貨幣金融學(xué)（第十二版）人大版課后習(xí)題答案

PARTTHREE

Answers

toEnd-of-Chapter

QuestionsandProblems

Chapter1

ANSWERSTOQUESTIONS

/.Whatisthetypicalrelationshipamonginterestratesonthree-monthTreasurybills,long-

ternTreasurybonds,andBaacorporatebonds?

Theinterestrateonthrec-monthTreasurybillsfluctuatesmorethantheotherinterestratesand

isloweronaverage.TheinterestrateonBaacorporatebondsishigheronaveragethanthe

otherinterestrates.

2.Whateffectmightafallinstockpriceshaveonbusinessinvestment?

Thelowerpriceforafirm'ssharesmeansthatitcanraiseasmalleramountoffunds,so

investmentinfacilitiesandequipmentwillfall.

3.Explainthemaindifferencebetweenabondandacommonstock.

Abondisadebtinstrument,whichentitlestheownertoreceiveperiodicamountsofmoney

(predeterminedbythecharacteristicsofthebond)untilitsmaturitydate.Acommonstock,

however,representsashareofownershipintheinstitutionthathasissuedthestock.In

additiontoitsdefinition,itisnotthesametoholdbondsorstockofagivencorporation,

sinceregulationsstatethatstockholdersareresidualclaimants(i.e.thecorporationhastopay

allbondholdersbeforepayingstockholders).

4.Explainthelinkbetweenwell-perfbnningfinancialmarketsandeconomicgrowth.Nameone

channelthroughwhichfinancialmarketsmightaffecteconomicgrowthandpoverty.

Wellperformingfinancialmarketstendtoallocatefundstoitsmoreefficientuse,thereby

allowingthebestinvestmentopportunitiestobeundertaken.Theimprovementinthe

allocationoffundsresultsinamoreefficienteconomy,whichstimulateseconomicgrowth

(andtherebypovertyreduction).

5.Whatwasthemaincauseoftherecessionthathe^anin2007?

TheUnitedStates*economywashitbytheworstfinancialcrisissincetheGreatDepression.

Defaultsinsubprimeresidentialmortgagesledtomajorlossesinfinancialinstitutions,

producingnotonlynumerousbankfailuresbutalsothedemiseoftwoofthelargest

investmentbanksintheUnitedStates.Thesefactorsledtothe"GreatRecession“thatbegan

latein2007.

6.Canyouthinkofareasonwhypeopleingeneraldonotlendmoneytooneanothertobuya

houseoracar?Howwouldyouranswerexplaintheexistenceofbanks?

Ingeneral,peopledonotlendlargeamountsofmoneytooneanotherbecauseofseveral

informationproblems.Inparticular,peopledonotknowaboutthecapacityofotherpeopleof

repayingtheirdebts,ortheefforttheywillprovidetorepaytheirdebts.Financialintermediaries,

inparticularcommercialbanks,tendtosolvetheseproblemsbyacquiringinformationabout

potentialborrowersandwritingandenforcingcontractsthatencouragelenderstorepaytheir

debtand/ormaintainthevalueofthecollateral.

7.Whataretheotherimportantfinancialintermediariesintheeconomy,besidesbanks?

Savingsandloanassociations,mutualsavingsbanks,creditunionsiinsurancecompanies,

mutualfunds,pensionfunds,andfinancecompanies.

8.CanyoudatethelatestfinancialcrisisintheUnitedStatesorinEurope?Aretherereasons

tothinkthatthesecrisesmighthavebeenrelated?Why?

ThelatestfinancialcrisisintheUnitedStatesandEuropeoccurredin2007-2009.Atthe

beginning,ithitmostlytheUSfinancialsystem,butitthenquicklymovedtoEurope,since

financialmarketsarehighlyinterconnected.Onespecificwayinwhichthesemarketswere

related,isthatsomefinancialintermediariesinEuropeheldsecuritiesbackedbymortgages

originatedintheUnitedStates,andwhenthesesecuritieslosttheiraconsiderablepartof

theirvalue,thebalancesheetofEuropeanfinancialintermediarieswasadverselyaffected.

9.HastheinflationrateintheUnitedStatesincreasedordecreasedinthepastfewyears?

Whataboutinterestrates?

From2014tomid-2017,inflationhasbeensomewhatlow,butincreasedmorerecentlyto

near2%;interestrateshavemovedinafairlynarrowrange,withthebenchmark10-yearU.S.

treasuryratemovingfromahighofaround2.5%,toaslowasabout1.5%thenincreasingagain.

