Kev

i thought it is the reason of rate of return.0 X1 g& C# C2 `7 ~
CDs could have different ratings, AAA -> F,
# E) |2 A" i  C  \0 N- P' }; y2 b* m8 Bmore risky ones would have higher premium (interest rate) as a compensation for an investment., Z$ e( }' y. @' }) V9 O6 b1 p
main reason why ppl buy those risky CDs is because the rate of return exceeds their internal rate of return,
3 S  [4 R; \7 e& l; C8 vin other words, the interest rate of that investment > their required interest rate, therefore they invest in those securities.
, J! T( [2 Y% V9 Y8 s1 u9 EAlso, fund managers would include risky assets in their portfolio for different purposes, eg efficiency.
! P- B# H5 k; @0 zsimilar to bonds, CDs trading in the secondary market have different value at different times,
  v! W# B3 T, ^  k; X( Qnormally the value is calculated by adding it's principle and interest. 8 p6 w  {  @# C0 L$ y3 f
eg. the value of the mortgage+the interests to be recieved in the future. ! n) r* ?* ~9 i3 d% K( Q5 _; T- r
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.% C3 ?# Q3 X3 i" B. a  N
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im not quite sure if the multiplier effect does really matter in this case.
- D* W3 M9 s: S+ Q$ f0 Yin stock market, it's the demand and supply pushing the price up/downwards.' b$ B3 ?2 @4 q* |& e0 E) {4 z! k
For eg, A bought 10000 shares @10$ ; B sells 20000 shares to C @ $12,1 \3 L# C- f3 X1 j- w! f" @6 G
A's shares would suddenly increase to $120000 from $100000 which does not invlove any $ transaction." \) A$ b0 S6 v( p( z8 E) F
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.
5 a1 {9 S" K: A1 U' n$ _but the value of their assets did really drop significantly.
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[ 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+ X8 i. A- ?0 x# S' ~
Refer to last example,
9 Z, B1 H! j; l. P, T  \. q; Q8 j- Dthat means bank A have no money because we borrow 10 dollars from bank A ) g7 X) [' {9 o$ A
Because bank A doesnt have enough cash on hand
8 c/ s' P: j6 e5 w+ n& U3 ~therefore bank A need to be bankrrupt ??? Am I right ?? ...

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# G% Q2 G  l! ?6 ?' Q6 Q" W8 |, s( q; o3 {- y, @
A->B->C->D->E
- u  [. v( P( F2 eso does it mean if E failed to pay D,
" ?% v' l  l' l; k( F) iall 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, / T8 c6 v: N: `) @. u) x/ k" Q" [
in this case it doesnt really matter how much money is created,
1 {; ~; [) s. o: I/ dit's the problem of the debt itself.
! S# z; l5 ]- ?. x  o) R9 Dthe debt(securities) is bad, faulty, that harmed the whole system.