1) Using your own words describe each of the following financial instruments, including the kind of claim (debt or equity), maturity (money market or capital market), risk, and liquidity characteristics, and any other distinguishing characteristics. Identify a type of financial institution or other participant in the financial market (individuals, government, business) that are most likely to borrow using these instruments, and a type of institution or other participant that are most likely to lend using these instruments.

(a) Commercial Paper

(b) 20 year Government of Canada Bond

(c) Canada Mortgage Bond (Mortgage-backed security)

2) Categorize each transaction below according to whether it: (1) relies on financial markets (direct finance) or financial intermediaries (indirect finance), AND, (2) occurs in the primary or secondary market, AND, (3) is carried out in the money or capital market.

(a) Zebra Corporation opens for business by selling shares of common stock to 15 private investors.

(b) One of the investors sells her shares of Zebra stock to someone else on TSX.

(c) A manager at Mackenzie Investments purchases $10,000 of three-month Government of Canada Bonds from a commercial bank.

3) Zimbabwe introduced a 100 trillion Zimbabwean dollar note at the height of its hyperinflation in 2008. The currency was eventually abandoned in 2009 and the US dollar was used for all major transactions. Explain why hyperinflation causes the domestic currency to be abandoned?

4) If I can buy a car today for $5,000 and it is worth $10,000 in extra income to me next year because it enables me to get a job as a traveling salesman, should I take out a loan from Larry the Loan Shark at a 90% interest rate if no one else will give me a loan? Will I be better or worse off as a result of taking out this loan? Can you make a case for legalizing loan sharking?