10.Ifhistoryrepeatsitselfandweseeadeclineintherateofmoneygrowth,whatmightyou

expecttohappento

a.realoutput?

b.theinflationrale?

c.interestrates?

ThedatainFigures3,5,and6suggestthatrealoutput,theinflationrate,andinterestrates

wouldallfall.

11.Wheninterestratesdecrease,howmightbusinessesandconsumerschangetheireconomic

behavior?

Businesseswouldincreaseinvestmentspendingbecausethecostoffinancingthisspendingis

nowlower,andconsumerswouldbemorelikelytopurchaseahouseoracarbecausethe

costoffinancingtheirpurchaseislower.

12.Iseverybodyworseoffwheninterestratesrise?

No.Itistruethatpeoplewhoborrowtopurchaseahouseoracarareworseoffbecauseit

coststhemmoretofinancetheirpurchase;however,saversbenefitbecausetheycanearn

higherinterestratesontheirsavings,

13.WhydomanagersoffinancialinstitutionscaresomuchabouttheactivitiesoftheFederal

ReserveSystem?

BecausetheFederalReserveaffectsinterestrates,inflation,andbusinesscycles,allofwhich

haveanimportantimpactontheprofitabilityoffinancialinstitutions.

14.HowdoesthecurrentsizeoftheU.S.budgetdeficitcomparetothehistoricalbudgetdeficit

orsurplusforthetimeperiodsince1950?

ThedeficitasapercentageofGDPexpandeddramaticallyin2007butimprovedstartingin

2010;in2009,thedeficittoGDPratiowas9.8%,andin2016was3.2%,stillabovethe

historicalaverageofaround2%since1950.

15.HowwouldafallinthevalueofthepoundsterlingaffectBritishconsumers?

Itmakesforeigngoodsmoreexpensive,soBritishconsumerswillbuyfewerforeigngoods

andmoredomesticgoods.

16.HowwouldanincreaseinthevalueofthepoundsterlingaffectAmericanbusinesses?

ItmakesBritishgoodsmoreexpensiverelativetoAmericangoods.Thus,American

businesseswillfinditeasiertoselltheirgoodsintheUnitedStatesandabroad,andthe

demandfortheirproductswillrise.

17.Howcanchangesinforeignexchangeratesaffecttheprofitabilityoffinancialinstitutions?

Changesinforeignexchangerateschangethevalueofassetsheldbyfinancialinstitutions

andthusleadtogainsandlossesontheseassets.Alsochangesinforeignexchangeratesaffect

theprofitsmadebytradersinforeignexchangewhoworkforfinancialinstitutions.

18.AccordingtoFigure8,inwhichyearswouldyouhavechosentovisittheGrandCanyonin

ArizonaratherthantheTowerofLondon?

Inthemid-tolate1970s,thelate1980stoearly1990s,and2008to2015,thevalueofthe

dollarwaslow,makingtravelabroadrelativelymoreexpensive;thus,itwasagoodtimeto

vacationintheUnitedStatesandseetheGrandCanyon.Withtheriseinthedollar'svaluein

theearly19808,late19908,andafter2015,travelabroadbecamerelativelycheaper,makingit

agoodtimetovisittheTowerofLondon.Thiswasalsotrue,toalesserextent,intheearly

2000s.

ThefollowingtableliststheforeignexchangeratebetweenU.S.dollarsandBritishpounds

(GBP)duringMay2017.Whichdaywouldhavebeenthebestforconverting$200intoBritish

pounds?Whichdaywouldhavebeentheworst?Whatwouldbethedifferenceinpounds?

Date$/￡

5-011.2917

5-021.2921

5-031.2916

5-041.2910

5-051.2950

05-081.2942

05-091.2939

05-101.2939

05-111.2885

05-121.2880

05-151.2917

05-161.2912

05-171.2944

05-181.3009

05-1913018

05-2213006

05-231.2984

05-241.2935

05-251.2954

05-261.2795

05-301.2858

05-311.2905

19Whenthedollarisworthmoreinrelationtocurrenciesofothercountries,areyoumore

likelytobuyAmerican-madeorforeign-madejeans?AreU.S.companiesthatmanufacture

jeanshappierwhenthedollarisstrongorwhenitisweak?WhataboutanAmerican

companythatisinthebusinessofimportingjeansintotheUnitedSlates?

