TO BE RETURNED AT THE END OF THE EXAMINATION.
THIS PAPER MUST NOT BE REMOVED FROM THE EXAM CENTRE.
25556 The Financial System
Special exam, spring semester, 2011
Time Allowed: 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.
PART A:15 MULTIPLE CHOICE QUESTIONS (15 MARKS)
1.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...