Posted: December 12th, 2016
1. What are the pros and cons of a Central Bank taking responsibility for both monetary policy and financial regulation?
2. What are the pros and cons of Central Bank addressing asset bubbles?
3. How does the collapse of asset bubbles create recessions?
It institutes a cycle of deleveraging, credit crunches develop, reluctance to invest, spend. How deleveraging of banks has an effect on their lending practices. Less capital u have less new loans u can support.
4. What were the causes of financial crisis of 2007?
5. Was the Fed responsible for the housing bubble?
Some people say yes, some people say no. good defense of your reason, you could make both arguments and compare them. Why is there controversy?
6. Identify and discuss 3 innovations enacted by the Fed in response to the financial crisis.
Changes in discount window, new facilities, adding liquidity to MMMFs.
7. Discuss the Fed s options for an exit strategy. What risks exist?
8. Why are CBs concerned with price stability?
9. Describe how the Fed will mechanically execute its exit strategy?
How do the NY trading desk and SOMA implement exit strategy? Have to use reverse repos/ match sale reverse purchases. Market interest rates are more interesting than what the fed would offer in a bad situation. Mechanically inside the Fed what they are doing to adjust the level of bank reserves.
10.Why are widening rate spreads in credit markets always troubling?
Indicate abnormal lack of liquidity. Credit spread should be normal! If it jumps up sign of trouble. Liquidage problems.
11. Is there a tradeoff between unemployment and inflation?
12. What is interest rate risk and how does it affect the management of financial institutions?
13. How does ALM(asset liability management) evolve and how does it alter financial institutions perception of profitability and risk?
14. How do you insolate your net interest margin and protect it from changing interest rates?
Where does my interest rate risk exposure come from and how do I measure it? If exposure to risk is high, we should act. It s better for banks if IR go down. It s better if there s a more positive slope for the yield curve. Lower IR makes it easier to sustain the NIM. Because if the rates are lower. Liabilities are very short term. And assets are very long term. A more positive yield curve is better. Banks borrow short term and lend long term.
25. How do swaps cross immunities financial institution with posing interest rate exposures?
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