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39

Very obscure historical example: From 1287 to 1295, the Danish nobleman Stig Andersen Hvide was leading a band of outlaws from the island of Hjelm supported by the king of Norway against the king of Denmark. Stig managed to kidnap expert coin makers and bring them to Hjelm, where they produced counterfeit Danish coins. This allowed Stig and his supporters to ...


29

https://en.wikipedia.org/wiki/Operation_Bernhard (an exercise by Nazi Germany to forge British bank notes. The initial plan was to drop the notes over Britain to bring about a collapse of the British economy during the Second World War. )


13

David Petruccelli writes in "Banknotes from the Underground: Counterfeiting and the International Order in Interwar Europe" In December 1925, a group of Hungarian nationalists were caught trying to put into circulation a large quantity of counterfeit francs in a bid to weaken the French economy and fund irredentist action in Central Europe. Edit: ...


9

$p\cdot z(p)$ is total revenue (price times quantity), and so its derivative $\frac{\mathrm d}{\mathrm dp}pz(p)=pz'(p)+z(p)$ is marginal revenue.


6

...no-arbitrage models (such as Black-Scholes and HJM) are equivalent to equilibrium models (such as CAPM or C-CAPM). Short Answer Yes, for models where asset prices are assumed to be Ito semimartingales (where the martingale part is a Brownian integral), although a more general argument is needed than that suggested by the special cases typically ...


5

The paper Optimum consumption and portfolio rules in a continuous-time model (Merton (1971)) presents (as far as I know, the initial presentation. [ Next we turn to a paper that discusses the importance of the HARA utility. The Fundamental Nature of HARA Utility (Perets and Yashiv (2013)) Many models in Economics assume a utility function belonging to the ...


5

In the case of linear demand $d_i=a_i-x_iP$ (assuming $d_i$ is quantity demanded by individual $i$), the price elasticity of demand at point $(d_i,P)$ is \begin{equation} \epsilon_i(d_i,P)=x_i\cdot \frac{P}{d_i}. \end{equation} As @the_rainbox noted in their answer, price elasticity of demand varies along a linear demand curve. So in order to compare ...


4

I'm afraid you got confused a bit about economic meaning of discounting. It actually takes into account the interest payments. The economic logic is following: 8% interest rate on deposit makes your $1$ today equal $1.08$ dollars in 1 year. When you calculate NPV, you basically convert future dollars into today dollars. You know rate of conversion because ...


3

No, slope of a demand function is $\frac{\partial q(p)}{\partial p}$ elasticity of demand is $\frac{\partial q(p)}{\partial p} \frac{p}{q(p)}$. So they cannot be same except in some special cases.


3

Indeed the debt tax shield is distorting. Any policy that will essentially distort prices to favor A over B will lead to too much A and too little B. So such differentials are (almost) always distorting (unless you actually want less B and more A due to externalities). Here the tax deductibility makes debt cheaper compared to equity. We know this is ...


3

The equality in question follows from the expression for expectation of a log-normal distribution. For example, if $X \stackrel{d}{\sim} N(\mu, \sigma^2)$, then $$ E[e^{a X}] = e^{a \mu + \frac12 a^2 \sigma^2}. $$ This is the reason that CARA/normal or CRRA/log-normal (agent utility/asset return distribution pair) set-ups reduce to the mean-variance case, up ...


3

This was most likely reference to the Fisher hypothesis. As argued by Engsted & Tanggaard (2002): classical economic theory, especially the Fisher hypothesis, according to which expected nominal asset returns move one-for-one with expected inflation such that expected real returns are independent of expected inflation. A related implication is that ...


3

The logic given in the question is inadequate, since it misses the point that upside potential in long option positions is much higher than the upside potential for a short option position. If one were buying/selling options at fair value on instruments that followed the random process used to price the options, a long or short position should not have an ...


3

If a sufficient fraction of market participants follow technical analysis it can work as self-fulfilling prophecy. If some pattern occurs that technical analysis interprets as signalling an imminent drop in prices these people will sell, which will cause the prices to actually drop. As is obvious from the above argument, whether an interpretation of the data ...


3

You are wrong/vague here: the rupee (INR), is appreciating against, say, the USD, it possibly means that there is a high demand for the former. If the rupee becomes more expensive w.r.t. the dollar, demand for the rupee usually decreases, as Indian exports are now more expensive to pay for when measured in dollars, and hence fewer people seek to convert ...