Whenthedollarincreasesinvalue,foreigngoodsbecomelessexpensiverelativeto

Americangoods;thus,youaremorelikelytobuyFrench-madejeansthanAmerican-made

jeans.TheresultingdropindemandforAmerican-madejeansbecauseofthestrongdollar

hurtsAmericanjeansmanufacturers.Ontheotherhand,theAmericancompanythatimports

jeansintotheUnitedStatesnowfindsthatthedemandforitsproducthasrisen,soitisbetter

offwhenthedollarisstrong.

20.MuchoftheU.S.governmentdebtisheldbyJbreigninvestorsastreasurybondsandbills.

Howdofluctuationsinthedollarexchangerateaffectthevalueofthatdebtheldby

foreigners?

Asthedollarbecomesstronger(worthmore)relativetoaforeigncurrency,onedollaris

equivalentto(canbeexchangedfor)moreforeigncurrency.Thus,foragivenfacevalueof

bondholdings,astrongerdollarwillyieldmorehomecurrencytoforeigners,sotheassetwill

beworthmoretoforeigninvestors.Likewise,aweakdollarwillleadtoforeignbondholdings

worthlesstoforeigners.

ANSWERSTOAPPLIEDPROBLEMS

21,ThefollowingtableliststheforeignexchangeratebetweenU,S,dollarsandBritishpounds

(GBP)duringMay20/7,Whichdaywouldhavebeenthebestforconverting$200into

Britishpounds?Whichdaywouldhavebeentheworst?Whatwouldhethedifferencein

pounds?

5-011.2917

5-021.2921

5-031.2916

5-041.2910

5-051.2950

05-081.2942

05-091.2939

05-101.2939

05-111.2885

05-121.2880

05-151,2917

05-16L29I2

05-171.2944

05-181.3009

05-191.3018

05-221.3006

05-231.2984

05-241.2935

05-251.2954

05-261.2795

05-301.2858

05-311.2905

Thebestdayis5/26.Ataraleof$1,2795/pound,youwouldhave￡156.31.Theworstdayis

5/19.At$1.3018/pound,youwouldhave￡153.63,oradifferenceof￡2.68

ANSWERSTODATAANALYSISPROBLEMS

1.GototheSt.LouisFederalReserveFREDdatabaseandfinddataonthethree-month

treasurybillrate(TB3MS),thethree-monthAAnonfinancialcommercialpaperrate

(CPN3M),the30-yeartreasurybondrate(GS30),the30-yearfixedratemortgageaverage

(MORTGAGE30US),andtheNBERrecessionindicators(USREC).Forthemortgagerate

indicator,setthefrequencysettingto'monthly\

a.Ingeneral,howdotheseinterestratesbehaveduringexpansionary^periods?

Generallyspeaking,theinterestratesfallduringrecessions,andriseduringexpansionary

periods.

b.Ingeneral,howdothethree-monthinterestratescomparetothe30-yearrates?Howdo

theTreasuryratescomparetotherespectivecommercialpaperandmortgagerates?

Innearlyallinstances,the30-yearratesaresignificantlyhigherthanthethree-month

rates.Likewise,inmostcases,the30-yearmortgagerateishigherthanthe30-year

treasuryrate,andthethree-monthcommercialpaperrateishigherthanthethree-month

treasuryrate.

c.Forthemostrecentavailablemonthofdata,taketheaverageofeachofthethree-month

ratesandcompareittotheaverageofthethree-monthratesfromJanuary^2000.Howdo

theaveragescompare?

d.Forthemostrecentavailablemonthofdata,taketheaverageofeachofthe30-year

ratesandcompareittotheaverageofthe30-yearratesfromJanuary2(X)0.Howdothe

averagescompare?

May2017January2000

Three-monthrateavg.0.925.53

30-yearrateavg.3.497.42

Seetableabove.Forbothrateaverages,theyhavedecreasedsignificantlysinceJanuary

2000.

2.GototheSt.LouisFederalReserveFREDdatabaseandfinddataontheMImoneysupply

(M1SL)andthe10-yeartreasurybondrate(GS10),Addthetwoseriesintoasinglegraphby

usingthe“AddDataSeriesf,feature.TransformtheMlmoneysupplyvariableintotheMl

growthratebyadjustingtheunitsfartheMlmoneysupplyto''PercentChangefromYear

Ago.”

a.Ingeneral,howhavethegrowthrateoftheMlmoneysupplyandthe10-yeartreasuty

bondratebehavedduringrecessionsandduringexpansionaryperiodssincetheyear

2000?

