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financial markets institutions

Questions and Answers of Financial Markets Institutions

Bankone issued $200 million worth of one-year CD liabili- ties in Brazilian reals at a rate of 6.50 percent. The exchange rate of U.S. dollars for Brazillian reals at the time of the transaction was
Bank USA recently purchased $10 million worth of euro- denominated one-year CDs that pay 10 percent interest annually. The current spot rate of U.S. dollars for euros is $1.30/1. (LG 9-5)a. Is Bank
On August 19, 2010, you convert 500,000 U.S. dollars to Japanese yen in the spot foreign exchange market and pur- chase a one-month forward contract to convert yen into dol- lars. How much will you
Refer to Table 9-1. (LG 9-4)a. On July 19, 2010, you purchased a British pound- denominated CD by converting $1 million to pounds at a rate of .6498 pounds for U.S. dollars. It is now August 19,
Refer to Table 9-1. (LG 9-4)a. What was the spot exchange rate of Canadian dollars for U.S. dollars on August 19, 2010?b. What was the six-month forward exchange rate of Canadian dollars for U.S.
Why must the current account balance equal the value of the capital account balance (in opposite sign)? (LG 9-1)
Why has the United States held a trade deficit for most of the 1990s and 2000s? Make sure you distinguish between the imports versus exports of goods and services. (LG 9-1)
One form of the interest rate parity equation appears as 1+rust = (1/S) (1+ ruke) X F, where both the spot and forward rates are expressed in terms of dollars for pounds or direct exchange rates. How
What are some reasons why interest rate parity may not hold in spite of the economic forces that should ensure the equilibrium relationship? (LG 9-7)
What is the implication for cross-border trades if it can be shown that interest rate parity is maintained consis- tently across different markets and different currencies? (LG 9-7)
What are the major foreign exchange trading activities per- formed by financial institutions? (LG 9-6)
How are foreign exchange markets open 24 hours per day? (LG 9-2)
How did the Bretton Woods and the Smithsonian Agree- ments affect the ability of foreign exchange rates to float freely? How did the elimination of exchange boundaries in 1973 affect the ability of
What is the percentage of common stock outstanding issued by nonfinancial corporate businesses, financial corporations, and the rest of the world?
What is the market value of common stock currently outstanding? Calculate the percentage change in this value since 2010, reported in Figure 8-1.
Use the information in the following stock quote to calculate Abercrombie & Fitch's earnings per share over the last year. (LG 8-5) (1) (2) (3) (4) (5) (6) (7) (8) (9) Name Symbol Open High Low Close
Use the information in the following stock quote to calculate McKesson's earnings per share over the last year. (LG 8-5) (1) (4) (10) (11) (12) (13) (14) (15) (8) (9) Net Name Symbol Open High Low
excel Using a Spreadsheet to Calculate Stock Returns: At the beginning of the year, you pur- chased a share of stock for $50. Over the year the dividends paid on the stock were $4.50 per share.
Refer to the stock market quote in Table 8-1. (LG 8-5)a. What was the closing stock price for Abbott Laborato- ries on August 11, 2010?b. What were the high and low prices at which McGraw- Hill
Suppose you own 50,000 shares of common stock in a firm with 2.5 million total shares outstanding. The firm announces a plan to sell an additional I million shares through a rights offering. The
Suppose a firm has 15 million shares of common stock out- standing and six candidates are up for election to five seats on the board of directors. (LG 8-1)a. If the firm uses cumulative voting to
What is an ADR? How is an ADR created? (LG 8-9)
What are circuit breakers used in the context of stock mar- ket trading and volatility? (LG 8-5)
Describe the three forms of stock market efficiency. (LG 8-8)
Are stock market indexes consistently accurate predictors of economic activity? (LG 8-8)
Who are the major holders of corporate stock? (LG 8-7)
What are the major U.S. stock market indexes? (LG 8-6)
What is a market order? What is a limit order? How are each executed? (LG 8-5)
What have been the trends in the growth of the major U.S. stock market exchanges? (LG 8-4)
What is the difference between cumulative and noncumula- tive preferred stock? (LG 8-2)
What is the difference between nonparticipating and partici- pating preferred stock? (LG 8-2)
What is a dual-class firm? Why do firms typically issue dual classes of common stock? (LG 8-1)
What is meant by the statement "common stockholders have a residual claim on the issuing firm's assets"? (LG 8-1)
What are some characteristics associated with dividends paid on common stock? (LG 8-1)
Why are stock markets the most watched and reported of the financial security markets? (LG 8-1)
Verify the asked yield on the 2.000 percent November 2013 T-note for July 16, 2011. The asked price is 103:02 and the note matures on November 30, 2013.
