11F 378 AS01-1 - University of Windsor Odette School of...

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1 University of Windsor Odette School of Business 0472-378 Financial Markets and Institutions Assignment #1 Dr. Keith C.K. Cheung Due: October 12, 2011 Student Name: ___________________________________________ (Print) Student ID Number: _____________________________________ INSTRUCTIONS 1. No late assignment will be accepted 2. Solution can be found in the CLEW on October 19 3. The complete set has 70 multiple-choice questions. 4. Leave your answers in the scantron provided. Each correct response is worth one point. 5. Incorrect answers will not be penalized. Make an educated guess if needed. 6. This assignment is worth 10% of the overall grade. KEEP QUESTION PAPER INTACT
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2 MULTIPLE-CHOICE QUESTIONS are designed to test general understanding of a variety of concepts, as well as knowledge of various specific points. 1. What distinguishes financial institutions (FIs) from industrial firms? ____ A) FI balance sheets are almost totally comprised of financial securities whereas industrial firms hold substantial amounts of real assets B) Industrial firms are the customers of FIs C) FIs deal exclusively in primary securities while industrial firms specialize in secondary securities D) Industrial firms produce real goods or services while FIs only manipulate money E) Industrial firms are unregulated while FIs are heavily regulated 2. How much will you pay for a 181-day $1,000 Treasury bill to have an annual yield at 11.1% with simple interest calculation? ____ A) $1,000.00 B) $973.00 C) $947.41 D) $900.00 Hint: Ο Ο Π Ξ Μ Μ Ν Λ × Ο Ο Π Ξ Μ Μ Ν Λ = days P P F i d d db 365 3. Secondary securities ____ A) Can only be converted into cash with huge transaction costs B) Are assets backed by primary securities C) Are issued by non-financial institutions D) All of the above E) None of the above 4. The origination of a home mortgage loan is considered to be ____ A) Primary security because this is the FI’s primary source of business B) Secondary security because mortgages are typically resold in the secondary market C) Primary security because the mortgage IOU is backed with real assets D) Secondary security for re-sales of existing homes and a primary security for new home sales E) None of the above due to insufficient information
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3 (The following information relates to Questions 5 and 6) ABC Bank (seller) has made a “three against six” forward rate arrangement (FRA) with XYZ Bank (buyer). The notional amount is $75,000,000. The settlement rate is 5.15%. The agreement rate is 5.25%. The actual number of days in this three-month agreement is 90. 5. Which of the following is true? ____ A) ABC Bank will pay XYZ Bank a cash settlement at the beginning of the 90-day FRA period B) XYZ Bank will pay ABC Bank a cash settlement at the beginning of the 90-day FRA period C) ABC Bank will pay XYZ Bank a cash settlement at the end of the 90-day FRA period D) XYZ Bank will pay ABC Bank a cash settlement at the end of the 90-day FRA period 6. The payment amount under this FRA is ____ A) $12,510 B) $22,526 C) $18,750 D) None of the above Hint: ) 360 / ( ) ( 1 ) 360 / ( ) ( $ days SR days AR SR FRA × + × × = 7. A moderately upward-sloping yield curve indicates that ____ A) Short-term rates are expected neither to rise nor fall in the near future B)
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This note was uploaded on 10/02/2011 for the course ECON 101 taught by Professor Mikson during the Spring '08 term at Aarhus Universitet.

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11F 378 AS01-1 - University of Windsor Odette School of...

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