Kev

i thought it is the reason of rate of return.
: A. @; ]5 O! \* tCDs could have different ratings, AAA -> F,
6 _' U4 c1 N5 O9 l* Q2 nmore risky ones would have higher premium (interest rate) as a compensation for an investment.
2 C' Z& b  C2 G. x7 o1 s0 l0 Q/ H) Kmain reason why ppl buy those risky CDs is because the rate of return exceeds their internal rate of return,
! }; w, B# F- ]in other words, the interest rate of that investment > their required interest rate, therefore they invest in those securities.9 g4 `( u+ e  D
Also, fund managers would include risky assets in their portfolio for different purposes, eg efficiency.( G- u1 Z! {0 f* z* N5 e
similar to bonds, CDs trading in the secondary market have different value at different times,
7 D( a4 k3 M0 t6 R, Tnormally the value is calculated by adding it's principle and interest.
  N7 O) e  {) c8 o- ^/ `eg. the value of the mortgage+the interests to be recieved in the future. 6 A2 d! H! T7 ]* E% z5 \# L
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./ Y% [$ {; o$ c+ q9 t- v

: T7 {2 P4 F. R" ~  z4 }4 [$ }3 _im not quite sure if the multiplier effect does really matter in this case.' n; B. h7 T* s2 @) _1 T3 ]
in stock market, it's the demand and supply pushing the price up/downwards.
& K8 _& Q$ _) u) \+ dFor eg, A bought 10000 shares @10$ ; B sells 20000 shares to C @ $12,3 e; ?/ j) l) J3 x# z
A's shares would suddenly increase to $120000 from $100000 which does not invlove any $ transaction.; ?* g$ f1 g1 v6 a& b9 c
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. 9 T5 T; |' `. u1 q9 B. T. f9 Q
but the value of their assets did really drop significantly.- z. E" x/ `0 L% l

" A% Z1 B* `' r: d5 `[ 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' {$ f9 E, ?" U
Refer to last example,5 O$ O8 }0 u" t- {- M1 A- O, E
that means bank A have no money because we borrow 10 dollars from bank A 9 R$ o/ Z9 k) `- p+ k- {5 s# |
Because bank A doesnt have enough cash on hand
! Y/ u! g! [9 B* ltherefore bank A need to be bankrrupt ??? Am I right ?? ...

2 b* B% R+ G; T2 k" b7 T! P* ?0 L. {) x( p5 x& W
) y/ M" I7 |5 B- [2 ]* w
A->B->C->D->E
+ u! p4 n7 w* z0 o% E* Tso does it mean if E failed to pay D,
4 I6 w0 V& v6 m( vall the B,C,D,E have to go bankrupt?
. z8 Y1 B) Y8 V# g' i: i7 [
2 v" y- i7 P, T7 S" \2 O# E: t" y
the multiplier just tell how much money created in a whole economy,
! ?4 B; \) W; a+ [: Iin this case it doesnt really matter how much money is created, # x4 L- w0 N( o# m! \- s& C) G7 n
it's the problem of the debt itself.
. W/ p1 L) v' B9 O% h# b9 gthe debt(securities) is bad, faulty, that harmed the whole system.