SOLUTIONS MANUAL
Chapter One

Answers to Chapter 1
Questions:

1. a. primary b. primary c. secondary d. secondary e. secondary

2. a. money market b. money market c. capital market d. capital market e. capital market f. money market g. money market h. money market i. capital market j. money market

3. The capital markets are more likely to be characterized by actual physical locations such as the New York Stock Exchange or the American Stock Exchange. Money market transactions are more likely to occur via telephone, wire transfers, and computer trading.

4. According to Figure 1-3, the money market instrument that has had the largest growth is the Federal funds and repurchase agreements which grew from 18.1% of the total value of money market securities outstanding in 1990 to 25.6% in 2010.

5. The major instruments traded in capital markets are corporate stocks, securitized mortgages, corporate bonds, Treasury notes and bonds, state and local government bonds, U.S. government owned and sponsored agencies, and bank and consumer loans.

6. According to Figure 1-4, the capital market instrument that has had the largest growth is the corporate stocks which grew from 23.6% of the total value of money market securities outstanding in 1990 to 43.4% in 2000 and was still at 31/3% in 2010. One reason for the sharp increase in the amount of equities outstanding is the bull market in stock prices in the 1990s. Stock values fell in the early 2000s as the U.S. economy experienced a downturn—partly because of 9-11 and partly because interest rates began to rise―eate forums for parties to and stock prices fell. Stock prices in most sectors subsequently recovered and, by 2007, even surpassed their 1999 levels. Stock prices fell precipitously in during the financial crisis