ASSIGNMENT4g [Name of the Student][Name of t.docx

ASSIGNMENT 4
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[Name of the Student]
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Running Head: ASSIGNMENT1
General Essay Questions (5pts each)
1. What are TIPs? How do these securities provide a hedge
against inflation? Discuss the spread between traditionally-
structured Treasury notes and TIPs. What factors influence this
spread relationship?
TIPs are the Treasury Inflation Protected securities. These are
the bonds issued by the government that offer return after the
inflation which is also known as a real return. they are different
from the nominal or traditional bonds in which the returns are
specifically before inflation. This is the way for the investors
for offsetting the risk that comes with the inflation. These TIPs
offer the hedge against inflation by providing a return which is
calculated after taking out the risk of inflation. This is the best
way for investors to offset the risk that comes due to the
inflation in society. With the strengthening of the economy,
inflation can increase, and the return is not expected to increase
in the high rate of inflation, so for affording protection against
inflation in the economy, TIPs are used in the form of fixed
income investment for the destruction of inflation. TIPs are

backed by the government and they offer high attractiveness for
the investors because the level of risk in these securities is less.
TIP spread is when the yield of TIPS and other US Treasury
securities is compared having the same date for the maturity.
The difference that exists between both of them is used as
payment adjustment for the inflation. The traditionally
structured treasury notes do not consider inflation at the start
and the yield is used for compensating the investors for the
expected future rate of inflation. This spread between both
securities is the indication for the market about inflation. The
most important factor in influencing the spread relation is
inflation because this spread is basically dependent on the
inflation rate change. The spread is basically the projection for
the inflation and it cannot be predicted how it will change in the
future. Comprehensively, the TIP spread is considered to be a
reliable measure for predicting the appropriate level of
inflation.
2. Fully describe the fixed-income instruments of the money and
capital markets. Make sure you cover all the money and bond
markets we discussed. Do not just list the instruments.
Among financial markets, there are two most commonly used
concepts, one is a capital market and the other one is the money
market. The money market is used by the corporate entities and
government for lending and borrowing money for a short term.
In contrast, capital market contains long term assets with having
the maturity of more than a year. In the capital market, the
bonds and stock options are available. The securities in the
capital market which offer a fixed rate of return are called as
fixed - rate capital securities and a combination of features for
the common and preferred stocks are offered to them. there is a
fixed yield in these securities. Preferred stock is the best option
here in which the dividend payment is fixed and must be given
to the people.
The most commonly used fixed income security is a bond in the
capital market. This is a form of borrowing in which the

continuous return is given every year by the investors. These
bonds can be further divided into corporate bonds or
government bonds. Corporate bonds are offered by companies
having a strong financial position while the governments offer
municipal bonds. The government also offer treasury bonds
which are offered for the funding of its debt. Some other types
of fixed income securities include the certificate of deposit,
treasury notes, T – bills, and preferred stocks. The T – bills and
T – notes are same as the T – bonds offered by the US
government. However, these bills and notes are short - term and
issues on a discounted value. Certificates of deposit are issued
by the bank in the return of money saved in banks for a
predetermined time period and the banks pay the interest
amount for the account holders. There is the lower rate on these
securities as compared to the bonds but in comparison to the
traditional saving accounts, they offer more rates. Preferred
stocks are another type of fixed income securities in which
fixed dividend is offered to the investors based on the
percentage share or a dollar amount. Interest rate and the
inflation rate in the state are the determinants of the price of
preferred stocks. The yield on these shares is high as compared
to other bonds because the life time is longer.
3. Fully discuss the concept of risk in the bond market. Describe
the different types of risk and how these risks can cause
realized return to being different from expected return.
Bonds are used as a great source for the generation of income
and it is commonly considered to be a safe investment. When
this is compared with the stocks, it is safe, but investors need to
consider some of the risks that are associated with the bond
market as well. The biggest risk for the bond market is a change
in interest rate. There is an inverse relationship between bond
prices and interest rate. This mostly happens because when the
decline in interest rates occur, an investor tries to lock their
investment in the high rates. This result in scooping up of the
bonds which offer high return rate as compared to the market
rate of interest. The increase in the demand resulting in the

increase in prices of bonds as well.
Another risk is called as reinvestment risk in which the
proceeds are reinvested on a lower rate as compared to the
previous earning. The fall in interest rates is a common way of
presenting the risk. This callability feature helps the issuer in
redeeming the bond prior to their maturity date. Another risk is
called as the inflation risk in which the when the rate of
inflation is increased in the economy in comparison to the
income investment, the purchasing power of the investors start
to decrease and result in giving a negative rate of return.
Default risk is another type of bond risk which can occur when
dealing with them. when any person purchases a bond, this
means that the company has to repay the amount of bond on
maturity. However, it is not guaranteed that all the corporate
bonds will offer full credit and faith at the end of the period. It
is important to consider the possibility of default while making
the investment decision. The credit rating of the company is
another important risk which must be considered while
investing in the bonds. When the rating companies downgrade
the bonds of a specific company, this result in reducing the
prices of bonds. The last risk that bonds have to face is known
as liquidity risk. This risk involves the idea that the investor
might not be able to sell his bond in the market which is a threat
to the liquidity. All these risks play an important role in
bringing a difference in the realized and expected returns of the
bonds. When the risks increase, this result in decreasing the
value of bonds and investors get less return in comparison to the
one expected by them.
4. What is securitization? Discuss the benefits of securitization
from the issuer and investor perspective. What is a CMO? How
does it differ from a pass-through security? How did the
development of the CMO structure expand the appeal of
mortgage securities? What is negative convexity as it relates to
mortgage securities?
Securitization is the method in which the group of assets or

