Economics

I. Describe each of the following financial instruments, in terms of maturity, risk, and liquidity. Identify a type of financial institution or other participant in the financial market (individuals, government, business) that are most likely to borrow using these instruments, and a type of institution or other participant that are most likely to lend using these instruments.

(a) Negotiable CDs

(b) Municipal Bonds

(c) Residential Mortgages

(d) Repurchase Agreements

(e) Banker's Acceptance

(f) Federal Funds

II. Describe each of the following financial intermediaries, in terms of its liabilities (what type of liabilities does it issue? who holds these liabilities?) and assets (what kinds of assets does it hold? who issued these assets?).

(a) Credit Unions

(b) Pension Funds

(c) Money Market Mutual Funds

(d) Finance Companies

III. Adverse selection and moral hazard

Are the examples below adverse selection or moral hazard? Explain.

(a) Those with a history of diseases are more likely to purchase health insurance policies.

(b) Those with health insurance take care of themselves less carefully.

IV. List and explain three primary functions of money.

IV. Compute the PDV of getting $150,000 per year for the next five years, with the first payment