Kev

i thought it is the reason of rate of return.  N" D9 x& z+ c
CDs could have different ratings, AAA -> F,
, Q: v1 I- {; b: o. O( l5 I2 Jmore risky ones would have higher premium (interest rate) as a compensation for an investment.
. I/ m( v8 F$ Y# e. Q7 [+ Lmain reason why ppl buy those risky CDs is because the rate of return exceeds their internal rate of return,
. h5 u+ c- O, i; c, @4 ~in other words, the interest rate of that investment > their required interest rate, therefore they invest in those securities.& q/ X/ _' q, P7 L( M- ^( V
Also, fund managers would include risky assets in their portfolio for different purposes, eg efficiency.
5 S3 n. ?2 @2 T2 W7 gsimilar to bonds, CDs trading in the secondary market have different value at different times,6 Z- ^! Y5 ^5 e# Y& x
normally the value is calculated by adding it's principle and interest. " d  ^. Z( C% ~3 W; E) z
eg. the value of the mortgage+the interests to be recieved in the future. , a& B- d' Y; w/ Q0 o* Y% 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.8 O7 _% G& k' Z) @, y/ P

9 D5 S5 V; h3 b2 }. u7 X- p% zim not quite sure if the multiplier effect does really matter in this case.6 A: \( Q! H& v
in stock market, it's the demand and supply pushing the price up/downwards.
: q' z. u, Z2 ~  z  N3 bFor eg, A bought 10000 shares @10$ ; B sells 20000 shares to C @ $12,
) @" b+ g; E% E' z# H+ lA's shares would suddenly increase to $120000 from $100000 which does not invlove any $ transaction.* P$ Q7 Q3 G7 k
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.   X1 y2 r& e$ x! A
but the value of their assets did really drop significantly.
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; {# C5 O3 ]% m[ 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
3 C: a% ~) f$ [7 ORefer to last example,
) [$ ?$ u" N8 U4 u4 K5 l2 mthat means bank A have no money because we borrow 10 dollars from bank A
7 D: n% Y1 k% [, o5 EBecause bank A doesnt have enough cash on hand
4 m. Y! s; U8 d5 k# O' X' Ltherefore bank A need to be bankrrupt ??? Am I right ?? ...

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A->B->C->D->E
  L. n% k8 G( f8 J; A+ Jso does it mean if E failed to pay D,
( G4 l% L$ a/ r' _7 X. G& xall the B,C,D,E have to go bankrupt?
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, s% a! g- P! r4 t/ @the multiplier just tell how much money created in a whole economy,
0 ]) L# A* F8 P& J8 hin this case it doesnt really matter how much money is created,
. j4 n+ U& F$ b- R6 {1 |; ^6 Xit's the problem of the debt itself.! s& z, w# k0 \9 a& O7 j+ ?" _
the debt(securities) is bad, faulty, that harmed the whole system.