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financial markets institutions
Questions and Answers of
Financial Markets Institutions
How would you argue in favor of the current trend toward central banks’ independence?
You have discovered that when the required rate of return on a bond you own fell by 0.50 percent from 9.75 percent to 9.25 percent, the fair present value rose from $975 to $995. The bond pays
What signal does a low debt-to-assets ratio for a finance company send to the capital markets?
How does distributed ledger technology (DLT) work? What is blockchain?
What countries have the most international debt securities outstanding?
What is the major feature in the estimation of credit risk under the Basel capital requirements?
What components are used in the calculation of risk-weighted assets?
Describe applications of artificial intelligence and machine learning in the financial services industry.
Which of the money market instruments is the largest in terms of dollar amount outstanding in 2019?
What are the major instruments traded in capital markets?
Compute the present values of the following first assuming that payments are made on the last day of the period and then assuming payments are made on the first day of the period: Interest Payment
If a U.S. bank is holding Japanese yen in its portfolio, what type of exchange rate movement would the bank be most concerned about?
What is meant by maturity intermediation?
What countries have the largest commercial banks?
Calculate the future value of the following annuity streams:a. $5,000 received each year for five years on the last day of each year if your investments pay 6 percent compounded annually.b. $5,000
Calculate the present value of the following annuity streams:a. $5,000 received each year for five years on the last day of each year if your investments pay 6 percent compounded annually.b. $5,000
How much money would you have to deposit today in order to have $2,000 in four years if the discount rate is 8 percent per year?
If an ounce of gold, valued at $1,200, increases at a rate of 7.5 percent per year, how long will it take to be valued at $2,000?
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?
What is the difference between a zero-coupon bond and a coupon bond?
Calculate the fair present value on a stock that pays $5 in dividends per year (with no growth) and has a required rate of return of 10 percent.
A stock you are evaluating is expected to experience supernormal growth in dividends of 8 percent over the next six years. Following this period, dividends are expected to grow at a constant rate of
A company recently paid a $0.35 dividend. The dividend is expected to grow at a 10.5 percent rate. At a current stock price of $24.25, what return are shareholders expecting?
What is the duration of a zero-coupon bond that has eight years to maturity? What is the duration if the maturity increases to 10 years? If it increases to 12 years?
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? Face Value Market Price $10,000 $8,885 10,000
Define the discount rate and the discount window.
Describe the T-bill auction process.
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 bond is 6.48574, 8.47148, 10.519, and 14.87875 years
How are T-bills traded in secondary markets?
If the overnight fed funds rate is quoted as 0.75 percent, what is the bond equivalent rate? Calculate the bond equivalent rate on fed funds if the quoted rate is 1.00 percent.
What are the differences among T-bills, T-notes, and T-bonds?
What is the monthly payment on a $150,000, 15-year mortgage if the mortgage rate is 5.75 percent? 6.25 percent? 7.5 percent? 9 percent? Present Value $150,000 150,000 150,000 150,000 Periods 15 x
What is a bond indenture?
Which type of bond—a mortgage bond, a debenture, or a subordinated debenture—generally has thea. Highest cost to the bond issuer?b. Least risk to the bond holder?c. Highest yield to the bond
What are sovereign bonds?
What is the monthly payment on a $150,000, 30-year mortgage if the mortgage rate is 5.75 percent? 6.25 percent? 7.5 percent? 9 percent? Present Value $150,000 150,000 150,000 150,000 Periods 30 x
What is a pass-through security?
Suppose that on January 18, 2022, a U.S. firm plans to purchase 3 million euros’ (€) worth of French bonds from a French FI in one month’s time. The French FI wants payment in euros. Thus, the
What are limit up–limit down rules?
At the beginning of the quarter, you purchased a $100,000 Treasury bond futures contract for 108-12. Calculate the profit on the futures contract if the price at the end of the quarter is 106-16,
What are some reasons why interest rate parity may not hold in spite of the economic forces that should ensure the equilibrium relationship?