Generally,the10-yeartreasuryratefellduringtherecessionaryperiodsof2001and

2007-2009;duringexpansionaryperiods,therewaslessofapattern,butthereseemsto

bealong-rundownwardtrendintheinterestrate.Themoneygrowthrateincreased

significantlyduringrecessionaryperiods;however,duringexpansions,thereislessofa

pattern;followingthe2001recession,moneygrowthgraduallydeclined,butafterthe

2007-2009recession,moneygrowthwasrelativelyhighandvariable.

b.Ingeneral,isthereanobvious,stablerelationshipbetweenmoneygrowthandthe

10-yearinterestratesincetheyear2000?

Whenmoneygrowthrises,the10-yeartreasuryrateappearstofall,andvice-versa;

however,thiseffectismoreobviousoversomeperiodsthanothers.

c.Comparethemoneygrowthmteandthe10-yearinterestrateforthemostrecentmonth

availabletotheratesforJanuary2000.Howdotheratescompare?

May2017January2000

M1MoneyGrowth8.002.19

10-yearTreasuryrate2.306.66

ThemoneygrowthrateissignificantlyhigherinMay2017thanitwasinJanuary2000.

The10-yeartreasuryrateissignificantlylowerinMay2017thanitwasinJanuary2000.

Chapter2

ANSWERSTOQUESTIONS

/.IfIcanbuyacartodayfor$5,000anditisworth$10,000加extraincometomenextyear

becauseitenablesmetogetajobasatravelingsalesman,shouldItakeoutaloanfrom

LarrytheLoanSharkata90%interestrateifnooneelsewillgivemealoan?WillIbe

betterorworseoffasaresultoftakingoutthisloan?Canyoumakeacaseforlegalizing

loansharking?

Yes,Ishouldtakeouttheloan,becauseIwillbebetteroffasaresultofdoingso.Myinterest

paymentwillbe$4,500(90%of$5,000),butasaresult,Iwillearnanadditional$10,000,so

Iwillbeaheadofthegameby$5,500.SinceLarry'sloan-sharkingbusinesscanmakesome

peoplebetteroff,asinthisexample,loansharkingmayhavesocialbenefits.(Oneargument

againstlegalizingloansharking,however,isthatitisfrequentlyaviolentactivity.)

2.Someeconomistssuspectthatoneofthereasonseconomiesindevelopingcountriesgrowso

slowlyisthattheydonothavewell-developedfinancialmarkets.Doesthisargumentmake

sense?

Yes,becausetheabsenceoffinancialmarketsmeansthatfundscannotbechanneledto

peoplewhohavethemostproductiveuseforthem.Entrepreneursthencannotacquirefunds

losetupbusinessesthatwouldhelptheeconomygrowrapidly.

3.Giveatleastthreeexamplesofasituationinwhichfinancialmarketsallowconsumersto

bettertimetheirpurchases.

Examplesofhowfinancialmarketsallowconsumerstobettertimetheirpurchasesinclude:

?Thepurchaseofadurablegood,likeacarorfurniture.

?Payingfortuition.

?Payingthecostofrepairingafloodedbasement.

Inallthreecases,consumerswereabletopayforagoodorservice(educationorthe

reparationofafloodedbasement)withouthavingtowaittosaveenoughandonlythenbeing

abletoaffordsuchgoodsandservices.

4.Ifyoususpectthatacompanywillgobankruptnextyear,whichwouldyouratherhold,

bondsissuedbythecompanyorequitiesissuedbythecompany?Why?

Youwouldratherholdbonds,becausebondholdersarepaidoffbeforeequityholders,who

aretheresidualclaimants.

5.SupposethatToyotasellsyen-denominatedbondsinTokyo.Isthisdebtinstrument

consideredaEurobond?HowwouldyouranswerchangeifthebondweresoldinNewYork?

IftheYendenominatedbondissoldinTokyo,thenitisnotconsideredaEurobond,Ifthe

bondissoldinNewYork,thenitisconsideredaEurobond.

6.Describewhoissueseachofthefollowingmoneymarketinstruments:

a.Treasurybills

b.Certificatesofdeposit

c.Commercialpaper

d.Repurchaseagreement

e.Fedfunds

Treasurybillsareshort-termdebtinstrumentsissuedbytheUSgovernmenttocover

immediatespendingobligations,i.e.financedeficitspending.Certificatesofdeposit(CD)are

issuedbybanksandsoldtodepositors.Corporationsandlargebanksissuecommercialpaper

asamethodofshort-termfundingindebtmarkets.Reposareissuedprimarilybybanksand

fundedbycorporationsandotherbanksthroughloansinwhichtreasurybillsserveas

collateral,withanexplicitagreementtopayoffthedebt(repurchasethetreasuries)inthe

nearfuture.Fedfundsarcovernightloansfromonebanktoanother.

