Reference no: EM132897940

1. Explain how the Treasury uses the primary market to obtain adequate funding for the U.S. government.

2. Who issues commercial paper? Which types of financial institutions issue commercial paper? Why do some firms create a department that can directly place commercial paper? Which criteria affect the decision to create such a department?

3. Based on what you know about repurchase agreements, would you expect them to have a lower or higher annualized yield than commercial paper? Why?

4. Explain how each of the following would use banker's acceptances: (a) exporting firms, (b) importing firms, (c) commercial banks, and (d) investors.

5. If bond yields in Japan rise, how might U.S. bond yields be affected? Why?

6. Explain how the credit crisis that began in 2008 affected the default rates of junk bonds and the risk premiums offered on newly issued junk bonds.

7. Based on your forecast of interest rates, would you recommend that investors purchase bonds today? Explain.

8. Determine the direction of bond prices over the last year and explain the reason for it.

9. What is the general relationship between mortgage rates and long-term government security rates? Explain how mortgage lenders can be affected by interest rate movements. Also explain how they can insulate themselves against interest rate movements.

10. Why is the 15-year mortgage attractive to homeowners? Is the interest rate risk to the financial institution higher for a 15-year mortgage or a 30-year mortgage? Why?