Solutions for Money, Banking and Financial Markets, 6th Edition Cecchetti (All Chapters included)
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Course
Financial management
Institution
Financial Management
Complete Solutions Manual for Money, Banking and Financial Markets, 6th Edition by Stephen G. Cecchetti, Kermit L. Schoenholtz ; ISBN13: 9781260226782. (Full Chapters included Chapter 1 to 23)....
chapter 1. An Introduction to Money and the Financial System.
chapter 2. Money and the Payments Syst...
Money, Banking and Financial Markets
6th Edition
by Stephen G. Cecchetti
Complete Chapter Solutions Manual
are included (Ch 1 to 23)
** Immediate Download
** Swift Response
** All Chapters included
,Chapter 1
An Introduction to Money and the Financial System
Problems
1. List the financial transactions you have engaged in over the past week. How might
each one have been carried out 50 years ago? (LO1)
Answer: Commercial purchases that you made likely used credit cards and debit
cards. Fifty years ago, they would have all used cash. Payment of utilities (if you do
it) might have been done by electronic transfer, rather than a check (which would
have been the method 50 years ago).
2. How were you, or your family or your friends affected by the failure of the financial
system to function normally during the financial crisis of 2007-2009? (LO1)
Answer: It is likely that you or someone you know had an account with one of the
many financial institutions that folded during the crisis, or that someone you know
was refused a business loan or a mortgage or had a bank foreclose on their house.
3. List three items you used to buy with cash but you now purchase with a debit card.
(LO1)
Answer: Among the possibilities: purchases of cappuccino at the local coffee shop,
gasoline for your car, and groceries for the week.
4. Various financial instruments usually serve one of two distinct purposes: to store
value or to transfer risk. Name a financial instrument used for each purpose. (LO1)
Answer: Financial instruments used to store value include bank accounts, stocks and
bonds. Instruments used to transfer risk include car insurance and life insurance.
5. Financial innovation has reduced individuals’ need to carry cash. Explain how. (LO1)
Answer: Everyone has a number of alternative methods of payment. Electronic
forms, like credit and debit cards, are the primary ones that have reduced need to
carry cash. Mobile payment services, such as Venmo and Apply Pay, have also
become increasingly popular.
, 6. * Many people believe that, despite ongoing financial innovations, cash will always
be with us to some degree as a form of money. What core principle could justify this
view? (LO2)
Answer: Core Principle 3: information is the basis for decisions. When cash is used
to settle a transaction, it is a final payment, not some form of a promise to pay. No
information is needed about the payer once cash has been handed over to settle a
transaction. This has obvious advantages to the recipient, as the information costs are
negligible. In some circumstances, one or both parties to a transaction may wish to
preserve their anonymity, and cash allows this.
7. When you apply for a loan, you are required to answer lots of questions. Why? Why
is the set of questions you must answer standardized? (LO2)
Answer: The reasons for the questions relate to Core Principle 3 – information is the
basis for decisions, and Core Principle 2 – risk requires compensation. The questions
are aimed at figuring out how likely you are to repay the loan. Standardizing the
questions reduces the cost of gathering information and therefore of making the loan.
8. Name two distinct financial markets and describe the kind of asset traded in each.
(LO1)
Answer: Among the best-known financial markets are those for stocks and for bonds.
In the stock markets, equities or ownership shares in companies are bought and sold.
In the bond market, debt issues of government units or companies are traded.
9. * Why do you think the financial system has become more globally integrated over
time? Can you think of any downside to this increased integration? (LO1)
Answer: Technological progress is one obvious reason. According to Core Principle
3, information is the basis for decisions. Improvements in technology have allowed
for huge volumes of information to be collected and disseminated quickly and
cheaply on a global basis, facilitating long distance financial transactions. A
downside of this increased integration is that it allows for problems that arise in the
financial system of one country to spread more quickly and easily to other countries,
as we saw during the financial crisis of 2007-2009.
10. The government is heavily involved in the financial system. Explain why. (LO1)
Answer: For markets to work there have to be rules. And the rules need to be
enforced. The government both makes the rules and enforces them so that we all trust
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