illiquid assets are taken, and then financial engineering is used
for transforming it into the form of security. These illiquid
assets are then packed, purchased and then securitized for
selling them to the investors. The best example used for
defining securitization include mortgage - backed securities.
The benefit investors get out of the securitization to include the
advantage of getting the proportionate amount which is treated
as the return on investment. This proportionate amount is
because of the securitization on the back of security and reduces
the risk of default. On part of the issuer, the mortgage pool is
divided into different parts which are helpful in spreading and
diversifying the risk.
CMOs are the collateralized mortgage obligations which are the
securities formed from the pool of mortgages. The formation of
CMOS is similar to the creation of pass – through securities.
CMOS is developed for providing investors with a large range
of cash flow certainties and time frames as compared to the pass
– through securities. The difference in both these securities is
that in CMOS, the structuring is done and there are different
securities which are created by the help of pools of securities.
The cash flows of interest and principal are redirected in this
process. The portions of cash flows are segregated from the
CMOS so that the interest payments and principal can be
segregated based on the distribution schedule of the creation of
CMO.
When the yield curve of the bonds is concave, negative
convexity exists. This is basically the rate of change in the
duration and it is measured by using the second derivative for
the bond price in comparison of its yield. When this thing is
seen in terms of mortgage securities, they are convex in shape
which results in lower yield and negative convexity.
5. What types of securities does the Treasury issue? Fully
explain the Treasury auction system process. Discuss the
Treasury’s decision to move to a single-price system. How does
the auction system differ from a traditional underwriting?
The treasury securities issued by the government include

treasury bonds, treasury bills, treasury inflation protected
securities and treasury notes. There are the marketable
securities issued on the part of government and state is
responsible for fulfilling all the obligations behind these
securities. There are some other non – marketable treasury
securities which include the State and Local Government Series
and the government account series which are issues to the
government managed saving bonds and trust funds.
In the treasury auction process system, there are various steps
involved. The first step is the announcement of the issuance of
securities to the general public. Once the announcement is
made, it is done for attracting the dealers, financial institutions
and brokers. There are various details included in the issuance
of auctions. Further, there is bidding in which the dealers and
other persons interested in the purchase of securities offer their
bid to make a purchase. There are two types of budding options,
one is called competitive while the other is noncompetitive. The
auctions are available for the public and then the bidding is
made by them. after the bids are made, the Treasury securities
are issued to the person having the highest bid. The account of
the bidder is charged for the amount he has offered for the
securities. There is a standard interest rate applied on these
treasury options and there are few cases in which accrued
interest is also paid by the purchaser of the securities.
Treasury bills come under the single – payment securities and
this means that they are sold on a discount and have to pay
some specific face amount when the maturity arrives. The
treasury conducts are done in the format of the single price.
This is done so that the non-competitive bid can be subtracted
from the offered quantity of the securities.
The auction system is different from the underwriting system
used traditionally. In the auctions, there is a minimum price set
by the company which is also called as the floor price and all
the interested parties made auctions in the ascending order. In
comparison, the underwriting system was operated by the agents
of the company who are known as underwriters. They are

helpful for the company in the selling of shares while the
issuance of new shares. These parties take their commission for
selling the shares to the market parties. So, there is no
commission or third party involved in the issuance of shares
using auctions while the contrary happens when this thing is
done by the underwriters.
6. Fully explain the two perspectives of return in the money and
capital markets. Fully describe the models of return in the bond
and equity markets.
In the two types of markets, there are capital and money market
involved. The buyers and investors have their reasons for
selecting the securities from each market. In the capital market,
there are high - risk investments while the money market assets
are safer. The returns from the money market are low but they
are at a steady pace. In comparison, the returns in the capital
market are higher. The magnitude from the returns of the capital
market have a direct correlation with the risk level but this is
not always true. The markets are considered efficient in the long
run and inefficient in the shorter term. These are the issues
which are tried to recover by the investors in the capital market.
So, overall, the returns offered by the capital markets are high,
but the money market offers less level of return. the money
market is considered to be safe but there are sometimes negative
returns of this market as well because of some adverse factors.
These are the unusual conditions and it is important to consider
it before putting the money in the capital or money market.
The returns of equity and bonds are divided into the cash
distribution and capital gains. There are periodic interest
payments in the bond returns however the equity returns consist
of the capital gains mainly which are obtained on the sale. The
portfolio consists of both the bonds and equity, so the overall
return is a combination of both these securities. When the
comparison of both these securities is done in the longer run,
this means that the equities will perform better in comparison of
the bonds. The bonds are commonly determined by the interest
rate they offer, and it is always fixed depending on the market

