Feds monetary policy
Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both.
- Describe an economic Feds monetary policy trade off faced by the Fed in achieving its economic policy objectives.
- What are recognition and implementation lags? How do these influence security prices?
- Why might the Fed’s monetary policy depend on the fiscal policy that is implemented?
- Stock market conditions serve as a leading economic indicator. Assuming the U.S. economy is in an expansion. what are the implications of this indicator? Why might this indicator be inaccurate?
- Assess the economic situation today. Is the current administration more concerned with reducing unemployment or inflation? Does the Fed have a similar opinion? If not, is the administration publicly criticizing the Fed? Is the Fed publicly criticizing the administration? Explain.
- What type of organization issues commercial paper? Given the short-term nature of commercial paper, why would ratings agencies assign ratings to them?
- The maximum maturity of commercial paper is 270 days. Why would an organization issue commercial paper rather than longer-term securities, even if it needs funds for a long period of time?
- Assume an investor purchased a three-month T-bill with a $10,000 par value for $9,500 and sold it 45 days later for $9,600. What is the yield?
- A money market security that has a par value of $10,000 sells for $8,924.70. Given that the security has a maturity of two years, what is the investor’s required rate of return?
- A U.S. investor obtains British pounds when the pound is worth $1.30 and invests in a one-year money market security that provides a yield of 4 percent (in pounds). At the end of one year, the investor converts the proceeds from the investment back to dollars at the prevailing spot rate of $1.32 per pound. Calculate the effective yield.