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financial markets institutions
Questions and Answers of
Financial Markets Institutions
Consider a 30-year fixed-rate mortgage for $200,000 at a nominal rate of 8%. A mortgage broker closes this deal on August 30.If the broker wants to sell this mortgage to a bank on August 31 and rates
Consider a 5-year balloon loan for \($250,000.\) The bank requires a monthly payment equal to \($1,450,\) and the interest rate is 6%. How much will the borrower owe when the balloon payment is due?
Investors around the world decide to buy T-Bills, since no other instrument is safe to hold anymore.Predict what will happen to the U.S. exchange rate.
Calculate the appreciation of the U.S. dollar and the depreciation of the Japanese yen if the exchange rate between the U.S. dollar and the Japanese yen went from 110 ¥/US to 120 ¥/US.
The current exchange rate is 0.75 euro per dollar, but you believe the dollar will decline to 0.67 euro per dollar. If a euro-denominated bond is yielding 2%, what return do you expect in U.S.
A rare French cheese sells for 60.00 euros per pound. Assuming a very similar cheese in Wisconsin sells for $55.00 per pound, what is the exchange rate between the euro and the U.S. dollar according
The annual inflation rate in Venezuela was 200% during 2015. For the same year, the U.S. annual inflation rate was 1%. If the Venezuelan bolivar traded at 0.10 U.S. dollar in 2015, what was the
Suppose that a Big Mac sells for 40.90 Norwegian kroners in Oslo and that the exchange rate is 8.18 kroners per U.S. dollar. If a Big Mac sells for $4.35 in New York, can you say that the law of one
Why is it that economists often refer to “the” interest rate, while there are many interest rates in any economy?
What types of risks do financial institutions face?
Maria has accumulated $15,000 in savings and wants to buy shares in a hedge fund. Explain why Maria cannot participate in this particular type of mutual fund.
Lucia just bought two coupon bonds, one with a face value of \($1,000\) and the other with a face value of \($5,000.\) Both bonds have a coupon rate of 5% and sold at par today. Calculate both
Investigate the data available from the Federal Reserve Bank of St. Louis FRED database at https://fred.stlouisfed.org/. Then answer the following questions.a. What is the difference in the interest
Review the different tables relating to stock markets and bond markets that appear in Section C of The Wall Street Journal. Explain whether each of these tables is focused on the primary or secondary
Review information about the credit markets in a recent issue of The Wall Street Journal. Identify the factors that are given attention because they may affect future interest rate movements. Then
Using a recent issue of The Wall Street Journal, summarize an article that discussed the recent performance of a particular savings institution. Does the article suggest that the SI’s performance
Go to http://screen.yahoo.com/funds.html. Describe the constraints that you would impose when selecting funds. Impose those constraints on the category, past performance, ratings, and other
Go to http://finance.yahoo.com/, enter the symbol MVC (for the closed-end fund MVC Capital that invests in U.S. stocks), and click on “Get Quotes.” Click on “5y” just below the stock price
Go to http://finance.yahoo.com/, enter the symbol DNP (for the closed-end fund DNP Select Income Fund that invests in bonds), and click on “Get Quotes.” Retrieve stock price data at the beginning
Go to www2.goldmansachs.com. Using this website, describe the different types of financial services offered by Goldman Sachs. Summarize its main business. Is Goldman Sachs focused on brokerage,
Using a recent issue of The Wall Street Journal, summarize an article that discussed the recent performance of a particular securities firm. Does the article suggest that the securities firm’s
Retrieve information about Morgan Stanley (ticker symbol is MS) or another publicly traded securities firm of your choice. Go to the firm’s website and retrieve its most recent annual report or
Go to http://finance.yahoo.com/, enter the symbol MS (Morgan Stanley), and click on “Get Quotes.” Click on “5y” just below the stock price trend to review the stock price movements over the
Review the information for the common stock of IBM, using the website http://finance.yahoo.com. Insert the ticker symbol “IBM” in the box and click on “Get Quotes.” The main goal at this
Go to http://finance.yahoo.com/, enter the symbol MS (Morgan Stanley), and retrieve stock price data at the beginning of the last 20 quarters. Then go to http://research.stlouisfed.org/fred2/ and
How have some arbitrage firms attempted to benefit from greenmail tactics?