conditions. The equity investment always results in periodic
dividends as well as the capital gain that is obtained when the
sale of these securities takes place. So, the equity investment is
known for the capital return.
II. Presentation Questions (5pts each)
1. What are the major types of derivatives? Define futures,
forwards, and options. What benefits do derivatives provide to
the money and capital markets?
The derivatives are commonly characterized in four major
categories. These categories include futures, forwards, options
and swaps. The first type is forward contracts which is the
simplest among all and the oldest form of derivatives. This is
the arrangement in which the agreement is made for selling the
securities on a future date. The price for selling the security in
the future is decided at the present time. The second type of
contract is a futures contract which is somewhat similar to the
forward contracts. The price of selling a commodity is decided
in advance but the difference lies in the fact that the future
contracts are listed in stock exchange. This makes the exchange
as an intermediary. This means that the future contracts are of
standard nature and there can no modification take place in the
agreement.
The third type of derivatives is options which are different from
the other two types. Options are asymmetric in nature and
bounds one party whereas the other party has to decide on
another date which is the expiry date of the contract. The
obligation is on a single party, but the option of choice is given
to another party. the fourth type is swaps which are the most
complicated type of derivatives. This enables the participants
for exchanging the stream of cash flows. The uncertain cash
flow can be switched by a party with a certain cash flow. The
best example for swap can be the switching of fixed interest rate
for the floating interest rate. This is used by the companies for
reducing the foreign exchange risk.
In the capital and money markets, the derivatives can be used
for changing the interest rates in the markets. This is helpful in

the shifts of currency exchange rates. The prices change in the
markets is based on the flow of information that occurs in the
markets on a unique degree. The money market and capital
market instruments can be dispersed on the basis of the
derivative market securities. The changes occurring in both
markets are managed by the investors using the speculation and
other information on the market for getting maximum returns
from their decisions made.
2. What are emerging markets; converging markets and frontier
markets? What characterizes the emerging markets of Brazil and
Eastern Europe?
The emerging markets are the ones in which the development is
taking place and they are on the way of success. These are the
markets which have started using their resources efficiently but
have not reached the full potential. Most of the markets in this
world are emerging because they have a high potential for
success. In the converging markets, the convergence happens
when the different price is not allowed for any single
commodity. In short, there is no perfect competition in the
market which means that the demand and supply are not
determined by the market forces. The third type is the frontier
market which is a new generation market. This is the forward
type of emerging market in which the capital market and
economies are developed in a more established manner.
The economic market of Brazil has increased the sustainability
level in the previous few years. This market is considered to be
among 10 of the largest economies of the world. The capital, as
well as financial market of Brazil, still has a great potential for
growth. The integration of Brazil in the financial market on the
global market is ensured with the help of introducing a new
product. There are many new securities and methods introduced
in the market for improving the growth level of this market.
This involves introducing products with the collaboration of
UK.
The emerging market of eastern Europe has a huge amount of
part in the real sector which includes the global integration and

considerable trade on the period of post – transition. The
financial sector of this market shows that the ownership of
foreign banks is associated with the increased efficiency of the
banks. The ownership of domestic banks along with the high
amount of returns has transmitted this into the European
financial market. There are significant effects of wealth from
the communication of central banks on the financial markets
and this has also reduced the uncertainty in the financial
markets.
3. What countries make up the Eurozone? What are the benefits
of the use of a single currency in the Eurozone? How has the
evolution of the Eurozone impacted the money and capital
markets?
There are all the European countries that come in the eurozone,
some of them include Austria, Cyprus, Netherland, Belgium,
Malta, Estonia, France, Italy, Finland, Greece, Germany, and
Ireland etc. The effect of using the same currency in all these
countries has multiple positive impacts on the success of this
region. The most prominent benefit of using this same currency
in this market is that the risk is shared among all these
countries. There are many welfare effects that can be obtained
by the monetary union. Other benefits involve mechanical
benefits in which the most important one is the cost saving on
transactional cost which occurs on the conversion of currency.
The loss in the foreign exchange trade is also another effect
which occurs because of using the common currency. The
liquidity in the region increases which is helpful in reducing the
cost of transactions in the selling and buying of financial assets.
This has a huge impact on the money and capital market as well.
The risk is shared in the securities on the international level
because of using the same currency. The stabilization of the
federal budget increase because of the risk sharing among the
capital market securities. The financial markets in the European
regions are more integrated in this way and the financial
reforms are performed on a national level. High level of priority
is given to the economic reforms taking place on the overall EU