7.Whatisthedifferencebetweenamortgageandamo^age-backedsecurity?

Mortgagesareloanstohouseholdsorfirmstopurchasehousing,land,orotherrealstructures,

wherethestructureorlanditselfservesascollateralfortheloans.Mortgage-backedsecurities

arebond-likedebtinstrumentsthatarebackedbyabundleofindividualmortgages,whose

interestandprincipalpaymentsarecollectivelypaidtotheholdersofthesecurity.inother

words,whenanindividualtakesoutamortgage,thatloanisbundledwithotherindividual

mortgagestocreateacompositedebtinstrument,whichisthensoldtoinvestors.

8.TheU.S.economyborrowedheavilyfromtheBritishinthenineteenthcenturytobuilda

railroadsystem.Whydidthismakebothcountriesbetteroff?

TheBritishgainedbecausetheywereabletoearnhigherinterestratesasaresultoflending

toAmericans,whiletheAmericansgainedbecausetheynowhadaccesstocapitaltostartup

profitablebusinessessuchasrailroads.

9.AsignificantnumberofEuropeanbanksheldlargeamountsofassetsasmortgage-backed

securitiesderivedfromtheUS,housingmarket,whichcrashedafter2006,Howdoesthis

demonstratebothabenefitandacosttotheinternationalizationoffinancialmarkets?

Theinternationaltradeofmortgage-backedsecuritiesisgenerallybeneficialinthattheEuropean

banksthatheldthemortgagescouldearnareturnonthoseholdings,whileprovidingneeded

capitaltoU.S.financialmarketstosupportborrowingfornewhomeconstructionandother

productiveuses.Inthissense,bothEuropeanbanksandU.S.borrowersshouldhavebenefitted.

However,withthesharpdeclineintheU.S.housingmarket,defaultratesonmortgagesrose

sharply,andthevalueofthemortgage-backedsecuritiesheldbyEuropeanbanksfellsharply.

EventhoughthefinancialcrisisbeganprimarilyintheUnitedStatesasahousingdownturn,it

significantlyaffectedEuropeanmarkets;Europewouldhavebeenmuchlessaffectedwithout

suchinternationalizationoffinancialmarkets.

10.Howdoesrisk-sharingbenefitbothfinancialintermediariesandprivateinvestors?

Financialintermediariesbenefitbycarryingriskatrelativelylowtransactioncosts.Since

higherriskassetsonaverageearnahigherreturn,financialintermediariescanearnaprofit

onadiversifiedportfolioofriskyassets.Individualinvestorsbenefitbyearningreturnsona

pooledcollectionofassetsissuedbyfinancialintermediariesatlowerrisk.Thefinancial

intermediarylowersrisktoindividualinvestorsthroughthepoolingofassets.

ILHowcantheadverseselectionproblemexplainwhyyouaremorelikelytomakealoantoa

familymemberthantoastranger?

Becauseyouknowyourfamilymemberbetterthanastranger,youknowmoreaboutthe

borrower'shonesty,propensityforrisk-taking,andothertraits.Thereislessasymmetric

informationthanwithastrangerandlesslikelihoodofanadverseselectionproblem,withthe

resultthatyouaremorelikelytolendtothefamilymember.

12.Oneofthefactorscontributingtothefinancialcrisisof2007-2009wasthewidespread

issuanceofsubprimemortgages.Howdoesthisdemonstrateadverseselection?

Theissuanceofsubprimemortgagesrepresentslendersloaningmoneylothepoolof

potentialhomeownerswhoarethehighestcreditriskandhavethelowestnetwealthand

otherfinancialresources.Inotherwords,thisgroupofborrowersmostinneedofmortgage

creditwasalsothehighestrisktolenders,aperfectexampleofadverseselection.

13.Whydoloansharksworrylessaboutmoralhazardinconnectionwiththeirborrowersthan

someotherlendersdo?

Loansharkscanthreatentheirborrowerswithbodilyharmifborrowerstakeactionsthat

mightjeopardizetheirpayingofftheloan.Hence,borrowersfromaloansharkarelesslikely

toincreasemoralhazard.

14.Ifyouareanemployer,whatkindsofmoralhazardproblemsmightyouworryaboutwith

regardtoyouremployees?