A division of Spence, Inc. has experienced a major decline in sales. Assume that the corporation prefers not to lay off any employees as a general policy. It is often suggested that this division may
Obtain a life insurance quotation online, using the website www.eterm.com. Fill in information about you (or a family member or friend) and obtain a quotation for a $1 million life insurance policy.
Using an issue of The Wall Street Journal, summarize an article that discussed the recent performance of a particular insurance company. Does the article suggest that the insurance company’s
Select a publicly traded insurance company of your choice. Go to its website and retrieve its most recent annual report. Summarize the company’s main business. Is it focused on life insurance, auto
Go to http://finance.yahoo.com/, enter the symbol MET (MetLife, Inc.), and click on “Get Quotes.” Click on “5y” just below the stock price trend to review the stock price movements over the
Go to http://finance.yahoo.com/, enter the symbol MET (MetLife, Inc.), and click on “Get Quotes.” Retrieve stock price data at the beginning of the last 20 quarters. Then go to
Interpret the following comments made by Wall Street analysts and portfolio managers:a. “Insurance company stocks may benefit from the recent decline in interest rates.”b. “Insurance company
Repeat the questions in exercise 1 for the Children’s Place Retail Stores (symbol is PLCE). Explain how the market capitalization and trading volume for PLCE differ from IBM.Exercise 1Review the
Go to http://research.stlouisfed.org/fred2. Under “Categories,” select “Interest rates” and then select the three-month Treasury bill series (secondary market). Describe how this rate has
a. Sing the most recent issue of The Wall Street Journal, review the yields for the following securities:If credit (default) risk is the only reason for the yield differentials, what is the default
Using the same website, retrieve data at the beginning of the last 20 quarters for interest rates (based on the three-month Treasury bill rate) and the producer price index for all commodities and
Assess the shape of the yield curve, using the website www.bloomberg.com. Click on “Market data” and then on “Rates & bonds.” Is the Treasury yield curve upward or downward sloping? What is
Based on the various theories attempting to explain the shape of the yield curve, what could explain the difference between the yields of the 90-day Treasury bill and the 30-year Treasury bond? Which
Assess the current structure of the Federal Reserve System, using the website www.federalreserve.gov/monetarypolicy/fomc.htm. Go to the minutes of the most recent meeting. Who is the current
Review recent issues of The Wall Street Journal and search for any comments that relate to the Fed. Does it appear that the Fed may attempt to revise the federal funds rate? If so, how and why?
Go to the website www.federalreserve.gov/ monetarypolicy/fomc.htm to review the activities of the FOMC. Succinctly summarize the minutes of the last FOMC meeting. What did the FOMC discuss at the
Review a recent issue of The Wall Street Journal. Summarize the market’s expectations about future interest rates. Are these expectations based primarily on the Fed’s monetary policy or on other
Is the Fed’s present policy focused more on stimulating the economy or on reducing inflation? Or is the present policy evenly balanced? Explain.
Using the website www.research.stlouisfed.org/fred2/, retrieve interest rate data at the beginning of the last 20 quarters for the federal funds rate and the threemonth Treasury bill (T-bill) rate,
Go to http://research.stlouisfed.org/fred2. Under “Categories,” select “Interest rates.” Compare the yield offered on a T-bill with the yield offered by another money market security with a
Use the “Money Rates” section of The Wall Street Journal to determine the 30-day yield (annualized) of commercial paper, certificates of deposit, banker’s acceptances, and T-bills. Which of
How has the risk premium on a specific risky money market security (versus the T-bill) changed since one year ago? Is the change due to a change in economic conditions? Explain.
