ECO 316 Week 3 DQ 2

 This archive file of ECO 316 Week 3 Discussion Question 2 Should I Expect a Bail Out? contains:


 From Chapter 15, complete problem 19 (page 363): Suppose that you manage a small SL that has a net worth of -$50 million. You fear that within two years, regulators will discover that your firm is insolvent and will shut you down. You have two possible investment strategies: (a) continue to operate as you have been, offering market interest rates on CDs to finance mortgage loans, or (b) offer higher than market interest rates on CDs and use the increased funds to speculate in junk bonds and real estate. Your analysis tells you that strategy (a) has a 10% chance of losing $10 million and a 90% chance of gaining $20 million, with an expected return of $17 million. Strategy (b) has an 80% chance of losing $50 million and a 20% chance of gaining $75 million, with an expected return of -$25 million. What strategy should you follow? Why? What are the consequences of your choice? What should a regulator do in this situation? How might your behavior change if you expect a government bail out?

Economics - General Economics
 Week 1
 Should You Invest Short Term? - Week1 DQ1 ECO316

 What are the implications of a U.S. policy to “bail out” firms and heavily subsidize the economy? How could such a policy create inflation and higher interest rates? If you have cash available should you wait until interest rates rise?
 Treasury Inflation Protection Bonds - Week1 DQ2 ECO316

 Week 2

 New Product, Will I Be Rich? -Week2 DQ1 ECO316

 My company just came out with a new product? Should I buy a bunch of company stock and get rich? What are the pros and cons of such an investment?


 Mutual Fund Regulation - Week2 DQ2 ECO316
 From Chapter 12, complete problem 13 (page 276): Describe how mutual funds provide services related to risk sharing and liquidity. Distinguish a mutual fund from a bank. What do the differences you highlighted imply about the need for regulation of mutual funds as opposed to banks?
 Week 3
 Exchange Rate Risk - Week3 DQ1 ECO316
 From Chapter 16, complete problem 13 (page 382): Relate the problem of exchange rate risk in international banking to interest rate risk in domestic banking. On the basis of your understanding of interest rate risk, suggest strategies for managing exchange rate risk in international banking.


 Should I Expect a Bail Out? -  Week3 DQ2 ECO316
 From Chapter 15, complete problem 19 (page 363): Suppose that you manage a small SL that has a net worth of –$50 million. You fear that within two years, regulators will discover that your firm is insolvent and will shut you down. You have two possible investment strategies: (a) continue to operate as you have been, offering market interest rates on CDs to finance mortgage loans, or (b) offer higher than market interest rates on CDs and use the increased funds to speculate in junk bonds and real estate. Your analysis tells you that strategy (a) has a 10% chance of losing $10 million and a 90% chance of gaining $20 million, with an expected return of $17 million. Strategy (b) has an 80% chance of losing $50 million and a 20% chance of gaining $75 million, with an expected return of –$25 million. What strategy should you follow? Why? What are the consequences of your choice? What should a regulator do in this situation? How might your behavior change if you expect a government bail out?
 Impacts on Liquidity -

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