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Discuss three reasons why long-term bonds riskier

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Reference no: EM13848884 , Length: 1350 Words

1. COMMODITY MONEY

The President of a small country abolishes the current money system and replaces it with CORN as money.

a. Describe if this new money system will be successful by looking at the 4 major functions of money
b. Would the government lose control of the size of the money supply and what might be the consequences?
c. Explain how "Gresham's law" might evolve with Corn money

2. SWEEP ACCOUNTS ISSUED BY BANKS--monetary aggregates

While the textbook did not discuss "sweep accounts", please do a Google search on this topic (including the words "M1" and "M2") and discuss the following:

a. What are sweep accounts and how are they compared with "overdraft" protection available in most banks
b. Slide 22 in Chapter 3 PPT presentation states the following: "M2 is being more commonly used in empirical studies since it more closely correlates with economic activity than M1."How might "sweep accounts" be related to this statement.

3. SHORT-TERM BONDS versus LONG-TERM BONDS

a. Discuss three reasons why Long-term bonds are riskier than short-term bonds
b. What is the "term premium" of the yield curve and how do riskier long-term bonds give a permanent modification to the shape of the yield curve.

Reference no: EM13848884

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