Theymightnotworkhardenoughwhileyouarenotlookingormaystealorcommitfraud.

15.Iftherewerenoasymmetryintheinfonnationthataborrowerandalenderhad,coulda

moralhazardproblemstillexist?

Yes,becauseevenifyouknowthataborroweristakingactionsthatmightjeopardizepaying

offtheloan,youmuststillsloptheborrowerfromdoingso.Becausethatmaybecosily,you

maynotspendthetimeandefforttoreducemoralhazard,andsotheproblemofmoral

hazardstillexists.

16.“Inaworldwithoutinfimnationcostsandtransactioncosts,financialintermediarieswould

notexist.Isthisstatementtrue,false,oruncertain?Explainyouranswer.

True.Iftherearenoinformationalortransactionscosts,peoplecouldmakeloanstoeach

otheratnocostandwouldthushavenoneedforfinancialintermediaries.

17.Whymightyoubewillingtomakealoantoyourneighborbyputtingfunds加asavings

accountearninga5%interestrateatthebankandhavingthebanklendherthefundsata

10%interestrate,ratherthanlendherthefundsyourself?

Becausethecostsofmakingtheloantoyourneighborarehigh(legalfees,feesforacredit

check,andsoon),youwillprobablynotbeableearn5%ontheloanafteryourexpenses

eventhoughithasa10%interestrate.Youarebetteroffdepositingyoursavingswitha

financialintermediaryandearning5%interest.Inaddition,youarelikelytobearlessriskby

depositingyoursavingsatthebankratherthanlendingthemtoyourneighbor.

IS.Howdoconflictsofinterestmaketheasymmetricinfomationproblemworse?

Potentiallycompetinginterestsmayleadanindividualorfirmtoconcealinformationor

disseminatemisleadinginformation.Asubstantialreductioninthequalityofinformationin

financialmarketsincreasesasymmetricinformationproblemsandpreventsfinancial

marketsfromchannelingfundsintothemostproductiveinvestmentopportunities.

Consequently,thefinancialmarketsandtheeconomybecomelessefficient.Thatis,false

informationasaresultofaconflictofinterestcanleadtoamoreinefficientallocationof

capitalthanjustasymmetricinformationalone.

79.Howcantheprovisionofseveraltypesoffinancialservicesbyonefirmbebothbeneficial

andproblematic?

Financialfirmsthatprovidemultipletypesoffinancialservicescanbemoreefficientthrough

economiesofscope,thatis,byloweringthecostofinformationproduction.However,this

canbeproblematicsinceitcanalsoleadtoconflictsofinterest,inwhichthefinancialfirm

providesfalseormisleadinginformationtoprotectitsowninterests.Thiscanleadtoa

worseningoftheasymmetricinformationproblem,makingfinancialmarketslessefficient.

20.Ifyouweregoingtogetaloantopurchaseanewcar,whichfinancialintermediarywould

youuse:acreditunion,apensionfund,oraninvestmentbank?

Youwouldlikelyuseacreditunionifyouwereamember,sincetheirprimarybusinessis

consumerloans.Insomecases,ilispossibletoborrowdirectlyfrompensionfunds,butit

cancomewithhighborrowingcostsandtaximplications.Investmentbanksdonotprovide

loanstothegeneralpublic.

21.Whywouldalifeinsurancecompanybeconcernedaboutthefinancialstabilityofmajor

corporationsorthehealthofthehousingmarket?

Mostlifeinsurancecompaniesholdlargeamountsofcorporatebondsandmortgageassets;

thus,poorcorporateprofitsoradownturninthehousingmarketcansignificantlyadversely

impactthevalueofassetholdingsofinsurancecompanies.

22.In2008,asafinancialcrisisbegantounfoldintheUnitedStates,theFDICraisedthelimit

oninsuredlossestobankdepositorsfrom$100,000peraccountto$250,000peraccount.

Howwouldthishelpstabilizethefinancialsystem?

Duringthefinancialpanic,regulatorswereconcernedthatdepositorsworriedtheirbanks

wouldfail,andthatdepositors(especiallywithaccountsover$100,000)wouldpullmoney

frombanks,leavingcash-starvedbankswithevenlesscashtosatisfycustomerdemandsand

day-to-dayoperations.Thiscouldcreateacontagiousbankpanicinwhichotherwisehealthy

bankswouldfail.Raisingtheinsurancelimitwouldreassuredepositorsthattheirmoneywas

safeinbanksandpreventabankpa