Money Supply and Demand

1
Chapter 6

• Money Supply and Demand
• Reflected by Interest Rates
• Money Market
• Short-Term Investments (lt1yr.)
• Fund Construction and Development
• Capital Market
• Intermediate Long-Term Investments
• Greater Risk ? Greater Yield

2

• Yield Curve
• Reverses in Inflationary Periods
• Federal Reserve Bank
• Reserve Requirements
• Discount Rate
• Federal Open Market Committee
• Fiscal Policy
• Crowding Out Effect of Deficits

3

• Interest Rates
• Rates Rise ? Discount
• Rates Fall ? Premium
• Real vs. Nominal
• Prime Rate
• Favored Customers
• Federal Funds Rate
• Bank-To-Bank
• Short-Term vs. Long-Term

4

• Certificates of Deposit
• Time Deposit At Bank/SL
• Commercial Paper
• Corporate Promissory Notes
• Short-Term
• Lower Interest Rates Than Bank Loans
• Municipal Notes Bonds
• Tax-Exempt
• Corporate Bonds
• Fixed Rate For 1Yrs.

5

• Stocks
• Ownership Share of a Firm
• Mortgages
• Lien Against Property Interest
• Collateral For Loans
• Guaranteed vs. Insured vs. Conventional
• Collateralized Mortgage Obligation (CMO)
• Securitization of Mortgages
• Sold by Fannie Mae/Freddie Mac/Ginnie Mae

6

• Contract for Deed
• Installment Sale
• Seller Keeps Deed Until Paid in Full
• Inflation and Business Cycles
• High Inflation ?Lender Hurt?
• Seek Equity Positions ?SL Crisis?
• Growth of REITS
• 4 Quadrant Capital Market
• Debt Equity
• Private Public

7

• Debt
• SLs Banks
• Insurance/Pension Funds
• Secondary Mortgage Market
• Fannie Mae
• Freddie Mac
• Ginnie Mae
• Farmer Mac

8

• Equity
• Subordinate to Debt Obligation
• Equity Dividend Cash Flows
• Equity Yield Dividends Appreciation
• Pension Funds/Insurance Firms/Foreign
• Growing Sources of Equity Capital

9

• Real Estate Investment Trusts (REITS)
• Real Estate as Security
• Tax benefits No Corporate Tax
• Created in 1960
• 1993 15.6 Bil.
• 1998 267.6 Bil.
• 2005 gt 500 Bil.