Project 1 : Financial

Project #1

Read the article "What is Money" post below first.  Answer the following questions and post your answers. Remember to use headings when answering questions.

1. What is money?  Using the information posted in the project Moodle packet, research the money supply data provided on the Federal Reserve’s website (www.federalreserve.gov).  Based on your research using the data as of the end of September 2018 (specifically, the September 24, 2018 seasonally adjusted weekly data) answer the following questions:

• What are the most recent amounts for M1 (Table 3) and M2 (Table 4).
• What is the most recent weekly amount presented for Currency (Table 3).
• What percentage of our money supply (M1 and M2) is comprised of currency (cash and coins)?   You must show your calculation to receive credit.

2. Go to www.fidelity.com.  From Fidelity’s homepage type “Fidelity Magellan” or “FMAGX” in the search box in the upper right corner.  Based on the information provided, answer the following questions:

• What is the fund’s investment objective?  Its investment strategy?
• What is the fund’s Net Asset Value (NAV)?  Provide the date of this quote.
• What has been the fund’s Quarterly-Average Annual Returns (at most recent date), for the prior 1 year, 3 years, 5 years, and 10 years?  How has the S&P 500 (i.e., the “market”) performed over those same time periods?  As an investor in this fund, would you be satisfied with the fund’s performance?  Why or why not?
• What was the fund’s expense (fee) ratio for its most recent fiscal year-end?

       3.  Go to www.finance.yahoo.com.  Type in Apple or “AAPL” in search box at top of the page.  Based on the information presented, answer the following questions:

• From the Summary Tab, what is Apple’s current share price quote?
• From the Statistics Tab, what is Apple’s Inter-day market capitalization (“Market Cap”)?
• What is the implied number of shares outstanding (i.e., market cap ÷ current share price)?  How does this number compare to the actual shares outstanding presented on the Statistics Tab?  Hint – remember that market cap is generally in millions or billions while share prices quotes are not.
• Go to Apple’s balance sheet for the most recently completed quarter (within the “financials” tab).  What is the date of the balance sheet?
• How much cash and investments (current and non-current) does the company have?  What percentage of the total asset base of the company did these balances represent?
• Comment on Apple’s holdings of cash and investments (these types of holdings represent non-operating assets).  What potential benefits exist due these holdings?  What potential concerns are created by these holdings?     

Walsh College – FIN521 (Greshak) 1

 

What is “Money”?

Content author: Prof. Bill Greshak, JD, CMA, CFE

Our nation’s money supply (collectively known as monetary aggregates) is comprised of two (2) primary measures – M1 and M2. The Federal Reserve defines each as:

1. M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) traveler's checks of nonbank issuers; (3) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (4) other checkable deposits (OCDs), consisting of negotiable order of withdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions, credit union share draft accounts, and demand deposits at thrift institutions. Seasonally adjusted M1 is constructed by summing currency, traveler's checks, demand deposits, and OCDs, each seasonally adjusted separately.

2. M2 consists of M1 plus (1) savings deposits (including money market deposit accounts); (2) small-denomination time deposits (time deposits in amounts of less than $100,000), less individual retirement account (IRA) and Keogh balances at depository institutions; and (3) balances in retail money market mutual funds, less IRA and Keogh balances at money market mutual funds. Seasonally adjusted M2 is constructed by summing savings deposits, small-denomination time deposits, and retail money funds, each seasonally adjusted separately, and adding this result to seasonally adjusted M1.

Notice that currency (the dollars and cents we carry around in our wallets and purses is part of M1 money. We also call the M1 components “transaction money”. M2, on the other hand, is a much broader measure and is referred to as “near monies”. However, together both M1 and M2 are commonly referred to as the “money supply”.

Question – how much of our money supply is comprised of currency and coins (which most people would collectively consider “money”)?

To answer this question, go the Federal Reserve’s website (www.federalreserve.gov) and select “Data”. From this page select “Money Stock Measures – H.6”. Notice that there are 7 tables available for review (basically the money supply data is presented in both a ‘seasonally adjusted’ format and ‘not seasonally adjusted’ format). We will focus on the seasonally adjusted format.

 

http://www.federalreserve.gov/

 

 

 

Walsh College – FIN521 (Greshak) 2

 

Review Table 1 which provides the totals for both M1 and M2. Remember the total M1 and M2 seasonally adjusted amounts at that date (note M1 is included in the M2 totals so it is a cumulative amount).

Next, scroll down and review Table 3 which presents the components that comprise M1 money and note the amount of currency (bills and coins). Notice that the components sum to the totals presented on Table 1 (with perhaps a small difference due to rounding).

Next, scroll down further Table 4 which contains seasonally adjusted non-M1 components of M2 money. Notice that if you sum up these components and add the M1 money from above you get the total presented on Table 1.

Finally, divide the amount of Currency by the total M2 “money supply” and you will get the applicable percentage that answers the questions posted at the top of this post.

What does all of this mean? The next time you hear someone say that the government (or sometimes you hear the Fed) is printing money to pay debts or fund the government, ask that person what they mean by “money”. Also, keep in mind the Federal Reserve is not legally allowed to print bills/currency or coin money. Those activities are reserved only for the U.S. Government (specifically the Treasury Dept.) by law. If anyone else attempted to usurp those powers, it would be illegal counterfeiting and the Secret Service would be alerted……..