Economics

# Learning Objective. The student should be able to:

1 describe the process through which savings are directed to productive investment in direct and indirect finance.

2 define with examples: primary and secondary markets, brokers, dealers, OTC markets, exchanges, money market instruments, Eurocurrencies, Eurobonds.

3 distinguish between equity and debt securities and state the pros and cons for both investors and issuers.

4 describe major macroeconomics measures (GDP, rate of growth, productivity, unemployment rate, major interest rates, inflation rate).

5 distinguish between monetary and fiscal policy.

6 distinguish between the Fed funds rate and the discount rate.

7 trace the evolution of money from barter to electronic fiat money.

8 discuss the origin of banking.

9 discuss role of seigniorage under commodity and fiat standard.

10 list and discuss three functions of money.

11 define M1, M2.

12 explain with an example why bond prices and interest rates move in opposite directions.

13 define coupon bond, discount (or zero coupon) bond, consol or perpetuity, yield to maturity, basis point.

14 Identify function in Excel to calculate the present value of a coupon bond given maturity, coupon rate, face value and rate of discount.

15 read quotes in WSJ for Treasury bonds, notes and bills.

16 discuss relationship between the return on TIPS and the real rate of interest.

17 read and interpret the Treasury yield curve in the WSJ.

18 explain reasons why indirect finance is more important than direct finance for external funding of U.S. businesses.

19 define with examples: asymmetric information, principal-agent problem, moral hazard, adverse selection.

20 list and indicate relative size of the major assets