FINN 918 Financial Institutions
Final Exam: Answers Textbook: Foundations of Financial Markets and Institutions, 4th Edition, Fabozzi, Modigliani, and Jones, Prentice Hall, 2010, | ISBN –13: 978-0-13613531-9 | ISBN –10: 0-13-613531-5 |
1. Indicate whether each of the following instruments trades in the money market or the capital market: a. General Motors Acceptance Corporation issues a financial instrument with four months to maturity. b. The U.S. Treasury issues a security with 10 years to maturity. c. Microsoft Corporation issues common stock. d. The State of Alaska issues a financial instrument with eight months to maturity. e. GMAC issue trades in the money market. f. U.S. security trades in the capital market. g. Microsoft stock trades in the capital market. h. State of Alaska security trades in the money market.
2. Give three reasons for the trend toward greater integration of financial markets throughout the world.
There are several reasons. These include: a. Deregulation and/or liberalization of financial markets to permit greater participants from other countries; b. Technological innovations to provide globally-available information and to speed transactions; c. Institutionalization -- financial institutions are better able to diversify portfolio and exploit mis-pricings than are individuals.
3 Why does increased volatility in financial markets with respect to the price of financial assets, interest rates, and exchange rates foster financial innovation?
Increased volatility of the prices of financial assets has fostered innovation as investors and institutions seek ways to mitigate financial risk. Among other things, these innovations include the advancement of the modern derivatives markets.
Chapter 2 1. Each year, millions of American investors pour billions of dollars into investment companies, which use those