? How do these influence security prices?
3. Why might the Fed's monetary policy depend on the fiscal policy that is implemented?
4. Stock market conditions serve as a leading economic indicator. Assuming the U.S. economy is in an expansion. what are the implications of this indicator? Why might this indicator be inaccurate?
6. What type of organization issues commercial paper? Given the short-term nature of commercial paper, why would ratings agencies assign ratings to them?
7. The maximum maturity of commercial paper is 270 days. Why would an organization issue commercial paper rather than longer-term securities, even if it needs funds for a long period of time?
8. Assume an investor purchased a three-month T-bill with a $10,000 par value for $9,500 and sold it 45 days later for $9,600. What is the yield?
9. A money market security that has a par value of $10,000 sells for $8,924.70. Given that the security has a maturity of two years, what is the investor's required rate of return?
10. A U.S. investor obtains British pounds when the pound is worth $1.30 and invests in a one-year money market security that provides a yield of 4 percent (in pounds). At the end of one year, the investor converts the proceeds from the investment back to dollars at the prevailing spot rate of $1.32 per pound. Calculate the effective yield.