Kev

i thought it is the reason of rate of return." r0 ~* V4 F! d
CDs could have different ratings, AAA -> F,
1 y" g) S8 q7 H1 \# m7 P, K, jmore risky ones would have higher premium (interest rate) as a compensation for an investment.& J, T* a  p3 L" x
main reason why ppl buy those risky CDs is because the rate of return exceeds their internal rate of return,; r( D# ~5 Q  Z  r
in other words, the interest rate of that investment > their required interest rate, therefore they invest in those securities.
4 V5 A; N( _, I1 x& y* r) G. l# h( fAlso, fund managers would include risky assets in their portfolio for different purposes, eg efficiency.
3 ^  T( f) n- A8 G5 jsimilar to bonds, CDs trading in the secondary market have different value at different times,
, Q, O' y  m1 b9 T5 bnormally the value is calculated by adding it's principle and interest.
2 ]0 T3 }, [. j& _# _eg. the value of the mortgage+the interests to be recieved in the future.
. [; C0 D( u) P9 I+ L8 rbanks 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.: P: t% A# O1 R. c$ m. A: a
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im not quite sure if the multiplier effect does really matter in this case.6 c, F- Q& a8 F4 n. e4 r; C
in stock market, it's the demand and supply pushing the price up/downwards.
; p6 |" p3 B% _& X- y, ~) {' CFor eg, A bought 10000 shares @10$ ; B sells 20000 shares to C @ $12,* y3 Z  C: S! L+ h
A's shares would suddenly increase to $120000 from $100000 which does not invlove any $ transaction.$ N: F6 `! K" r
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.
# x# B/ A5 m  b8 tbut the value of their assets did really drop significantly.4 d+ P( R* a8 E5 j  }* }
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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
6 b6 o& ^% h; |! @. `5 M; `( T" ERefer to last example,
5 E. A, }- }0 E  s% u6 U( Gthat means bank A have no money because we borrow 10 dollars from bank A & c& `2 V! v4 q- K* o1 @
Because bank A doesnt have enough cash on hand
3 {$ B. r- S6 z7 q( f4 o' dtherefore bank A need to be bankrrupt ??? Am I right ?? ...

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A->B->C->D->E- N0 C, z& R. V9 r; D5 L, j# A
so does it mean if E failed to pay D, % r& |$ ]% n1 V) ?4 C3 q" F( N
all the B,C,D,E have to go bankrupt?# {7 \' }: g9 a

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& ~$ M( }( Z  [+ y$ V* U: G; M+ ythe multiplier just tell how much money created in a whole economy, 9 T" p3 m4 ?- [9 a, x- w0 c
in this case it doesnt really matter how much money is created, & X" Y# x! w2 O* {
it's the problem of the debt itself.
% M5 v7 x& N* R5 p, y4 xthe debt(securities) is bad, faulty, that harmed the whole system.