CIC2007

Money and Banking

Tutorial Group Tuesday 1-2
Chapter 5 Question 10

Members Matric No.

CARMEN LIM MEI SZE 17109666

CHING YONG QI 17149935

CHONG WEI CHIUN 17139191

DUNCAN DING TIEW HUI 17147806

A bond is a fixed income instrument that represents a loan
made by an investor to a borrower (typically corporate or
governmental).

Definition of bonds
Financial regulations
Definition

01 Rules and laws firms operating in the financial

industry that must be followed.

Why is it important

02 All of us depend on the financial system in one way or

another.
Market Equilibrium
When the amount that people are willing to buy
(demand) equals the amount that people are willing
to sell (supply) at a given price.

● The given price is called equilibrium or

market-clearing price.
● The interest rate corresponding to the
equilibrium price is called equilibrium or
market-clearing interest rate.
Excess Supply Excess Demand

occurs when the quantity of bonds supplied occurs when the quantity of bonds demanded
exceeds the quantity of bonds demanded. exceeds the quantity of bonds supplied.
 QUESTION 10
Suppose that many corporations decide not to
issue bonds, since it is now too costly to comply
with the new financial market regulations. Can
you describe the expected effect on interest
rates?
Supply curve and the expected effect

01
Supply curve
03
Interest rates
Shifted to the left Lowered

02
Bond’s price
04
Quantity of bonds
Increased Decreased (bought and sold)
 Factors that affect supply of bonds
1. Interest rates
- Interest rates makes bond attractive to other investors.
1. Inflation
- Inflation erodes investors’ purchasing power.
1. Credit Ratings
- Credit rating agencies assign credit ratings to bond issuers and to specific bonds.
- Credit rating provide information about an issuer’s ability to make interest
payments and repay the principal on a bond.
THANK
YOU