Hilton Hotels Corp. has a convertible bond issue outstand- ing. Each bond, with a face value of $1,000, can be converted into common shares at a rate of 61.2983 shares of stock per $1,000 face value
Using a Spreadsheet to Calculate Bond Values: Xcel What is the bond quote for a $1,000 face value bond with an 8 percent coupon rate (paid semiannually) and a required return of 7.5 percent if the
A $1,000 face value corporate bond with a 6.75 percent cou- pon (paid semiannually) has 10 years left to maturity. It has had a credit rating of BB and a yield to maturity of 8.2 percent. The firm
A client in the 33 percent marginal tax bracket is comparing a municipal bond that offers a 4.5 percent yield to maturity and a similar risk corporate bond that offers a 6.45 percent yield. Which
A $1,000 face value corporate bond with a 6.5 percent cou- pon (paid semiannually) has 15 years left to maturity. It has had a credit rating of BBB and a yield to maturity of 7.2 percent. The firm
Refer to Table 6-7. (LG 6-2)a. What was the closing price on the Bank of America 5.625 percent coupon bonds on July 16, 2010?b. What was the S&P bond rating on Morgan Stanley 5.500 percent coupon
Use the bond pricing formula and Table 6-6 to calculate the number of years (to the nearest 1/1000th of a year) between the Monday, July 19, 2010, settlement date and the maturity date on the
Refer to Table 6-6. (LG 6-2)a. On July 16, 2010, what were the coupon rate, price, and yield on municipal bonds issued by the Hawaii Depart- ment of Budget & Finance?b. What was the price, on July
A municipal bond you are considering as an investment cur- rently pays a 6.75 percent annual rate of return. (LG 6-2)a. Calculate the tax equivalent rate of return if your mar- ginal tax rate is 28
You can invest in taxable bonds that are paying a 9.5 percent annual rate of return or a municipal bond pay- ing a 7.75 percent annual rate of return. If your marginal tax rate is 21 percent, which
Consider an investor who, on January 1, 2014, purchases a TIPS bond with an original principal of $100,000, an 8 percent annual (or 4 percent semiannual) coupon rate, and 10 years to maturity. (LG
On October 5, 2013, you purchase a $10,000 T-note that matures on August 15, 2024 (settlement occurs two days after purchase, so you receive actual ownership of the bond on October 7, 2013). The
Refer to Table 6-1. (LG 6-2)a. Verify the July 16, 2010 asked yield of 1.83% on the Treasury bond, stripped principal STRIP maturing August 2015. Use a two-day settlement period from the date of
Refer again to Table 6-1. (LG 6-2)a. Verify the asked price on the 0.875 percent March 2011 T-note for Friday, July 16, 2010. The asked yield on the note is 0.2374 percent and the note matures on
What are sovereign bonds? How did sovereign bonds per- form during the 2000s? (LG 6-4)1. Refer to the T-note and T-bond quotes in Table 6-1. (LG 6-2)a. What is the asking price on the 4.375 percent
What is the difference between a Eurobond and a foreign bond? (LG 6-4)
What is the difference between an investment-grade bond and a junk bond? (LG 6-2)
Explain the meaning of a sinking fund provision on a bond issue. (LG 6-2)
What is a convertible bond? Is a convertible bond more or less attractive to a bond holder than a nonconvertible bond? (LG 6-2)9. What is a callable bond? Is a call provision more or less attractive
Which type of bond-a mortgage bond, a debenture, or a subordinated debenture-generally has the (LG 6-2)a. Highest cost to the bond issuer?b. Least risk to the bond holder?c. Highest yield to the bond
What is the difference between term bonds and serial bonds? (LG 6-2)
What is the difference between bearer bonds and registered bonds? (LG 6-2)
What is the difference between general obligation bonds and revenue bonds? (LG 6-2)
What is a STRIP? Who would invest in a STRIP? (LG 6-2)
What are the differences between T-bills, T-notes, and T-bonds? (LG 6-2)
What are capital markets, and how do bond markets fit into the definition of capital markets? (LG 6-1)
Calculate the average spread between the prime rate and the commercial paper rate over the last year. How does this compare to the spread seen in the fall of 2008?
By how much have the prime rate and commercial paper rate changed since June 2010?
What is the dollar value of noncompetitive bids on the most recent issues?
What is the dollar value of tendered and accepted bids for the most recent issues?
