1. Suppose youdiscover a treasure check of $10 billion in cash. a. Is this a rea

Question

1. Suppose youdiscover a treasure check of $10 billion in cash.

a.     Is this a real or financial asset?

b.    Is society any richer for the discovery?

c.     Are you wealthier?

d.    Can you reconcile your answers to (b) and (c)?Is anyone worse off as a result of the discovery?

2. Financial engineering has been disparaged asnothing more than paper shuffling. Critics argue that resourcesused for rearranging wealth (that is, bundling andunbundling financial assets) might be better spent oncreating wealth (that is, creating real assets). Evaluatethis criticism. Are any benefits realized by creating an array ofderivative securities from various primary securities?

3. Discuss the advantages and disadvantages ofthe following forms of managerial compensation in terms ofmitigating agency problems, that is, potential conflicts ofinterest between managers and shareholders.

a. A fixed salary.

b. Stock in the firm.

c. Call options on shares of the firm.

4. What is the relationship betweensecuritization and the role of financial intermediaries in theeconomy? What happens to financial intermediaries as securitizationprogresses?

Explanation / Answer

(1) (a) Cash is a financial asset because it is the liability ofthe federal government.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.