Chapter 5 Moneyand Capital Markets 5.1The Government Bond Market 5.1.1 when the government runs a deficit, it has to get the funds. There are three ways for the government to get funds. v printing new dollar bills v borrowing:selling government securities to individuals, to banks ,to foreigners,etc. v increasing tax 5.1.2 types of securities treasury bills: the shortest-term government securities with original maturities of 3 months, 6 months or one year. treasury notes: securities with an original maturity of between one year and ten years. treasury bonds: which may be issued with any maturity longer than ten years. 5.1.3 repurchase agreements(回购协议 repos) The sale of securities with a commitment to buy them back at a specified date and at a specified price. vRepurchase agreements market is closely related to the market for borrowing and lending reverses owned by banks ,called the federal funds market. vfederal funds (银行间的日拆贷款):An unsecured loan between banks where the funds that are lent are transferred the same day the loan is made. 5.2 Bank-related Securities： 5.2.1 CDs Banks can raise funds by issuing certificates of deposit, which are called CDs. Large-sized CDS ,which can be traded, transferred, are negotiable certificates of deposit. The differences between negotiable certificates of deposit and common time certificatesdeposit. 5.2.2 EURODOLLARS（欧洲美元） Eurodollars are dollars-denominated time deposits held abroad in foreign bank or in foreign branches of US banks. A number of large banks in London act as dealers in Eurodollars, they quote rates at which they are willing to borrow and lend.. The rate they will lend at is called LIBOR(London interbankoffered rate). The rate they will borrow at is called LIBID(London interbankbid rate). The Eurodollar market has become so active in recent years that LIBOR is now the reference rate in many financial contracts。 5.3 Corporate Securities 5.3.1 high-quality corporate bonds attract buyers because they usually yield more than government or municipal bonds, at the same they are considered safer than stock. 5.3.2 All Corporate Securities are not identical. The differences include: Call provisions提前收回条款:the issuer has the right to pay off part or all of the bond before the scheduled maturity date. Conversion features转换特征:the holders of the corporate securities have the right to convert their bonds into shares of the company’s common stock at a predetermined price. 5.3.3 Corporate securities also differ from one another in quality They can be divided according to their ability to repay interest and principal. 债券信用评级主要考虑3项原则 Rating categories: Aaa Aa A Baa they are called investment grade （投资级） Ba B Caa Ca C：they are called high – yield bonds（高收益债 券） or junk bonds(垃圾债券) 5.3.4 Commercial paper (CP) It is a form of unsecured (无担保的)corporate borrowing. Issuers of CP are divided into two categories: financial companies nonfinancialcompanies. 4. Municipal （市政）Securities 4.1 Municipal Securities mean state(州) and local（地方） government bonds, they carry the lowest yields of all securities if similar maturities and risk, however, their interest is legally exempt from federal income taxation. Two kinds of municipal bonds: general obligation bonds revenue bonds 5. mortgage securities 抵押担保债券 Collateralized mortgage obligation(CMO)按揭抵押债务 6.The Stock Market 6.1 Structure of the Stock Market the secondary market the primary market The New York Stock Exchange(NYSE) The National Association of Securities Dealers Automated Quotation System(NASDAQ) 6.2 Factors Determining the Fluctuation of Stock Prices Dow Jones Industrial Average (DJIA) 500 Stocks in Standard & Poor’s stock index company earnings government bonds rates market interest money and stock prices: A rapid expanding money supply leads to higher stock values; inadequate monetary growth leads to a falling market.