Kev

i thought it is the reason of rate of return.4 I$ a* _( q0 P
CDs could have different ratings, AAA -> F,. H/ m7 L) V" x$ Z1 [: c# w- m" L
more risky ones would have higher premium (interest rate) as a compensation for an investment.
, s, Q0 q  R- N* W$ ?# s/ ]  cmain reason why ppl buy those risky CDs is because the rate of return exceeds their internal rate of return,4 v7 [# m2 S: |
in other words, the interest rate of that investment > their required interest rate, therefore they invest in those securities.+ i- ?2 i6 p4 A& s3 c
Also, fund managers would include risky assets in their portfolio for different purposes, eg efficiency.
4 B2 H" {+ l. L# Q5 ysimilar to bonds, CDs trading in the secondary market have different value at different times,# m" Y0 F) G- Q) o; N+ Y6 B
normally the value is calculated by adding it's principle and interest.
0 h+ J7 H/ {# oeg. the value of the mortgage+the interests to be recieved in the future. 5 T" Y6 g4 {0 n
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.7 v# z1 L) l3 t! }3 Q. S
& u, m  w! N, \, K: n0 }% _
im not quite sure if the multiplier effect does really matter in this case.
4 \6 ^" Y' E3 f" u1 s) lin stock market, it's the demand and supply pushing the price up/downwards.
) w) t% |; Q0 s0 M$ E1 aFor eg, A bought 10000 shares @10$ ; B sells 20000 shares to C @ $12,
/ d: m4 T9 A: b" v2 UA's shares would suddenly increase to $120000 from $100000 which does not invlove any $ transaction.
. z/ Z+ {  \9 c  _  uThe 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.
: g0 B- `$ o" y4 x$ h6 @8 |) Ebut the value of their assets did really drop significantly.& B: l! W. Z0 x  g( u& j

9 T5 s* R( P2 J# `[ 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.gif6 V5 i* \' T; ^( @- ~
Refer to last example,
  x2 ]  k+ c) }5 Q, h: J0 Rthat means bank A have no money because we borrow 10 dollars from bank A
1 {" v. z9 ?2 ^/ i8 J& DBecause bank A doesnt have enough cash on hand
2 O. z0 I: ?# y7 ctherefore bank A need to be bankrrupt ??? Am I right ?? ...

9 R7 {/ D1 D" f3 X1 [
7 G" [. f$ I. S2 M! h/ o$ m$ ?# s" m% V! |" g* |/ K: n: }3 a
A->B->C->D->E
8 e. W! U4 W" p( m, Lso does it mean if E failed to pay D,
% s' O3 J9 c+ S) \all the B,C,D,E have to go bankrupt?# m4 C  V8 b" g7 H2 ^
2 Y0 J/ j( r7 y+ ?* w0 V

" b6 K* F3 \! t) u7 E1 Qthe multiplier just tell how much money created in a whole economy,
* ^- v8 y9 q" `( Y0 Din this case it doesnt really matter how much money is created,
' I. a6 C/ {6 r: H5 `0 J8 u) qit's the problem of the debt itself.! y/ B; @5 x, x  J; R/ S
the debt(securities) is bad, faulty, that harmed the whole system.