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City University of Hong Kong - EF 3333Problem Set 1 EF3333

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Vipul Vijayavargiya 54193580 Problem Set 1 EF3333 (Fall 2018) Due: September 12, 2018 at 12 PM Problem 1. How would banks benefit when interest rates fall? Banks can benefit from low interest rate... s as, the cost of borrowing would decrease, in which the incentive to borrow would increase for consumers also increasing banks overall capital. This would also improve banks’ balance sheets as they can get cheaper loans themselves through interbank transactions. Problem 2. How does an increase in the value of the U.S. dollar affect businesses in the Eurozone? Businesses in the Eurozone are dollar denominated business, as they have borrowing with US companies, so if dollar value increases, their liability would increase by the value of dollar increase. Problem 3. Explain the main difference between a bond and a common stock. Stocks represent ownership in the firm’s corporation, whereas bonds on the other hand are a form of long-term debt in which the issuing corporation promises to make periodic payments at pre-specified date [Show More]

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