One form of the interest rate parity equation appears as 1 + rUSt = (1/St) × (1 + rUKt) × Ft where both the spot and forward rates are expressed in terms of dollars for pounds or direct exchange
What are the differences among a spot contract, a forward contract, and a futures contract?
When is a futures or option trader in a long versus a short position in the derivative contract?
What is a swap?
A commercial bank has fixed-rate, long-term loans in its asset portfolio and variable-rate CDs in its liability portfolio. Bank managers believe interest rates will increase in the future. What side
What is meant by the term depository institution? How does a depository institution differ from an industrial corporation?
Which commercial banks are experiencing the highest profitability? Which commercial banks are experiencing the lowest profitability?
What are the main advantages of being a member of the Federal Reserve System?
If we examine a typical bank’s asset portion of the balance sheet, how are the assets arranged in terms of expected return and liquidity?
How does a retail CD differ from a wholesale CD?
How does a bank’s annual net income compare with its annual cash flow?
If a bank’s asset utilization ratio increases, what will happen to its return on equity, all else constant?
Under the FDIC’s 2007 rulemaking, how is a Category I deposit insurance premium determined?
What regulatory agencies oversee deposit insurance services to savings institutions?
What does it mean when a savings institution is a mutual organization?
How has the savings institution industry performed over the last several decades?
How do credit unions differ from savings institutions?
How have local credit unions performed over the last several decades?
What has been the fastest-growing area of asset business for finance companies?
Why are finance companies less regulated than commercial banks?
What is a wholesale motor vehicle loan?
What benefits do mutual funds have for individual investors?
How have global mutual funds grown relative to U.S.-based mutual funds?
What was the motivation for the passage of ERISA?
Which country has the highest fintech adoption rate?
What were the supply factors that contributed to the recent emergence of fintechs?
What were the demand factors that contributed to the recent emergence of fintechs?
What is banking-as-a-service? How are banks embracing a platform-based business model?
What are four categories of fintech innovations according to the Basel Committee of Banking Supervision (BCBS)? Give specific examples for each category of innovations.
What is cryptocurrency? Explain how cryptocurrency differs from a crypto-asset.
What are peer-to-peer (P2P) payments? What P2P apps have you used recently?
Describe the advantages and disadvantages of incumbent banks compared to fintechs.
Describe the advantages and disadvantages of fintechs compared to incumbent banks.
What are the three purposes of money? Does cryptocurrency fulfill these purposes?
What is fiat currency? Is Bitcoin a fiat currency?
What are the risks associated with DLT?
What is a difference between Bitcoin and Ethereum?
What is crowdfunding? Have you used any crowdfunding apps recently?
Describe applications of Internet-of-things (IoT) in the financial services industry.
Explain one of the reasons high-frequency trading (HFT) has hit a speed bump. Do you think fintechs will experience the same difficulties HFT firms have experienced?
What is a fintech sandbox?
Explain the European Union’s General Data Protection Regulation (GDPR) and how it might benefit the fintechs.
Explain the European Union’s Payment Services Directive 2 (PSD2) and how it might benefit the fintechs.
Explain the European Union’s Open Banking standards and how they might benefit the fintechs.
What is fintech risk?
How does fintech risk differ from technology risk?
How does risk in fintech companies differ from that in traditional FIs?
What is convexity? Explain.
How do loan sales and securitization help an FI manage its interest rate and liquidity risk exposures?
Select a bank whose income statement data are available. Using recent income statement data about a commercial bank, assess its performance. How does the performance of this bank compare to the
Should members of Congress be allowed to set regulations on accounting and financial matters while receiving donations from related lobbying groups?
How have money market rates changes since the beginning of the semester? Consider the existing economic conditions. Do you think money market rates will increase or decrease during the semester?
Isolate the risk and advantages of an aggressive working capital policy that emphasizes short-term over long-term debt financing.
Differentiate receipts and disbursements.
Calculate the tax refund for a given loss.
Specify the components of the security market line.
Identify the features of common stock.
Illustrate the difference between cross-sectional and time series analysis.
List and contrast the sources of risk.
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