Financial Markets (FIN 0013-3) 24 September

2022
Critical Thinking
Assignment # 1
1. Why does cash that is kept in a bank lose its real value over time? Explain why.

- Based on the principle of the time value of money, the amount of money
today is worth more at the present than the same amount of money in the
future. Thus, instead of keeping money in the bank and receive the same
value or a very small amount of interest, investing is much way better to
make the money grow over time. Especially these days where inflation is
evident, the value of money loses over time as price of the commodities
prone to increase over time. For example, I have the choice to receive
P50,000 today or P50,000 three years from now. Regardless of the same
amount of money, the P50,000 that I have today would give me a much value
than the money that I’ll receive after three years because of the opportunity
cost associated with the delay, as well as the inflation taking part.

2. “I just bought my first house. Economists are predicting low inflation in the future, but I
sure hope they’re wrong!” Why might it make sense for someone to say this?

- I believe that economists might be wrong because inflation has a negative

relationship with the time value of money. This means that the value of
money we have these days is way higher than the value that it’ll get in the
future. It is a good thing that he bought his first house at present than
agreeing with the economists and buy his house in the future. In addition,
inflation is inevitable and it may happen after a week, or maybe tomorrow
because of the current events happening around the world. The most evident
example is the Covid-19 pandemic which we haven’t expected at all which
costs a lot of economic crisis around the world.

3. Will computer technology cause financial intermediaries to become extinct?

- I do not agree that computer technology can cause financial intermediaries to

become instinct especially in loans and credit institutions who needs
assessment before allowing individuals to borrow money. It is true that
computer technology have helped everyone to easily access their financial
transactions any time and anywhere. However, financial intermediaries exists
to efficiently handle economic agreements and suggest financial solutions
between parties. Artificial intelligence could never replace how human beings
work especially on the decision making part where expertise and skills are
trained to financial intermediaries.
Conditions
1. Be precise. Explain your answers on each question in 3 – 5 sentences only.
2. Show your computations (if need be).
3. Answers must be handwritten & on black ballpoint ink.
4. Please write on yellow pad & upload on the class’ google drive.
5. Deadline is on 27 September 2022 at 11:59 pm.

Thank you.

GATONGAY, CYRUS OSORIO

PLMBS Lecturer III

“If you think education is expensive, try ignorance."

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