level. Using Euro as a mutual currency for all the markets of
members is without any doubt the best strategy for reducing the
risk and improving the efficiency level of the market while
saving cost in multiple methods.
4. Define all the governmental agencies involved in the
securities regulation process. Discuss the major aspects of the
Dodd-Frank Wall Street Reform and Consumer Protection Act
of 2010, including the Volcker Rule.
The department of commerce is the most prominent
governmental body which focuses on the regulation of
securities. This is also known as the Bureau of Industry and
Securities. The main focus of this department is dealing with
local companies and then regulating the procedure of exports in
the country. The department which is solely associated with the
dealing of securities is known as Securities and Exchange
Commission. This department is present in all the economies
and every company operating in the country should be listed in
this institute. This institute is responsible for retaining the
business activities in the country and can extend the companies
who operate publicly in the region. Another department is the
state department which is the Directorate of Defense Trade
Controls. This ensures the commercial level operations of
companies working in the economy of any particular company.
Dodd-Frank Wall Street Reform and Consumer Protection Act is
a large reform which was implemented in the form of legislation
and passed by Obama in the year 2010. This was done as a
response to the financial crisis occurring in 2008. This took
multiple years to implement as there were 2,300 pages of this
legislation. There were multiple new agencies of government
which were given the responsibility of multiple different tasks
and they looked on various aspects of the banking system. The
most important aspects of this act are that it has helped in
improving the stability of the financial system in the country.
There are various elements in this act which help with the
consumer protection. There are many economic aspects of this
law as well. This includes the consolidation of multiple

regulatory agencies and among the reforms of consumer
protection, there are new agencies formed for the protection of
consumers. There are many new measures introduced as well for
improving the international standards as well as the cooperation
so that the improvement in the accounting and regulation can be
tightened for the credit rating agencies. Later on, the Volcker
rule was also added in this which prohibits the depository banks
from doing the proprietary trading. The banks were restricted
because of this rule for doing some specific speculative
investments.
5. What are hedge funds and private equity funds? What
strategies do these entities employ? How are these types of
firms regulated today? Explain the structure of a private equity
firm.
Private equity funds require direct investment in the public or
private companies which are further de – listed from the public
exchange. These are the acquisitions and investments which are
illiquid and have long - term nature. The capital is increased in
them by the help of private partnerships which are known to be
private equity funds. In contrast, the Hedge funds are about
making an investment in the assets which offer high returns in a
short time period. So, the managers of these funds prefer the
liquid assets so that the shift can be made between various
investments.
The strategy used by the private equity funds include the short -
term return companies which can offer a high level of return in
the longer run. The basically have requirement of the
controlling equity type of interests for the companies in which
the investment is made by them. this can be obtained using a
leveraged buyout. The money is invested in this type of
investment when it is called out and the investor only commits
for the capital initially. However, the strategy of hedge funds
require the investors to invest the money in one go. There is no
restriction of the hedge funds and they can be liquidated at any
time.
The regulation of hedge funds is done in an open - minded

fashion where there are no restrictions imposed on the
transferability of the funds. In comparison, the private equity
funds are regulated in the form of close ended investment in
which the restrictions are imposed on the transferability for a
specific time period. The way in which compensation of these
funds occurs is also different.
The structure of the private equity firm is made by the general
as well as limited partners. The capital is provided, and the
institutional investors are included in it in the form of
endowment funds, banks, foundations, insurance companies and
other individuals having a high net worth. Such individuals are
called limited partners because their liability is extended only
to the amount of capital they invest in the venture. There is a
minimum level of commitment set for this which is commonly 1
million dollars.
III. Market Monitoring Questions
1. You are a reporter for a major financial newspaper. You are
asked to write a concise, well-organized article on the major
movements in the money and capital markets over the
September-November 2018 period, highlighting not only market
movements but also the major themes that affected the
marketplace during this period. Limit your response to 500
words. (10pts)
In the global markets, the long - term growth prospects are
being hindered because of the structural barriers and high level
of commodity dependence in 2018. The trade tension among the
economies has been intensified which is a risk on the global
level and an important threat to the growth outlook. The
turbulence in the financial market happening recently has
exposed the economies to various vulnerabilities in the
developing world. Before October, it was advised in the global
market to the investors for taking a defensive approach. They
were advised to beware of the momentum, growth style factors
and high Beta value in the market.
There were multiple data points which were highlighted in
September expecting to be rising in the coming times. The most

important thing included in them is the optimism for small
businesses which is high for all times and the indices of
manufacturing which was hitting high values. The confidence of
the consumer is also hitting the top level. It is important for
considering the implications of this correction in the market
because there are many new things to come until next May
2019. In the fourth quarter of 2019, the growth level is slower
as compared to the other quarters.
The positive indicators show that the market of US is not going
to be in recession in the near future. The growth expectations
for GDP are missed as the shift in economic reality is slowing
down and the margin is continuously changing in the analysis.
After analyzing the macro environment, there is another
important factor which is called the trajectory of the corporate
earnings. The corporate earnings are tough while entering in
2019. The most significant reason for this fact is the corporate
taxes which were implemented in 2018. The tax cut is
implemented in this time period is the main reason behind the
change in these factors.
Based on the evaluation models, this slowing growth in the
earning can lead to the decrease in the valuation of the equities.
The impact of these slowing economies is considered on the top
flow and line but this also has an impact on the stock market. In
the market returns, the highlighted term at this time is volatility
which is rising in all classes of assets but not in the equity
market. Another important aspect going on is known as the tech
volatility which is going on in high potential. The implications
that result in this volatility can be measured by the help of
potential move in the prices.
2. Clearly, economic indicators are an important fundamental
factor that influences rates and relationships in the money and
capital markets. What do you believe are the four key economic
indicators (make sure you cite specific indicators)? Why? What
do these indicators tell us about the market? What happened to
each of these indicators this semester? (10pts)
The most important economic indicator used in the money, as

