1The flow of funds is best described as

Select one:

Direct investment in financial intermediaries

Indirect investment in the financial markets

The distribution of money from borrower/spenders to lender/savers

The distribution of money from lender/savers to borrower/spenders

2Liquidity management refers to

Select one:

Maintaining sufficient levels of capital

Making a large number of loans

Ensuring that a bank has enough funds to meet obligations when due

Buying securities that can be quickly sold to make more loans

3 An American depositary receipt (ADR) is

Select one:

A depositary receipt traded outside the US

Issued in the US in US dollars for a company domiciled outside of the US

A share of equity that is traded across markets

A domestic US share

4 The theory of purchasing power parity (PPP) says the prices of goods

Select one:

In all countries should be the same, and therefore the exchange rate between all countries should be the same

In two countries should be the same, and therefore the exchange rate should be the ratio of prices in the two countries

In different countries will always be different, and therefore incomes in different countries will always be different

In different countries should be the same, and therefore interest rates should be the same in all countries

5 Which of the following is not a benefit of using derivatives?

Select one:

They can increase tax payments to the government

They can minimise the principal agent problem

They can improve market efficiency

They can achieve payoffs that would not otherwise be achievable

6 While financial regulation can take many forms, the most important is probably the requirement of minimum capital levels for banks. Explain what this means and why it is so important

7 Briefly comment on the differences between the money market, the bond market and the stock market