3

I typed "shareholders of record" into Google, and I got Stockholder of Record Also known as shareholder of record, record holder or owner, or registered holder, or owner. The stockholder whose name is listed on the company's books and records as the owner of shares as of a particular date (the record date). A stockholder of record holds stock in a ...


3

Let $D_1 = 1$ be the event that the first loan defaults and let $D_2 = 1$ be the event that the second loan defaults. Assume that we know the correlation $\rho$ between $D_1$ and $D_2$ and we know the marginals $p_1$ and $p_2$. The aim is to compute the probability that one of the two loans defaults (for the junior tranche) and the probability that both ...


2

When I was studying for my bachelors we learned finance from textbook Corporate Finance by Jonathan Berk. I think thats good entry into learning some basic financial analysis.


2

Dividends have to be taxed as income, as otherwise people can incorporate, have their wages taxed as revenue for the corporation, and then pay themselves a dividend. (Canada adjusts taxes on dividends in an attempt to make these two approaches equivalent for taxes purposes.) Capital gains are at a lower rate for reasons that are debatable. However, in order ...


2

The way in which basis points are almost invariably used is as a spread relationship (at least in fixed income). That is, it is the difference between two yields. Yields are quoted as percent. (If you wish, percentage points.) Most spread relationships involve yields that are close to each other, so they are multiplied by 100 - so we get basis point spreads. ...


2

You're correct. Many useful things can be shown by taking this derivative. Perhaps you were confused because you are used to solving for quantity rather than price - in which case you are more likely to take the derivative of R = z * p(z) with respect to z which gives you p(z) + z * dp(z)/dz


2

In economics profit is simply defined as total revenue minus total costs or: $$\Pi = TR-TC$$ In your case if Pfizer makes \$100B in revenue, spends \$80B on business expenses doing so, then spends the remaining \$20B on research for a new drug. from economic perspective the profit would be: $$\Pi= TR -TC = {\\\$}100B - ({\\\$}80B+{\\\$}20B) = 0B$$ So from ...


2

Let $\pi$ be the fine that needs to be paid besides the parking fee (say, $\phi$) if he gets caught. Further, he may or may not get caught for not paying. So let $p$ be the probability perceived by John about whether he will be caught. Let $u(x)$ be utility function of paying for amount $x$, with $u(0)=0$, $u'(x)<0$. If he pays the parking fee $\phi$ he ...


2

The key to answering your question is to consider whether or not the bank that has just extended a new loan must make an interbank payment of reserves. So let bank A extend a loan 100 to customer 1. The bank debits loan assets for an increase 100 and credits deposit liabilities due to customer 1 for an increase 100. The bank balance sheet expands. Assume ...


2

The question in the title is actually a bit broader than the question in the body, I will try to answer both questions starting with the one in the title. Answer to Question in the Title Can banks 'create' money on their own or do they need help from other banks? Yes, banks actually can crate deposits on their own without help of other banks, thanks to ...


2

Virtually same question was already addressed at quantitative finance stack by user Matthew Gunn. The answer there can be summed as: Financial economics is what economics calls finance. Finance is what finance calls finance. Less flippantly though, there's a long debate on whether finance is a subfield of economics, ... Prof. Milton Friedman famously ...


2

With many financial variables you can deduce the distribution from the options market , but there isn’t a sufficiently developed inflation options market (at least in the US). However, experience shows that market participants are unwilling to sell options with strikes either very low (say 0%) or very high (say 5%) at anywhere near theoretical prices, ...


2

Financial markets can look unimportant to layperson but empirical research shows that well functioning financial markets have direct impact on economic growth (have a look at Levine, 1997 and Levine 2005), which in turn benefits society greatly. For example, well functioning financial sector is crucial for economic development which helps to rise living ...


2

It would seem that both options are correct given the specific mean-variance utility function. Use $\mu$ to denote the expected value. In the $(\sigma,\mu)$-plain, an indifference curve representing a particular utility level $\overline U$ is given by \begin{equation} \overline U=\mu-\frac12 A\sigma^2. \end{equation} Applying implicit differentiation, we can ...


2

This seems to be specific to the CFA exam and is a badly formulated question. First, an indifference curve for some fixed utility level can be viewed as a function mapping $\sigma$ to $\mu$. At any value of $\sigma$, this function has a slope (which is given by $\sigma A$). No economist would call this a "slope coefficient" in this context, as this ...


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