well as capital markets for determining the growth rate of the
economy, is GDP or gross domestic product. This is the market
value of all the goods as well as services being produced in the
country in a set time period and this is helpful in measuring the
wealth in the society. this also indicates how far the profits will
grow. This is important because it is used by the federal
reserves to adjust the policy of the country accordingly. This is
based on the estimates at first and the final numbers are given
in the market. The reason for the increase or decrease in its
value is always given in the quarterly reports of economies. In
recent times, GDP has shown positive growth in the economies.
The next indicator is called money supply which is important
because it is used by the federal reserve especially for the
making of monetary policy and bringing change in the interest
rate and changing the money supply in the market. In the recent
time period, this is used by the economists for getting
information about recession, recoveries, and all the other
changes that occur in the stock prices. With the increase in
internationalization, the money supply has fallen out of
synchronization along with all the other economic indicators.
The third indicator is the CPI or consumer price index. This is a
complex indicator which is important for the economy because
it helps in estimating inflation. This change occurring in
inflation can also have major implications on the overall
economic policy and monetary policy as well. In this semester
time period, the change in CPI has been positive and this has
shown some particular details about specific products.
Another indicator is producer price index also termed as PPI.
This is used for tracking the prices in all the sectors of goods
production. It is important as it is the first term coming every
month as a measure of inflation. This shows the production
trends which are increasing in the recent few months. This has a
significant impact on the changing of the price levels for the
products as well as services.
3. Discuss the “flight to quality” phenomenon. What is it? Cite
examples of the effect of “flight to quality” from market

movements this semester. (5pts)
The flight to quality is the concept in which the financial
market investors sell their securities which are perceived to be
having a high level of risk and then make a purchase of safe
investments. This is a sign of fear in the market and the
investors always want less risk while exchanging lower level of
profit. This commonly occurs with the increase in the demand
for the assets who have securitization of private agents. This is
a sudden shift that takes place in the investment behaviors of
the investors in the period when financial turmoil is in the
market. The feature of flight to quality is the insufficient taking
of risk by the investors.
When the risk - taking becomes excessive, this can become the
reason of financial turmoil and many other disturbances in the
market in the following period. This type of shift in the
portfolio can have multiple negative effects on the financial
market. With the increase in negative credit spread and
leverage, there can be most liquid assets that are safer and
reduce the risk in the asset market. These indicators can have a
real effect on the overall economy.
The investors in this semester have been getting the taste of this
fine thing and this is the indication that it can lead to future
problems. The shares of the companies are considering to be of
low quality in the past few years and they are the ones which
have outperformed the expectations of the investors. In the
dynamic shifts happening in recent years, the conditions have
also been adverse than these conditions. In the previous two
years, the low - quality stocks have outperformed but the recent
period has shown a completely negative impact (Gandel, 2018).
This shows that quality is considered as the most important
aspect for the investors in the current time period.
https://www.washingtonpost.com/business/flight-to-
qualitycould-signal-trouble-for-stocks/2018/10/09/255f100c-
cbb3-11e8-ad0a-
0e01efba3cc1_story.html?noredirect=on&utm_term=.6a01d5c7e
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4. We began the semester with a discussion of the key themes
currently influencing the money and capital markets. What are
these themes? Which of these themes are still driving rates and
relationships today? (10pts)
There are few themes in the capital as well as money market
which are commonly influencing the overall global market. The
most prominent of them is the recent fall in oil prices, the
survival of the European Union and the worrisome feelings
about the slow growth of the Chinese market. Oil is considered
an important factor in the global economy. With the increase in
its prices, everything goes down and vice versa. This complete
year was in a form result of incorrect expectations from every
side. So, according to the stats, there is no a difference in the
indicators in the time period of start and end of this semester.
The economies are going at the same pace but figures are
becoming clearer now because it has not almost year end and
there is multiple analysis coming on the top of the economic
outlooks.
There are various elements in the fixed income securities as
well which play their role in bringing change in the overall
market. The rate of inflation is much more stable now. So, yes,
the rates as well as the relationships which were identified at
the start of this semester still stand. With the new
administration of Trump, the spending of government has
increased while the taxes are reduced. The relations with China
are also changing which is a big change on a global level. This
change in relations can result in having various other impacts
on the overall world trade.
5. The Federal Reserve is clearly a dominant influence on the
money and capital markets. Discuss how the markets monitor
the Fed and what this information has revealed this semester.
What has the market focus been regarding the Fed this
semester? (10pts)
The federal reserve is analyzed by the markets and there are
many important insights that help in changing the future. The

