1、Unit 12. Goals of Monetary Policy,I. What is Monetary Policy?,Monetary policy is the central banks efforts to regulate the economy by managing the supply and cost of money and credit. It usually has four main goals: maximum employment, a stable price level, maximum and sustainable economic growth, b

2、alance in international payments.,II. Four Goals of Monetary Policy,a. Maximum Employment a) When the economy operates below its capacity, there are some idle resources and workers, which results in unemployment and lower GDP. In order to combat such a situation, the central bank increase money supp

3、ly to simulate the economy and solve the unemployment problem. b) Types of unemployment i) Frictional unemployment（摩擦性失業(yè)） involves searches by workers and firms to find suitable match-ups, is beneficial to the economy. ii) Structural unemployment（結(jié)構(gòu)性失業(yè)）is a mismatch between job requirements and the

4、skills or availability of local workers. But monetary policy can do little to handle it. c) The goal of employment Full employment, but not zero unemployment. A certain natural rate of unemployment is about 5 to 6 percent. (demand for labor equals the supply of labor),b. A Stable Price Level Price s

5、tability is desirable because a rising price level (inflation) creates uncertainty in the economy, and it may hamper economic growth. If there is a tendency of the rise of price level, the central bank will decrease money supply to slow down the economy to curb inflation. Note: Problems caused by in

6、flation to the economy: (i) Inflation conveyed by the prices of goods and services is harder to interpret when the overall level of price is changing, which complicates the decision-making for consumers, businesses and governments (ii) Inflation also makes it hard to plan the future. (iii) In period

7、s of inflation, wages increase lag behind price increases, that is, inflation erodes earnings.,C. Maximum and Sustainable Economic Growth The goal emphasizes the desirability of a rising standard of living and an expanding economy that creates jobs for an increasing population and minimize unemploym

8、ent. “Sustainable” is important, for experience shows that efforts to make the economy grow too fast breed inflation, and eventual recession. The goal of steady economic growth is closely related to the high employment goal because businesses are more likely to invest in capital equipment to increas

9、e productivity when unemployment is low. ( The employed workers are potential customers to buy more of the goods.) In order to achieve maximum (ii) Face value (Par value); (iii) The maturity date is the date of final payment; (iv) Coupon rate; (v) Interest payment date; (vi) Trustee (A trust company

10、 or large bank.) Bonds need not have a maturity, they may pay a fixed amount per year forever. These bonds are called perpetuities（永續(xù)年金）, which have been sold by the government.,III. Stocks,a. All corporate stock represents an ownership interest in a corporation, conferring on the holder a number of

11、 important rights as well as risks. There are 2 types of corporate stock: common and preferred stock（普通股和優(yōu)先股）. b. Common stock represents a residual claim against assets of the issuing firm, entitling the owner to share in the net earnings of the firm when it is profitable and share in the net marke

12、t value (after all debts are paid) of the companys assets if it is liquidated （清算）. By owning common stock, the investor is subject to the full risks of ownership, which means that the business may fail. If a company with outstanding shares of common stock is liquidated, the debts of the firm must b

13、e paid to the creditors first from any assets available. Then, the preferred stockholder receive their share of any remaining funds. At last, whatever is left accrues to common stockholder on a pro data basis.,Benefits Enjoyed by Common Stockholders,Common stockholders can elect the companys board d

14、irectors. They have preemptive rights, which give the current shareholders the right to purchase any new stock, convertible bonds or preferred stock issued by the firm in order to maintain a pro rata share of ownership when rationing. Common stockholders may vote on all matters that affect the firms

15、 important strategies, such as M how the futures price it to be quoted, limits on the amount by which the futures price can move in any one day. In the case of commodity, the exchange also specifies the product quality and the delivery date.,e.g. (1) you want to buy 5,000 bushels of wheat in 3 month

16、 and you anticipate the price after 3 months will go up from the current $ 2 per bushel to $ 3 per bushel, so you go long (買空) a futures contract to deliver at $ 2.5 per bushel after 3 month. As time goes by, after 3 months, if the price goes up to $3, you gain $ 2,500 (3-2.5)X5,000), but if the mar

17、ket price is still $2, you lose $ 2,500 (2.5-2)X5,000). (2) you want to sell 5,000 bushels of wheat in 3 month and you anticipate the price after 3 months will go down from the current $ 3 per bushel to $ 2 per bushel, so you go short (賣空) a futures contract to deliver at $ 2.5 per bushel after 3 mo

18、nth. As time goes by, after 3 months, if the price goes up to $2, you gain $ 2,500 (2.5-2)X5,000), but if the market price is still $3, you lose $ 2,500 (3-2.5)X5,000). Note: Go long or short means you borrow money to buy or sell.,III. Options,A. What is an option? An option is a contract conveying

19、a right to buy or sell designated securities or commodities at a specified price during a stipulated period. More precisely, it is an agreement between 2 parties in which one grants the other the right, but not the obligation, to buy an asset from or sell it to him or her under stated conditions. Th

20、ere are many types of options, such as index options, foreign currency options, future options, etc.,B. Types of Options,Call Options (買入/看漲期權(quán)) Put Options (賣出/看跌期權(quán)),(a) Call Option A call option grants the owner the right to purchase a specified asset for a specified price (called exercise/strike p

21、rice 執(zhí)行價(jià)格) within a specified period of time. Call options grant a right, but not an obligation, to purchase a specified asset. The seller (writer) of a call option is obligated to provide the specified asset at the price specified by the option contract if the owner exercises the option, the seller

22、 of a call option receives premiums (權(quán)酬) for the purchase as compensation. long (多頭)-the right to buy, not obligated call short(空頭)-obligated to sell, receive premiums as compensation,(b) Put Option A put option grants the owner the right to sell a specified asset for a specified price within a spec

23、ified period of time. Like call options, the owner pay a premium to obtain put options. They can exercise the option at any time up to the expiration date but are not obligated to do so. long (多頭)-the right to sell, not obligated put short(空頭)-obligated to buy, receive premiums as compensation,C. Am

24、erican b. full-service branch offices in foreign markets; c. simple booking offices (shell branches) - on offshore islands to attract Eurocurrency accounts and avoid domestic banking regulations; d. representative offices - find new customers and give local customers a point of contact with the home

25、 office, but can not take accounts; e. foreign IBFs in US - have computerized accounts maintained for international customers and subject to minimal US regulations; f. direct equity investment in foreign banks either alone or as JV with other foreign banks.,B. Factors Determining the Choice of Various Types,(a) depends on the banks goal