What is meant by unbundling? How might this lead to more economic efficiency and less risk in the financial system? How do economies of scale fi t in?.
4. For commercial banks, what is meant by a managed liability? What role do liquid
assets play on the balance sheet of commercial banks? What role do money
market instruments play in the asset and liability management of large global
banks? In other words, how do banks manage unexpected changes in loans or core deposits? What roles do large CDs and eurodollars play? Liquid assets? What
has happened to the eurodollar market during the recent financial turmoil?
13. Describe the steps by which a change in the central bank’s policy interest rate
affect the array of short-term interest rates.
7. According to the Modigliani‐Miller Theorem, does it benefit a firm’s shareholders
when more leverage is added to the fi rm’s financial structure? Why or why not?
10. Why are junk bonds riskier than investment‐grade bonds? How do investors in
junk bonds reduce their risk exposure?
16. Why are the GSEs said to be characterized by moral hazard? Any evidence that
this is a serious problem?
1. What is meant by unbundling? How might this lead to more economic efficiency
2. Why might investors be cautious about buying participations in a securitized
pool of loans? How is this related to adverse selection? How might they be assured
about the underlying quality of assets in the pool?
9. How can structured securities create value?