most important conclusion drawn from this time period is that
the Fed is looking for increasing the inflation in this time. It is
believed by the economists that the high rate of inflation would
not hurt the economy. It will be helpful for the central banks for
supporting their growth rate and combat the problems that can
occur in the upcoming downturn of the economic world. The fed
is pushing the economy for driving more inflation and the
warning has been issued against deflation for multiple years.
The economic downturn which is upcoming can only be
encountered using a high rate of return on the economic
securities.
For getting the higher rates of interest, it is important to raise
inflation in the economy. It is not made clear that which level of
inflation or interest rate would be more appropriate. There are
many factors such as the aging population, less level of
economic growth, and an increase in the saving rates is pushing
towards the interest rates which would make the economy grow
at a sustainable rate. There are higher targets set by the
economists which give fed more room by increasing interest
rate by the help of central bank forces. In recent months, the
investment community was also obsessed with the interest rates.
The rate that prevails among the banks is also changing with the
ripple effect in all the economies. There is a huge response of
economy on the change of these aspects. So, these indicators
show that the interest rate will increase in both the money and
capital markets.
Running head: COLONIAL SUBJECT: AN AFRICAN
INTELLIGETSA AND ATLANTIC IDEAS
1
COLONIAL SUBJECT: AN AFRICAN INTELLIGETSA AND
ATLANTIC IDEAS 4

BOOK REVIEW: PHILIP ZACHERNUK, COLONIAL
SUBJECT: AN AFRICAN INTELLIGETSA AND ATLANTIC
IDEAS
ZUMING HU
HST 142
09/12/2018
EXECUTIVE SUMMARY
The colonial subjects: an African intelligesta and Atlantic ideas
is written by Phillip Zachernuk to show what he thought of
change that took place in West Africa and his thoughts on
Nigerian intelligesta. This book has six chapters which explain
the relationship between race and civilization cooperation and
also tells who the nationalist in Nigeria were. It is a reflection
of the 19th century and the mid-20th century which saw
education and religion introduced to Africa. The basis of the
book, the colonial subjects is a period when the African
countries were facing colonialism and the slave trade from
Europeans. The book puts more emphasis on the way the
intelligentsia were on a mission to westernize Africa.
The manner in which they immersed themselves in the purpose
of the British, how they were motivated by trying to change the
Africans way. This was the all part of the intelligentsia’s terms
were favorable both favorable for both economies and politics.
They were seen to look to the western ideas for the purpose of
inspiration so that they could use them to create new ideas for
themselves and to help in having a competitive advantage in

their lives. The author of the book shows how the Nigerians
were introduce to religious and educational literacy by the 19th
century and they could afford to order for books with so much
ease, this is as a result of the fact that they could make orders
for books from overseas countries and they could get them at
favorable cost. It gives us a reflection of how the educated
black people of the African diaspora viewed Africa and the
difference between their sight and that of the Europeans.
Phillip S. Zachernuk, colonial subject: an African intelligesta
and Atlantic ideas
The colonial subject; an African intelligesta and Atlantic ideas
is an insight into the history of West Africa particularly
Nigeria. The book aims to give a different view of the
precolonial times and shows the African American and shows
how the African Americans and Europeans viewed Africa. The
African in diaspora, specifically the ones who lived on the
shores of the Atlantic which was known as the intelligentsia of
the age. They make their contribution to the history of Africa
especially after being educated in Sierra Leone. Intelligentsia
played different roles in the history of African independence. At
a point they were intermediaries between the poor and the
uneducated Africans. They also tries to establish themselves in
trade of palm oil and timber when slave trade seemed to be on
low side. The book gives several reviews of the place of African
was and how it influenced various decisions. The outlook of the
Europeans on Africans was an inferior race which could be
controlled easily (Zachernuk, 1993).
The main content of substance being the relationship between
the colonialist and their subjects. The unfortunate thing was
even the black Atlantic believed the same as they has come to
accept the teaching they heard when in the foreign land. It is
common to ask if the modern Africa will be in the shape of the
westerners who tried so hard to change them or if they will
emerge modern but yet unmistakably African.
THE REVIEW OF THE BOOK
The book is set in the midl9th century to the late 20th

