Answer These questions in a 1-2 paragraphs each What is the Fed Funds rate and why...

Answer These questions in a 1-2 paragraphs each

What is the Fed Funds rate and why is it important?

Difference between Money Markets and Capital Markets (why are Money Markets important?

One form of Bond guarantee is a Credit Default Swat (CDS) - What is a CDS and why would an investor purchase one?

Solutions

Expert Solution

1. Federal Reserve uses the fed fund rates in order to control the inflation and regulate the economy and money flow by encouraging healthy economic growth . Federal fund rates can be raised in order to stimulate the economy while Federal Reserve can increase the federal fund rate to control the money flow in the economy.

2.money markets are markets which are used by business organisation for short term borrowing, while capital market are long term securities market and they are used to raise capital for long term capital. Capital markets include equity Markets and debt markets while debt market includes securities like certificate of deposits, commercial paper, swaps.

3. Credit default swaps are credit derivative contracts that help the investors to swap credit risk on a company or a country. It is a type of financial swap agreement in which the seller of credit default swaps will compensate the buyer in event of a default by the debtor or other credit event. American international Company wrote a lot of credit default swaps, if we had to give an example, and that lead to American international Company to brink of bankruptcy.

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