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College of Business Administration
Faisal Ali AL-Ghamdi
ID: 200600265
Sec: 102
Assignment: 1
Money and Banking
First Semester, Academic Year 2012/2013
Chapter: 1
Q4:
The economic behavior depends on if jam a house hold or firm, the falling in
interest rate will increase the consumption and decrease saving for the house
hold but for the producers the interest yate is cost of loons decreasing interest
yate will decrease the borrowing cost and increase investment which increase
the total output.
I ->decrease ____ INV-> increase ____ AE -> increase ____ y -> increase
I = Interest Yate.
INV = Investment.
AE = Aggregate Expenditures.
Y= National Income.
Q6:
Is everybody worse off when Interest rate rise. The economic efficiency is when
some one get better off some one else will be worse off. So not everybody will get
worse off because increasing interest rate increase will effects the borrowing
cost and the firms and producers will get worse off, but the savers (house hold)
will gain more by increasing interest yate and will get better off.
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Q8:
The activities in financial markets have direct effect on individual’s wealth by
find opportunities for individual to invest their saving money and important for
business activities by providing funds for firms to increase their activities and
investment and will improve the activities and efficiencies of whole economy.
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Q10:
The effect of a fall in stock prices. Stock represents a share of ownership in a
corporation. So when the prices of stock falls will affect the size of people’s
wealth. When the price of stock decrease and the amount of money owned by
shredders will decrease and as a result may affect their willingness to spend and
purchasing new stocks.
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Q15:
When the dollar is worth more in relation to currencies of other countries. The
goods that produced outside US (imported goods) relatively cheaper than the
goods that produce by US. And the US companies that manufacture jeans will not
be happier because they will loss the competition with the manufacture
companies outside US. And the American company that is in the business of
important jeans into the US will sale more because relatively cheaper than US
product.
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Chapter: 2
Q1:
Assets what you owns are called assets and what you owes are called liabilities.
So the shares that owned by individuals it’s not owned by Microsoft they issued
the shares and sold it to individuals so it’s called liabilities.
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Q2:
Today cost is 5000 after one year worth 10,000 so it’s value increase double 100%
and if the interest rate is 90% so the repayment will be 9000 after one year.
5000 + 5000 x 0.90 = 9000
So I will be better off I will get a loan and purchased the car.
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Q5:
Primary market is a financial market in which new issues of a security. But secondary
market is a financial market which securities that have been previously issued can be
resold.
So it’s less important because it’s not provide funds for the firms to increase their
activities but secondary markets also important because it serve two function first
they make it easier and quicker to sell there financial instruments to raise cash (more
liquid) and increasing liquidity makes them more desirable and thus easier for the
issuing firm to sell in the primary market.
Second they determine the price of the security that the issuing firm sells in the
primary market.
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Q6:
I will go to hold bonds issued by the company not equities issued by the company
because equities is a part of the company owner. So if the firms will go bankrupt I
will loss my investment but if I will buy bonds I will be lender for the company and I
will not loss my money if it goes bankrupt.
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Q12:
It’s false
Financial intermediaries are able to reduce transaction cost and make possible for the
savers to provide funds indirectly to people. And allow risk sharing and solve
problems created by adverse selection and increasing the efficiency of the economy.
But if the information and transaction cost is not exist, will reduce needs for
intermediaries.
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Chapter: 3
Q7:
Yes, I will give up my checkbook instead using an electronic payment because it’s
save the cost of printing the checkbook and needs a little effort and saving time.
Unless the cost of transaction is high.
Electronic payments that you make all bills payment electronically by websites
provided by banks.
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Q8:
List from most liquid to least liquid.
1-Currency.
2-Shacking Account Deposit.
3-Saving Deposit.
4-Common Stock.
5-Washing Machines.
6-honses.
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Q10:
Increasing inflation especially rapid inflation (continuing high inflation) will
affect the value of money decreasing power so the rapid inflation will affect the
sealers wealth. To stop this loss the sealers use dollars rather than real’s because
it’s more stable and it’s value not decreasing.
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Q13:
M1, is the most liquid assets because it’s contains the currency and all other
checkable account deposits.
M2, is largest measure because it contains (M1) plus saving deposit.
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Q14:
M1 is include:
1-Currency.
2-Checkable.
M2 include all
M1 plus small-denomination time deposits and money market mutual funds.
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