Explain in detail. Each question carries 5 points. 1. What is a foreign bond ? How does it differ from the Eurobond? Explain with examples. 2. Define financial intermediation. Also explain indirect finance in your answer. 3. Define Transaction costs. Explain how financial intermediaries reduce transaction costs. 4. Explain the process of risk sharing. How do financial intermediaries reduce the exposure of investors to risk? (Hint: Asset Transformation and Diversification.) 5. Define Asymmetric Information. Explain the two problems in the financial system created by asymmetric information. (Hint: Adverse Selection and Moral Hazard.) 6. Explain the relationship between current bond prices and interest rates. Also, explain why prices and returns of long-term bonds are more volatile than those for short-term bonds. (Hint: The more distant a bond's maturity, the size of price change will be greater with an interest-rate change.)