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25556 The Financial System
Special exam, spring semester, 2011
3 hours plus 10 minutes reading time.
Exam day and date:
1. Exam Paper:
• Please ensure that your name and student number are at the top of this page. • There are three parts to this exam: Part A, Part B and Part C. All questions are compulsory. • This paper will be marked out of 50 marks.
Part A: 15 (1-mark) multiple choice questions. Record your chosen answer to each question on the supplied computer card starting with Q1 Part B: Five (5-mark) questions. Write your answers in the spaces provided in this exam paper. Part C: 10-mark case study. Write your answer in the separate booklet. • Answers to calculation questions must be substantiated by showing your working. • This exam paper includes a formula sheet on the final page.
• Financial calculators and other non-programmable calculators are allowed. • Pencils may be used, but write clearly if you want your answers to be graded.
15 MULTIPLE CHOICE QUESTIONS (15 MARKS)
Our study of “business angels” revealed they
a) are the main lenders to small business;
b) are security analysts who provide financial advice;
c) invest in non-government bonds;
d) are investors in the venture capital market;
e) are not described by all of the above.
2. Our study of Australia’s bond market revealed:
a) Stocks and bonds are the main securities traded in the bond market;
b) Treasury bonds pay coupons on the 8th of each coupon month;
c) There are much more government bonds issued than non-government bonds;
d) Bond prices rise when coupons are paid;
e) Non-government bonds will always trade at a “discount” to their face value.
3. Our study of Australia’s bond market revealed that
a) bond investors are exposed to credit risk but not price risk;
b) bond dealers conduct trades by quoting bid and offer prices;
c) the Government conducts monetary policy by setting the interest rate for bonds;
d) mortgage brokers are the main issuers of mortgage-backed securities;
e) none of the above are correct.
4. It is clear from our study of exchange rates that
a) in the AUD/USD rate the USD is the commodity currency;
b) exchange rate movements quickly adjust for variations in inflation rates;
c) increases in the current account surplus causes the exchange rate to depreciate;
d) the RBA sells the AUD to increase its value;
e) the AUD/EUR is an example of a cross rate.
5. The ASX option market
a) requires margin payments from buyers and seller;
a) specifies the expiry date and the exercise price of option contracts;
a) specifies four expiry months a year; March, June, September and December;
a) mandates that contracts be closed out on their expiry date;
a) is an example of an over-the-counter market.
6. Suppose you paid $0.50 each for call options on Telstra shares with a $3 exercise price
a) you pay the 50 cents (per option) to the clearinghouse as your initial deposit;
b) your option position is out-of-the-money if the share price is $3.25;
c) you would closeout your option position by buying Telstra put options;
d) you are described as the holder of the long position in Telstra options;
e) both (b) and (d) are correct.
7. Our study of IPOs revealed
a) they always raise funds for the new company;
b) institutional investors are the main buyers of...
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