century, in which a big chunk of it was the invasion of the white
man in the black man’s world. The first chapter of the book,
invented and inventure, sets the pace from African and the rest
of the world to understand what was happening those ages.
Slave trade had been going on for quite a while, and the British
anti-slave unit was liberating the Africans from these lives. The
liberation of slaves is what brought about the African diaspora
and the intelligentsia.
They were saved and educated in Sierra Leone before they
moved back to Nigeria and other parts of Africa across the
world. Africans were viewed as essence and were treated with
certain orientalism by both the Europeans and the African-
Americans (Zachernuk, 1993). Basically the implication here is
to show that the African were valued to some extend and hence
were treated well. In the book we have Philip in two instances
claim that Africa has an intellectual history. This era was a time
when it is thought of as a “confrontation between the
indigenous and the alien new,” and hence the perception of
Europeans of Africa. African had learnt a lot and hence this
could be termed as a period of change for them as they could
confront the Europeans.
The black Atlantics presented themselves as people who were
superior to the Africans yet still inferior to the whites. With
their statuses of the middle class, they were to help bridge the
gap. The chronology of events in the book, however, explains
that this was not so. The intelligentsia who were to help to
guide the uneducated advice failed at this. E. A. Ayandele
called them “deluded hybrids mentally enslaved to foreign
ideas” while basil Davidson claimed at the problem with Africa
was the “poverty of speculative thought.” Phillip tries to bring
book to a term of ‘conversion and conservation’ of the African
heritage to the western view of the world. With the Europeans
aiming to “increase colonial subjects to essences” it is proven in
the book that they came to convert what they believed to be an
inferior people (Zachernuk, 1993).
The trail to assimilate the members of the intelligentsia

community entirely was the first step, but unfortunately very
few were willing to partake in the process. The spread of
religion was the next step in the process of conversion from
African beliefs. The colonial intelligentsias, on the other hand,
used their knowledge to gain a competitive advantage over the
others (Zachernuk P, Colonial Subjects: An African
Intelligentsia and Atlantic Ideas, 2000). Majorly the conversion
was to be achieved through religious teachings as well provision
of education to the Africans.
The third chapter, the sphinx must solve her own riddle,
Philip explains how the educated Africans were involved in the
colonial order by the Europeans. This inclusion of the
intelligentsia was on the political and the economic merit as it
was the Europeans that bought timber, palm oil, and cotton for
them in exchange for anything foreign. The intelligentsia, on
the other hand, found a way to be both embedded in Nigeria
while remaining to be a part of the intellectual Atlantic. Phillip
shows how they never accepted being Africa entirely even
though they had a role to play with the colonialists. With this
new developments, Philips explains that the African values
changed from the Nigerian and West African needs and started
being the needs of the Europeans and African-American
(Zachernuk,1994).
The main fundamentals of the colonial. Administration were felt
by the poor farmers and these brought with it economic
depression which later led to the diversification of economic
activities. The fourth chapter pragmatic prescription, explains
the plight of the educated Africans who had then become whose
number has gradually increased. He shows how the Africans
“fixed themselves against the Atlantic tides” this was achieved
through looking for better jobs which could help them improve
their life standards and were now anti-Europeans led by the
young men who had an education. Phillip’s book is all about the
positivity of the colonial period as well as the role the educated
blacks played that led to the colonial and post-colonial period.
It is an insight into the parts different people played to make

Africa what it is today. Basically it is a description of how the
knowledge acquired by Africans from the colonialists has
helped to shape Africa to the current status.
ANALYSIS OF THE BOOK
Contribution to Africa’s history and methodology
The book brings out the pre-colonial period and shows the
positivity of how things changed in Africa. The Europeans,
especially the British had liberated people who had been sold to
slavery and educated them hence giving them a place in the
society. The likes of Samuel Ajayi Crowther was trained and
later became the first black Anglican bishop in 1864. Edward
Wilmart. Blyden was known for the assertion of the pride of
Africa, and several other people WCTC seen to be the voice of
reason and towering figures of West Africa. Even though they
were seen to have failed their people except for a few they had
their significance in writing the history of modern African
(Zachernuk, 1994).
The intelligentsia were seen to make significant changes in
Nigeria and at a point were even used to advising the
communities on the various ways which could be used to deal
with the colonialists. The relationship between the colonialists
and their subjects is explained extensively. Trade between
Africans and the Europeans improved significantly and helped
place West Africa in the economic globe. The presence of raw
materials in Africa made more traders come to Africa and hence
the financial status of the people improved. It is also clear from
the book that through the educated Africans, the colonial period
which was meant to convert the Africans did not work. Instead,
they embraced what they leaned took them and turned them into
new ideas and maintain their race (Zachernuk ,1993).
The book is a mixture of research from the books written in the
past and the post-colonial period. Its main advantage is that it
provides an insight into the colonial period that has not be put
into much consideration. Africans are seen as the collaborators
or the resistors of the colonial period (Zachernuk p., i 1994).
The presence of educated Africans in the late 19th century