Using the same website, retrieve interest rate data at the beginning of the last 20 quarters for the three-month T-bill and another money market security and place the data in two columns of an Excel
Go to http://finance.yahoo.com/bonds. Click on “Composite Bond Rates.” Compare the rate of a 10-year Treasury bond versus a 10-year municipal bond. Which type of bond would offer you a higher
The Treasury periodically issues new bonds to finance the deficit. Review recent issues of The Wall Street Journal or check related online news to find a recent article on such financing. Does the
Explain how the shape of the yield curve for municipal securities compares to the Treasury yield curve. Under what conditions do you think the two yield curves could be different?
Go to www.giddy.org/db/corpspreads.htm. The spreads are listed in the form of basis points (100 basis points = 1 percent) above the Treasury security with the same maturity.1. First determine the
Assess a mortgage payment schedule such as http://realestate.yahoo.com/calculators/amortization.html. Assume a loan amount of $120,000, an interest rate of 7.4 percent, and a 30-year maturity. Given
Review the “Corporate Borrowing Rates and Yields” table in a recent issue of The Wall Street Journal to determine the Treasury bond yield. How do these rates compare to the Fannie Mae yield
Describe the shared-appreciation mortgage.
Go to http://ipoportal.edgar-online.com/ipo/home.asp. Review an IPO that is scheduled for the near future. Review the deal information about this IPO.1. What is the offer amount? How much are total
Review a recent issue of The Wall Street Journal. Indicate whether the market prices increased or decreased, and explain what caused the market’s movement.
Go to http://finance.yahoo.com/7u. Compare the performance of the Dow, Nasdaq, and S&P 500 indexes. Click on each of these indexes and describe the trend for that index since January. Which index has
Review Section C of a recent issue of The Wall Street Journal. Notice that the stocks with the largest one-day gains and losses are shown. Do an Internet search for news about the stock with the
Go to http://finance.yahoo.com/, type in the symbol DELL (for Dell, Inc.) and click on “Get Quotes.” Then go to the bottom of the stock price chart and retrieve the end-of-month stock price of
Go to http://finance.yahoo.com/. Insert the ticker symbol of the firm of your choice in the “Get Quotes” section. Review the statistics provided. What is the average daily trading volume (Avg
For the same firm, click on “Key Statistics.” What is the firm’s beta? What are its return on assets (ROA) and return on equity (ROE)? What is its short ratio?
Describe the roles played by floor brokers and specialists. Explain how specialists or market-makers may attempt to capitalize on stock price discrepancies.
Describe “front-running.” Explain how front-running may prevent limit orders from investors from being executed.
The former chairman of the NYSE, Richard Grasso, resigned in 2003 as a result of institutional outrage over his excessive compensation package. Besides setting a bad example for the firms listed on
Obtain recent stock options data for a particular stock or stock index in which you are interested. Go to http://online.wsj.com/mdc/public/page/marketsdata.html and click on “Stocks” and then
Go to http://futuresource.quote.com/. Review the charts for an equity index product such as the S&P 500. Explain how the price pattern moved recently.
Now compare that pattern to the actual trend of the S&P 500, which is provided at http://finance.yahoo.com/7u (just click on “S&P 500” there to access the charts). Describe the relationship
Explain how index arbitrage may be used.
Go to www.cboe.com. Under “Quotes,” select “Delayed Quotes Classic.” Insert the ticker symbol for a stock option in which you are interested. Assess the results. Did the premium (“Net”)
Based on the changes in the premium, do you think the underlying stock price increased or decreased? Explain.