What are the high, low, and median prices on the most recent issues?
You have just purchased a four-month, $500,000 negotiable CD, which will pay a 5.5 percent annual interest rate. (LG 5-2)a. If the market rate on the CD rises to 6 percent, what is its current market
You can buy commercial paper of a major U.S. corporation for $495,000. The paper has a face value of $500,000 and is 45 days from maturity. Calculate the discount yield and bond equivalent yield on
Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $24,950,000, with the promise to buy them back at a price of
If the overnight fed funds rate is quoted as 2.25 percent, what is the bond equivalent rate? Calculate the bond equivalent rate on fed funds if the quoted rate is 3.75 percent. (LG 5-2)
e cel x Using a Spreadsheet to Calculate T-bill Yield: What is the quoted yield of a $10,000 face value T-bill with a market price of $8,885 if there are 10, 25, 50, 100, and 250 days to maturity?
A T-bill that is 225 days from maturity is selling for $95,850. The T-bill has a face value of $100,000. (LG 5-2)a. Calculate the discount yield, bond equivalent yield, and EAR on the T-bill.b.
e cel x Using a Spreadsheet to Calculate T-bill Prices: What is the bid price of a $10,000 face value T-bill with a bid rate of 2.23 percent if there are 10, 25, 50, 100, and 250 days to maturity?
Refer to Table 5–5 . (LG 5-2)a. Calculate the ask price of the T-bill maturing on September 30, 2010, as of July 7, 2010.b. Calculate the bid price of the T-bill maturing on October 28, 2010, as of
You can purchase a T-bill that is 95 days from maturity for $9,965. The T-bill has a face value of $10,000. (LG 5-2)a. Calculate the T-bill’s quoted yield.b. Calculate the T-bill’s bond
Suppose you purchase a T-bill that is 125 days from maturity for $9,765. The T-bill has a face value of $10,000. (LG 5-2)a. Calculate the T-bill’s quoted discount yield.b. Calculate the T-bill’s
You would like to purchase a Treasury bill that has a $10,000 face value and is 68 days from maturity. The current price of the Treasury bill is $9,875. Calculate the discount yield on this Treasury
Calculate the bond equivalent yield and effective annual return on a jumbo CD that is 115 days from maturity and has a quoted nominal yield of 6.56 percent. (LG 5-1)
What is the discount yield, bond equivalent yield, and effective annual return on a $1 million Treasury bill that currently sells at 97 3/8 percent of its face value and is 65 days from maturity?
Who are the major issuers of and investors in money market securities? (LG 5-4)
Describe the process by which a banker’s acceptance is created. (LG 5-2)
What is the process through which negotiable CDs are issued? (LG 5-2)
Why do commercial paper issuers almost always obtain a rating of their issues? (LG 5-2)
What is the difference between a repurchase agreement and a reverse repurchase agreement? (LG 5-2)
Describe the two types of fed funds transactions. (LG 5-2)
What are federal funds? How are they recorded on the balance sheets of commercial banks? (LG 5-2)
What is the difference between a competitive bid and a noncompetitive bid in a T-bill auction? (LG 5-3)
What is the difference between a single-payment yield and a bond equivalent yield? (LG 5-1)
Why can discount yields not generally be compared to yields on other (nondiscount) securities? (LG 5-1)
What are the three characteristics common to money market securities? (LG 5-1)
Calculate the percentage change in the U.S. national debt since June 24, 2010.
What is the most recent dollar value of the U.S. national debt?
You are considering using one of two loans. The terms of the two loans are equivalent with the exception of the interest rates. Loan A offers a rate of 8.10 percent compounded daily. Loan B offers a
A car dealer is advertising a loan with monthly payments and a 9.9 percent nominal rate. What is the loan’s EAR? ( LG 2-9 )
Calculate the effective annual return on an investment offering a 12 percent interest rate, compounded monthly. ( LG 2-9 )
You have borrowed $4,000 from your parents after graduation to get settled into your career. If they charge you 6 percent compounded monthly and you can pay them $100 per month, how long will it
What are the monthly payments (principal and interest) on a 15-year home mortgage for an $180,000 loan when interest rates are fixed at 8 percent? ( LG 2-9 )
At retirement, you have saved $800,000 in your employer’s savings plan. They have offered to convert this money to an annual payment of $70,000 for the next 30 years. What is the interest rate of
You can save $1,000 per year for the next six years in an account earning 10 percent per year. How much will you have at the end of the sixth year if you make the first deposit today? ( LG 2-9 )

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