brings more insight into how West Africa is and explains why
Nigeria is perceived the way it is compared to previous
knowledge.
Author’s important contribution
The author has purposed in the book to grasp the intellectual
nature of the Africans, especially during the pre-colonial era.
How they reacted to being colonial subjects and how the
intelligentsias viewed the system and what they did about it. He
is out to show how the intelligentsias were at first view as
enemies and brainwashed hybrids and later in the 1960s when
these dreams collapsed. Intelligentsias in pre-colonial Africa
was seen as the people who had the western knowledge and
would help Africa and Nigeria to be specific in the guidance to
the new world order. This could be achieved through provision
of education as well as religious studies. It is also to prove the
‘Hamitic hypothesis’ which states that “the assertion of Africa’s
history has been made only by foreigners” (Zachernuk p., i
994). Several writings have been written to address the issue
with some supporting the hypothesis and others not. It is,
however, possible that the West Africans definition of
themselves right when they say they are Degenerate inheritors
of classical civilization. The author of the book views are
critical just as Blyden’s, Ladipo Solake and Biobaku.
The weakness of the book
The book concentrates on the positivity f the presence of the
Europeans in Africa especially western Africa. It, however, o
not mention the shortcomings of the missionary and
colonialists. The author has concentrated on what the
intelligentsias did for West Africa but does not explain the
consequences like the land grabbing and the strict rule they
imposed on the Africans. The educators acted as a bridge to
their fellow Africans, but even they considered themselves
superior hence making them above the typical black man. The
book is well detailed on the lives of intelligentsias and the
changes that they motivated in the country but at the same time
it does not give the other side of the story hence a loophole is

found in the book (Zachernuk,1993).
Reader’s opinion
I liked the book as I saw an insight into the way the Europeans
and the black Atlantics viewed the Africans. It explains the
reactions of the colonial subjects and how they reacted to the
Presence of the Europeans .These are some of the crucial pieces
of information that Î have come across in the book. It helps
realize why Africa is what it is as it is an image of its history
and the decisions its leaders decided to make when the
colonialists arrived. I am not quite sure I agree with the authors
painting of the colonialists as good people. Africa to Europe
was to fulfill their missionary curiosities as well as their
commercial ambition (Zachernuk, 1993). They viewed it as an
essence. They also came to explore the ethnographic interest
that engulfed them.
Conclusion
Zachernuk is not for the idea that Africa’s history is based
purely on the Europeans versus Africans that is sold over a long
period. Instead he freely believes that the modern the political
and the influenced behavior of the colonial subjects has a role
in African history. He also tries to determine the complexity of
the colonial subjects has a role in African history. He is also
trying to determine the complexity of the colonial intelligentsia
that changed the colonizer and the colonized. He firmly states
that there is more to the African history than the desperate need
for nationality that they acclaim to. He tries to prove that Africa
is rich in content and has more strands in its history than what
is known.
Final Examination

I. General Essay Questions (5pts each)
1. What are TIPs? How do these securities provide a hedge
against inflation? Discuss the spread between traditionally-
structured Treasury notes and TIPs. What factors influence this
spread relationship?
2. Fully describe the fixed-income instruments of the money and
capital markets. Make sure you cover all the money and bond
markets we discussed. Do not just list the instruments.
3. Fully discuss the concept of risk in the bond market. Describe
the different types of risk and how these risks can cause
realized return to be different from expected return.
4. What is securitization? Discuss the benefits of securitization
from the issuer and investor perspective. What is a CMO? How
does it differ from a pass-through security? How did the
development of the CMO structure expand the appeal of
mortgage securities? What is negative convexity as it relates to
mortgage securities?
5. What types of securities does the Treasury issue? Fully
explain the Treasury auction system process. Discuss the
Treasury’s decision to move to a single-price system. How does
the auction system differ from a traditional underwriting?
6. Fully explain the two perspectives of return in the money and
capital markets. Fully describe the models of return in the bond
and equity markets.
II. Presentation Questions (5pts each)
1. What are the major types of derivatives? Define futures,
forwards and options. What benefits do derivatives provide to
the money and capital markets?
2. What are emerging markets; converging markets and frontier
markets? What characterizes the emerging markets of Brazil and
Eastern Europe?
3. What countries make up the Eurozone? What are the benefits
of the use of a single currency in the Eurozone? How has the
evolution of the Eurozone impacted the money and capital

markets?
4. Define all the governmental agencies involved in the
securities regulation process. Discuss the major aspects of the
Dodd-Frank Wall Street Reform and Consumer Protection Act
of 2010, including the Volcker Rule.
5. What are hedge funds and private equity funds? What
strategies do these entities employ? How are these types of
firms regulated today? Explain the structure of a private equity
firm.
III. Market Monitoring Questions
1. You are a reporter for a major financial newspaper. You are
asked to write a concise, well-organized article on the major
movements in the money and capital markets over the
September-November 2018 period, highlighting not only market
movements but also the major themes that effected the
marketplace during this period. Limit your response to 500
words. (10pts)
2. Clearly economic indicators are an important fundamental
factor that influences rates and relationships in the money and
capital markets. What do you believe are the four key economic
indicators (make sure you cite specific indicators)? Why? What
do these indicators tell us about the market? What happened to
each of these indicators this semester? (10pts)
3. Discuss the “flight to quality” phenomenon. What is it? Cite
examples of the effect of “flight to quality” from market
movements this semester. (5pts)
4. We began the semester with a discussion of the key themes
currently influencing the money and capital markets. What are
these themes? Which of these themes are still driving rates and
relationships today? (10pts)
5. The Federal Reserve is clearly a dominant influence on the
money and capital markets. Discuss how the markets monitor
the Fed and what this information has revealed this semester.
What has the market focus been regarding the Fed this

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