Question 11

Define
Eurodollars
federal funds rate
underwriting spread
real rate of interest
general obligation bond

Question 10

10) Evaluate the following statement.
The greater the difference in real interest rates between the United States and the United Kingdom the larger the difference between the spot and futures prices of a dollar in pounds.

Question 9

9) Explain how the actions of arbitrageurs will make the exchange rates among three currencies consistent.

Question 8

8) Explain how the supply and demand for securities is the mirror image of the supply and demand for loanable funds as a framework for determining equilibrium interest rates.

Question 7

7) Evaluate the following statement:
"Interest rates are determined by the supply and demand for securities and not the supply and demand for loanable funds."

Question 6

6) Explain the process which forces the price of the futures contract into equality with the price of the underlying asset during the delivery period.

Question 5

5) Why might a general belief that aviation fuel prices would rise make it more difficult for US AIRWAYS to hedge against rising fuel costs using option contracts? Explain.

Question 4

4) Why might investors be willing to fund a group of individually risky projects (none of which they would fund by itself)? Explain.

Question 3

3) How is it possible that if you combine two risky securities (each with a high standard deviation of returns) into a portfolio, the risk of the portfolio can be zero (the standard deviation of returns on the portfolio is zero)?

Question 2

2) How does William Poole explain what he call the "term structure puzzle"?

Question 1

1) Evaluate the following statement:
"The stronger the preferred habitats of participants in financial markets the stronger the explanatory power of the pure expectations approach to explaining the shape of the yield curve."