My father passed and my head is everywhere but in my coursework. I need to compl

Question

My father passed and my head is everywhere but in my coursework. I need to complete this exam by 2/3/2014 at 10am EST. Its last minute and I can not think, so if someone can help me with these questions in any way, It would be greatly appreciated.

1.    How do large corporations adjust their liquidity in the money markets?

2.    What is the role of the financial system, and what are the two major component of the financial system?

3.    What is the main difference between money market and capital markets?

4.    What is the primary market? What does IPO stand for?

5.    What are some of the ways a financial institution or intermediary can raise money?

6.    Which financial institution is usually the most important to businesses?

7.    What is the difference between savers-lenders and borrower-spenders?

8.    What does a competitive financial system imply about interest rates?

9.    What is the real rate of interest, and how is it determined?

10. How does the nominal rate of interest vary over time?

11. Imagine you borrow $500 from your roommate, agreeing to pay her back the $500 plus 7 percent interest in one year. Assume inflation over the life of the contract is expected to be 4.25 percent. What is the total amount you will have to pay her back in a year? What percentage of the interest payment is the result of the real rate of interest?

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Answer: Total amount to pay back _____________________________

Answer: Percentage of interest of interest payment resulting from Real Rate: ________

12. Your parents have given you $1,000 a year before your graduation so that you can take a trip when you graduate. You wisely decide to invest the money in a bank CD that pays 6.75 percent interest. You know that the trip costs $1,025 right now and that the inflation for the year is predicted to be 4 percent. Will you have enough money in a year to purchase the trip?

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Answer: YES or NO _________

13. If the nominal rate of interest is 7.5 percent and the real rate is 4 percent, what is the expected inflation premium?

14. Identify the five fundamental principles of GAAP and briefly explain their importance.

15. Explain why firms prefer to use accelerated depreciation methods over straight-line method for tax purposes.

16. Compare and contrast depreciation expense and amortization expense.

17. Define book value accounting and marketing value accounting.

18. Differentiate between FIFO and LIFO.

19. Explain how the choice of FIFO versus LIFO can affect a firm

Explanation / Answer

1)Large industries can adjust their liquidity by allocation of their liquidity in trding acticity or by marketability by converting liquidity into cash and hence usin that amount as their assets.

2)Financial system enables borrowers and lenders to exchange funds and it's two main components are:

a)Formal Financial

b)Informal financial

3)Main difference between money and capital market is that risk is less in money market as compared to capital market since the money market deal with short term finance as compared to capital market which deal with long term finance.

4)Primary market is a part of capital market in which shares are offered to investors in order to raise their capital.IPO stands for Initial public offering that is done in case of primary market.

5)Financial instituitons can raise money by taking funds from the people and hence converting them to some loan amount to issue to some other person and hence obtaining rates according to the amount.

6)Direct financial market is most important to the buisness.

7)The main differnce is that saver lenders lend the money and borrower lenders borrows the money from saver-lenders.

8)It implies that during borrowing money borrower gets lowest possible interest rate and vice versa in case of lender as they get high rate of interest.

9)Real rate of interest measures the money one earns form his savings and it can be determined from the points when saving level of money is equal to the investment level.

10)Nominal rate fluctuates by change in real rate as well in the inflations.!!

11) Amount borrowed =$500

Interest= 0.07

Inflation=0.0425

Total interest=0.1125

Amount pay back= 500*0.1125+500=556.25

BY real interest = 500*0.07=$35+500=$535

12)Yes

Since the amount obtained=$1000*0.0675+$1000=$1067.5

and hence trip will be covered

13)By firsher equation

i=r+ delta P

delta P= i-r=(7.5-4)/100=3.5%

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