Swinburne University of Technology
Faculty of Business and Enterprise
FIN20012: Financial Markets
Section One: Course Outline
Section Two: True and False Questions
Section Three: Essay Type Questions
SECTION ONE: COURSE OUTLINE
1. The Financial System
2. The Banking Sector
3. Non Banking Financial Institutions
4. The share market and the corporation
5. Corporations issuing equity in the share market
6. Investors in the share market
7. Forecasting share price movements
8. Basic Concept of debt market
9. Short time debt
10.Medium- to long-term debt
11.International debt market
12.Government debt, monetary policy and the payments system
13. An introduction to interest rate determination and forecasting
14.Sustainability and the financial sector.
True and false questions
Chapter 1: A modern financial system
Money is a medium of exchange that includes attributes of divisibility and a store of value. 2.
A modern financial system may be said to comprise three major components: financial institutions, instruments and markets.
The time–pattern of the cash flows attribute of a financial asset refers to the term to maturity of an instrument.
A well-functioning financial system is expected to allocate savings to the most efficient users of the funds.
Financial assets incorporate a number of attributes. The risk attribute refers to the probability that suppliers of funds will not purchase a particular asset when it is issued. 6.
Monetary policy is the actions of a central bank that influence the level of interest rates in order to achieve certain economic objectives.
A principal role of investment banks is to gather deposit savings from customers and provide loans to their retail clients.
Finance companies are examples of contractual savings institutions. 9.
The matching principle contends that short-term assets should be funded with equity. 10.
Equity in a corporation represents an ownership position that is represented by the issue of ordinary shares.
Debt differs from equity in that debt normally has a specified life and pays some form of return to the debt holder.
A derivative contract is a hybrid security that incorporates the characteristics of both debt and equity.
The issue of new shares by a corporation provides the firm with additional equity funding and is an example of a primary market transaction.
The issue of new money-market debt securities by a borrower is said to be a secondary market transaction.
In a direct financial flow the surplus entity provides funds to the deficit entity and acquires a primary claim from the user of the funds.
Three advantages of intermediated finance are asset transformation, liquidity transformation and maturity transformation.
Money-market securities are exclusively debt instruments and capital-market instruments are exclusively equity securities.
Bills of exchange and promissory notes are discount securities that may be traded in the money markets.
Borrowers in the international markets obtain long-term loans from the foreign exchange market.
The corporate sector borrows to fund business activities and therefore is typically a deficit sector within the economy.
Chapter 2: Commercial banks
Each nation-state is no longer responsible for the prudential supervision of commercial banks
as this is now the responsibility of the Bank for International Settlements. 2.
There is a direct correlation between the level of bank regulation and the dominance of the
commercial banks within a financial system.
Banks obtain funds from a number of different sources. These sources of funds appear as
assets on a bank’s balance sheet.
Liability management is the strategic limitation of commercial bank lending to match a
bank’s current deposit base.
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