Quietkitty1795

This document explores money market securities. We explore the two types of money market security. As well as understanding the London Interbank Bid Rate and the London Interbank Offered Rate (LIBID and LIBOR). We form formulas and go through calculated examples involving money market deposits, negotiable certificates of deposits, and securities quotes on a discount basis.

Important aspects of financial arithmetic. We consider the time value of money and derive present and future value formulas that will help us in pricing a range of financial assets.

An introductory analysis of the role of financial markets in allocating resources and the determination of the interest rate (both real and nominal).

Consumer surplus, compensating variation and equivalent variation.

Budget constraint: What is it and what are its key elements? How can different factors change the position of the constraint and what are the implications of such changes? Preferences: The key assumptions (axioms) and their implications, the most common types of preferences, and features of indifference curves. Utility functions: Different types of utility functions, how different types of utility functions can represent different preferences, how to derive and interpret the marginal rate of s...

Optimal choice: Which of the affordable bundles will the consumer choose? How does a consumer choose in order to maximise utility subject to her budget constraint? The Lagrange method and Demand functions: The mathematical method used to solve for a consumer's optimal bundle. Demand functions are functions that relate the optimal choice - the quantities demanded - to the different values of price and income. Expenditure Minimisation and Duality: Whereas consumer maximisation problem is about ...

Expenditure Minimisation and Duality: Whereas the consumer maximization problem is about solving the problem of maximizing utility subject to a budget constraint, expenditure minimization is about minimizing the cost of achieving a given utility level. You will see that utility maximization and expenditure minimization are just two ways of solving the same problem.