Kev

i thought it is the reason of rate of return.3 `* [. J4 n- Q5 y& G
CDs could have different ratings, AAA -> F,# g3 M2 k4 b7 C' I! }& A
more risky ones would have higher premium (interest rate) as a compensation for an investment.
% q2 i; l/ Z: }! wmain reason why ppl buy those risky CDs is because the rate of return exceeds their internal rate of return,
! Z4 f9 b1 M2 t) Ain other words, the interest rate of that investment > their required interest rate, therefore they invest in those securities.
1 I5 h. F# `/ n. e& sAlso, fund managers would include risky assets in their portfolio for different purposes, eg efficiency.9 E' a3 _+ F) v  _3 j0 A! k
similar to bonds, CDs trading in the secondary market have different value at different times,
1 D: u2 T# ^3 ]+ A, X- Q( Unormally the value is calculated by adding it's principle and interest. 6 x( @$ P* B0 E  j
eg. the value of the mortgage+the interests to be recieved in the future. 3 A- g8 Z: o! J( ~) D
banks who sell the CDs, could enjoy a few benefits like, the present value of cash and passing the risk of holding a debt to another party.  T" ^7 a# C1 |  c6 E! G

% f" I: L5 v4 o: k3 {im not quite sure if the multiplier effect does really matter in this case.) [+ L: I+ {; m2 B; V6 _4 y0 n
in stock market, it's the demand and supply pushing the price up/downwards.
8 N- ]1 X: B+ b4 g$ \For eg, A bought 10000 shares @10$ ; B sells 20000 shares to C @ $12,
6 s+ j* j* d. V& u5 A& a' `! g) X4 EA's shares would suddenly increase to $120000 from $100000 which does not invlove any $ transaction.) t: U- h; P# H$ C7 ~# \+ H
The capital loss that ppl suffer nowadays, i believe, most of them does not really suffer a real $ lost yet as long as they dont sell their securities.
7 e6 K2 A+ o& W, Xbut the value of their assets did really drop significantly.
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$ z# H. d2 H+ b# {2 `# G; b; ?[ 本帖最後由 Kev 於 2008-10-8 07:26 PM 編輯 ]

Kev

原帖由 balachiDavis 於 2008-10-8 04:09 PM 發表 http://www.26fun.com/bbs/images/common/back.gif- b; l! {6 s. D) R0 J# M) ?% u
Refer to last example,* X  v3 H0 ?/ [/ Y- Q
that means bank A have no money because we borrow 10 dollars from bank A   ?- H3 p/ ]* F8 M$ P
Because bank A doesnt have enough cash on hand
) D2 _; R. B( v1 ~8 F) p* \9 Otherefore bank A need to be bankrrupt ??? Am I right ?? ...

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A->B->C->D->E5 N2 x* i% C! v( @4 y
so does it mean if E failed to pay D,
. ^  }4 R% e+ j$ X- Fall the B,C,D,E have to go bankrupt?
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the multiplier just tell how much money created in a whole economy, # \7 ~0 [+ o$ H# }; e
in this case it doesnt really matter how much money is created,
& w# L" k9 H+ o% Vit's the problem of the debt itself.* N% X' g4 Q, D) X3 F* Z
the debt(securities) is bad, faulty, that harmed the whole system.