Kev

i thought it is the reason of rate of return.
; P% r8 O' h) @& l: J; E# t' dCDs could have different ratings, AAA -> F,8 w# O2 P# k. X( u
more risky ones would have higher premium (interest rate) as a compensation for an investment.
1 a2 k" [8 g+ F  D, N6 B. v7 Vmain reason why ppl buy those risky CDs is because the rate of return exceeds their internal rate of return,5 l3 d. t. c8 W/ N
in other words, the interest rate of that investment > their required interest rate, therefore they invest in those securities.: U) X5 ?+ J+ x( E6 P
Also, fund managers would include risky assets in their portfolio for different purposes, eg efficiency.) Z. k+ z5 N  _" C! l
similar to bonds, CDs trading in the secondary market have different value at different times,
: _4 K/ q2 H4 h* r3 @# x9 }normally the value is calculated by adding it's principle and interest.
- C& X/ e9 _0 u% j7 X3 e- ueg. the value of the mortgage+the interests to be recieved in the future. ' l: p- u3 B3 x0 D* s8 I) w( 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.
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im not quite sure if the multiplier effect does really matter in this case.
: b. I1 e6 m, F/ G9 c: C+ jin stock market, it's the demand and supply pushing the price up/downwards.
* L% G; D, X7 X( CFor eg, A bought 10000 shares @10$ ; B sells 20000 shares to C @ $12,
, C) q3 f5 _8 RA's shares would suddenly increase to $120000 from $100000 which does not invlove any $ transaction.5 R$ M5 d- U& O5 Y2 L1 v
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.
6 D. @8 z: |( P$ c1 Pbut the value of their assets did really drop significantly.- @6 a! s! `3 M8 x; o' J

$ U. K2 ~8 l0 _# o( U# }; W[ 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
4 n9 V9 J9 m$ |# T5 ]7 CRefer to last example,
+ d- \! m$ q* }, ~& Z( kthat means bank A have no money because we borrow 10 dollars from bank A
6 V4 p( i$ I, R7 Q4 hBecause bank A doesnt have enough cash on hand + ?$ z3 w0 a7 O- D7 _5 X+ p& m
therefore bank A need to be bankrrupt ??? Am I right ?? ...

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" t  U: j. C- v4 {
. z  G* j4 u* iA->B->C->D->E5 Y. l: }  S4 _+ q+ M3 p- G) p
so does it mean if E failed to pay D,
- t, m9 g, R. W9 l1 ^all the B,C,D,E have to go bankrupt?8 O2 z% L. T& p. B3 K/ b' K" b
; [& w, J4 F& F/ ~

; W+ p1 P3 v$ L, ithe multiplier just tell how much money created in a whole economy,
8 _. g; b; a7 b3 r* ?in this case it doesnt really matter how much money is created, ; O) |& H0 \1 l+ W6 t3 x( T
it's the problem of the debt itself.; {) }' V; N& Y. ~9 u
the debt(securities) is bad, faulty, that harmed the whole system.