Question-

1. Explain the basic functions and the characteristics of financial market

2. What are the three functions of money? 

3. What is the future value of a $100 deposit earning interest at 7% for the next two years?

4. Explain the effect on the future value when interest rate increases (or decreases)

5. Distinguish the difference between real and nominal interest rates.

6. What factors will shift the demand of bonds?

7. What factors will shift the supply of bonds?

8. What items are reported as assets for a bank?  What items are reported as liabilities for a bank?

9. If a bank has $400,000 of checkable deposits, a required reserve ratio of 20%, and it holds $160,000 in reserves, then the maximum deposit outflow it can sustain is?

10. Explain the following terms:

a) Adverse selection

b) Moral hazard

11. What are off-balance-sheet activities of a bank?

12. What is the contagion effect?

13. Explain why banks engage in financial engineering?

14. What the functions of Federal Reserve?

15. Explain why the Federal Reserve is independent?