StudentShare solutions
Triangle menu

Money, Banking, and Financial Markets - Assignment Example

Not dowloaded yet

Extract of sample
Money, Banking, and Financial Markets

Since demand for money varies with interest rates, velocity also changes with changes in interest rates. Demand for money also depends upon the expectations about future interest rates. In an article published in The Globe and Mail on July 31, 2013, the author, Linda Stern, suggested to ignore advice such as “Don’t take a mortgage with you in retirement”, and “Older Folks should invest more conservatively” (Stern). In support to the view “Don’t take a mortgage with you in retirement”, it is stated in the article that carrying forward mortgages over a long period of time not only increases the risk of investment but also involves a greater expenditure on the side of the loan taker. Carrying a mortgage over a long period increases its value and interest, so it is advisable not to use a large amount when paying mortgages and instead to invest that extra amount in some other investment plans which may be beneficial in the long run. Earlier payment of mortgages is related to the emotions of the loan-taker, reduces the risk and leads to savings due to lower interest payments. Ignoring the advice may be risky, but it may bring greater potential and stronger chance of capitalization since no one is aware of the opportunities that may come in the future. The situation will be more understandable from the following example. A person has $100,000 in cash and a 15-year mortgage with a balance of $100,000 at 4% interest. Case 1: The person decides to pay off his mortgage with the available cash and to invest the mortgage payment that would have to be paid per month (i.e. $739) for 15years at 7%. By paying the mortgage, the person saves %33,143, and at the end of 15 years investment amounts to $237,706. Case 2: The person decides not to pay the mortgage and invest cash of $100,000 for 15 years at 7% interest. After 15 years, the investment amounts to $284,894, and $33,143 are paid as interest for the mortgage. Subtracting the payment, a net gain of $251,751 is made by the person, if he/she decides to pay off the mortgage later. On deciding to pay off the mortgage, the person has received an emotional satisfaction, less risk and higher liquidity, but he/she has also suffered an opportunity loss of $14,045. Thus, every financial investment and debt is added to a price and risk, but decision is to be taken wisely. In support to the view “Older Folks should invest more conservatively”, it is stated in the article that when a person moves towards old age, he/she should either invest less in stocks or withdraw all money from stocks and invest in instruments which will guarantee returns with less amount of risk involved. They may choose to invest in certificate of deposits or bonds. Investment on guaranteed returns for short term may hold a support to the person at the time of retirement since it would assure a return at the end of the period. But ignoring the advice, it can be said that investment in bonds too can be a risky investment to the investor since future can only be assumed and not ascertained. If the interest rate rises in future, the bond holders may lose value, and investment will become riskier. Even with the rise in the expected rate of inflation the investor may face the same risk. Thus, the person may face the same ...Show more


Name Instructor Course Date Money, Banking, and Financial Markets Answer 1 In the Keynesian theory of money demand, Keynes stated that demand for money depends on interest and income. Money is held by an individual to facilitate normal transactions and to serve as a precaution for unexpected contingencies that may take place in the future…
Author : clyde59
Money, Banking, and Financial Markets essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the assignment on your topic
"Money, Banking, and Financial Markets"
with a personal 20% discount.
Grab the best paper

Related Essays

Financial Markets: Distinguishing between international banking and global banking
Either banking system deals with assets and borrowers from a location other than the institutional head quarter of the bank. More phenomenally, the difference is identified between the fund raising and distribution stream of both of them while they deal with foreign deposits and borrowings.
12 pages (3000 words) Assignment
Macroeconomics of Financial Markets
Question One A rising dollar makes goods produced in the US expensive in other countries and while goods produced in other countries become cheaper for consumers in the United States. Thus, a rising dollar makes imports cheaper in the US and exports expensive in other countries (Mishkin, 2010).
9 pages (2250 words) Assignment
Financial Data Analysis
Theory of Portfolio Choice offers a basis for understanding relationships between economic variables. According to the theory, “demand for assets is positively related to wealth,” derivable utility from the asset relative to other commodities, and relative liquidity, but inversely related to risks in other commodities (Mishkin 560).
4 pages (1000 words) Assignment
Macroeconomics of Financial Markets
Thus, a rising dollar makes imports cheaper in the US and exports expensive in other countries (Mishkin, 2010). Foreign businesses that would like to purchase goods in the US
9 pages (2250 words) Assignment
Money & Banking
culated, estimated and reported each month by the Bureau of Labor Statistics (BLS), that operates under the US Department of Labor using data gathered from the Current Population Survey. The Bureau of Labor Statistics estimates unemployment, employment and labor force of over
3 pages (750 words) Assignment
Global banking issues
The increase in reserve requirement helps the central bank to limit multiple deposits expansion in the banking systems. In the United States, commercial banks borrow reserves from Fed when the federal fund rate is higher than
2 pages (500 words) Assignment
Money, Banking, and Financial Markets
The index has increased by 268 points since last year that is equivalent to 11% (The Globe and Mail Par 2). There are signs of more growth with the Central bank stepping up its efforts to ensure the growth is sustained. The global financial
9 pages (2250 words) Assignment
Money & Banking
During this period, both the consumers and commercial banks are afraid of the future and consumers opt for precautionary savings instead of spending while commercial banks lose the interest to lend money. This leads to a “Money Trap” situation where
2 pages (500 words) Assignment
Money and banking
that may take place due to insurance companies providing restriction less insurance is that individuals may themselves try to cause fire and then claim for damages. 5. The benefit of the adoption of too-big-to-fail policy is that banks will take less stress and may invest in
1 pages (250 words) Assignment
Money and Banking Assignment
An integrated and well-developed money market organization is necessary not only for an effective policy in any country but also for improving the operational efficiency of the banking system and modernizing its working in the context of the long-term objectives of the
6 pages (1500 words) Assignment
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation