The purpose of this study is to develop and estimate sectoral demand for money functions and an aggregate supply function for money within the framework of a simultaneous-equations model of major United States financial markets. The study is exploratory in nature in several respects. The final form of the behavioral equations is, of course, open to question. Also, the data used in the estimation of the behavioral equations have recently been revised by the Flow of Funds Section of the Federal Reserve Board.

The Sharpe model of capital asset pricing under conditions of risk has received wide theoretical acclaim and empirical support. This paper presents an econometric study of the model with the following objectives: (a) to show the effect of measuring the model's independent variables incorrectly; (b) to derive and use a new procedure for empirically testing the adequacy of the model as it is currently formulated.

It has been observed that when the level of interest rates rises all rates increase, but short-term rates rise systematically more than longterm rates. Over time, therefore, short-term rates experience wider fluctuations than long-term rates. This behavior, however, does not provide any clue as to which interest rate leads the other over the cycle. Most research on term structure of interest rates has focused on the yield curve at a point in time; little has been done to investigate the joint movement of short- and long-term interest rates through time. In this study, we compare the cyclical behavior of short-term and long-term interest rates in the United States during the period 1954–1967. The relationship between the 90-day Treasury bill rate and the 10-year U. S. Government bond rate is analyzed by the cross-spectral method.

Many important contributions to the body of theoretical literature in business finance are built upon the pioneering efforts of others. In a recent article in this Journal, Vaughn and Bennett attempt to build a risk adjusted capital budgeting framework upon foundations laid by Gordon, Miller and Modigliani, Sharpe, Solomon, and others. Unfortunately, they are building a house of straw. Their knowledge of the contributions of their predecessors is superficial, and their approach is inconsistent with some of the basic tenets of business finance.

The classic 1955 paper of Lorie and Savage has stimulated the development of mathematical programming approaches to the analysis of capital budgeting problems. A problem that they considered has been succinctly stated as:

given the net present value of a set of independent investment alternatives, and given the required outlays for the projects in each of two time periods, find the subset of projects which maximizes the total net present value of the accepted ones while simultaneously satisfying a constraint on the outlays in each of the two periods.

The purpose of this paper is to construct a model for the computation of an optimal cash balance for a bank, although it could be adapted to any organization. By a bank we mean to include both commercial banks and savings banks (mutual savings banks and savings and loan associations). One might also be able to adapt the model to an “international bank” such as the United States holdings of gold and foreign exchange.