Professional Documents
Culture Documents
CH4
CH4
of
Asset
Demand
1. Wealth
2.
Expected
Return
3.
Risk
4.
Liquidity
Asset
a
piece
of
property
that
is
a
store
of
value
Financial Markets and Institutions
4-1
4-2
4-3
4-4
4-5
Variable
Change
in
Quantity
Demanded
1. Wealth
2. Expected Return
3. Risk
4. Liquidity
4-6
Equilibrium Pt
Holding
Pd:
1
yr
Re
=
i
=
F
P
P
Financial Markets and Institutions
4-7
or Market-Clearing Price
4-8
Market
Implications
vWhen
the
PRICE
of
bonds
is
set
too
HIGH:
Bs
>
Bd
:
Excess
Bs
people
want
to
SELL
more
bonds
than
others
want
to
buy,
the
price
of
the
bonds
will
FALL;
as
long
as
price
is
above
equilibrium,
it
will
continue
to
fall
vWhen
the
PRICE
of
bonds
is
set
too
LOW:
Bs
<
Bd
:
Excess
Bd
people
want
to
BUY
more
bonds
than
others
want
to
sell,
the
price
of
the
bonds
will
BE
DRIVEN
UP;
as
long
as
price
is
below
equilibrium,
it
will
continue
to
rise
Financial
Markets and Institutions
4-9
4 - 10
4 - 11
If h, h
4 - 12
If
h,
i
Higher
expected
interest
rates
in
the
future
i
the
4 - 13
If
h,
i
Higher
expected
ination
rates
in
the
future
i
the
4 - 14
If
h,
i
4 - 15
If h, h
4 - 16
4 - 17
If h, h
4 - 18
If h, h
4 - 19
If h, h
4 - 20
4 - 21