Review the recent annualized rate for a short-term security such as the 1-year Treasury rate versus a long-term security such as the 10-year Treasury rate. Based on this information, do you think
Use a recent issue of The Wall Street Journal to determine how short-term interest rates have changed over the last year (assess the Treasury yield for a three-month maturity based on the yield curve
Assume that you need long-term funds and can borrow at the short-term Treasury rate. Based on the existing interest rates, would you consider engaging in a swap of a floating rate in exchange for a
What is the most recent value of the Australian dollar in U.S. dollars? For large transactions, how many British pounds does a U.S. dollar buy?
Use a recent issue of The Wall Street Journal to determine how a particular currency’s value has changed against the dollar since the beginning of the year. The table called “Currencies” lists
Review the pound’s value over the past year. Offer a possible explanation for the recent movements in the pound’s value.
What is the most recent value of the Hong Kong dollar in U.S. dollars? Do you notice anything unusual about this value over time? What could explain an exchange rate trend such as this?
Summarize an article in The Wall Street Journal that discussed a recent change in managerial strategy by a particular commercial bank. (You may wish to do an Internet search in the online version of
Seattle Bank was long in Australian dollars and short in Canadian dollars. Explain a possible future scenario that could adversely affect the bank’s performance.
Go to the website www.chase.com. List the various services offered by Chase that were listed in this chapter. For each, state whether the service provided by the bank reflects an asset (use of funds)
Browse the most recent Quarterly Banking Profile at www.fdic.gov/bank/analytical/index.html. Click on “Industry Analysis” and then on “Failed Banks.” Describe how regulators responded to one
Using a recent issue of The Wall Street Journal, summarize an article that discussed a particular commercial bank regulation that has recently been passed or is currently being considered by
Assess the services offered by an Internet bank. Describe the types of online services offered by the bank. Do you think an Internet bank such as this offers higher or lower interest rates than a
Go to http://finance.yahoo.com/, enter the symbol BK (Bank of New York Mellon Corporation), and click on “Get Quotes.” Click on “5y” just below the stock price trend to review the stock price
Go to http://finance.yahoo.com/, enter the symbol WFC (Wells Fargo Bank), and click on “Get Quotes.” Retrieve stock price data at the beginning of the last 20 quarters. Then go to
Go to www.suntrust.com. Click on “Investor Relations” and then on “Annual Reports.” Use the income statement to determine SunTrust’s performance. Describe SunTrust’s performance in recent
Using a recent issue of The Wall Street Journal, summarize an article that discussed the recent performance of a particular commercial bank. Does the article suggest that the bank’s performance was
Has SunTrust’s ROA increased since the year before? Explain what caused its ROA to change over the last year. Has its net interest margin changed since last year? How has its noninterest income (as
Assess the recent performance of savings institutions using the website www2.fdic.gov/qbp/index.asp. Click on “Quarterly Banking Profile,” then on “Savings Institution” section, and summarize
Retrieve the annual report of Heritage Financial Corporation (ticker symbol is HFWA) or another savings institution of your choice. To access income statement information, go to
Go to http://finance.yahoo.com/, enter the symbol HFWA (Heritage Financial Corporation), and click on “Get Quotes.” Then, retrieve stock price data at the beginning of the last 20 quarters. Then
Go to www.gmaccf.com. Describe the services offered by GMAC Commercial Finance.
Using a recent issue of The Wall Street Journal, summarize an article that discussed the recent performance of a particular finance company. Does the article suggest that the finance company’s
Retrieve the annual report of American International Group (its ticker symbol is AIG), which owns a large consumer finance company, or select your own consumer finance company. To access income
Assess today’s mutual fund performance, using the website www.bloomberg.com/markets/. Under “Market Data,” click on “Mutual Funds.” What is the bestperforming mutual fund today in terms of
Using an issue of The Wall Street Journal, summarize an article that discussed the recent performance of a specific mutual fund. Has this mutual fund’s performance been better or worse than the
When would a commercial bank take a short position in a foreign currency? A long position?
The mutual fund industry publishes a fact book containing exhaustive data on the historic and current state of mutual funds. Go to www.ici.org, click on Research and Statistics, then on Fact Books.a.
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