Financial Systems
Exam Questions
Course Introduction
This course provides a comprehensive overview of financial systems, examining the structures, functions, and roles of financial institutions, markets, and instruments within the global economy. Students will explore the mechanisms by which savings are mobilized and allocated, the functioning of central banks, regulatory environments, and the impact of technology on financial innovation. Through case studies and real-world examples, the course highlights the interconnections between monetary policy, banking systems, securities markets, and payment systems, fostering a deeper understanding of how financial systems contribute to economic stability and growth.
Recommended Textbook
Financial Institutions and Markets 7th Edition by Ben Hunt
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14 Chapters
1469 Verified Questions
1469 Flashcards
Source URL: https://quizplus.com/study-set/3450
Page 2
Chapter 1: Overview of the Financial System
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95 Verified Questions
95 Flashcards
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Sample Questions
Q1) Which of the following categories of institutions is best described as providing investment management services?
A)Retail banks.
B)Wholesale banks.
C)Investment banks.
D)Insurance companies.
E)Fund managers.
Answer: E
Q2) The risk borrowers face of not being able to maintain the level of their debt is known as:
A)credit risk
B)funding risk
C)default risk
D)capital risk
E)market risk.
Answer: B
Q3) The money market trades discount securities.
A)True
B)False
Answer: True
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Chapter 2: The Payments System
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) Debit cards allow customers additional time to pay the amount due.
A)True
B)False
Answer: False
Q2) Uncertainty during the GFC led some banks in Australia to increase:
A)cash holdings
B)deposits in the inter-bank market
C)ES funds
D)reserves of money and bond market securities
E)their borrowings from the RBA.
Answer: C
Q3) Explain the difference in the cost of processing cheques and EFTPOS instructions.
Answer: The authorisation (i.e.signature)of a cheque must be verified (after settlement), whereas an EFTPOS instruction is authorised and verified simultaneously by the PIN.The extra processing required by cheques means they are a more expensive and less efficient payment mechanism.
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Chapter 3: Introduction to the Flow of Funds
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98 Verified Questions
98 Flashcards
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Sample Questions
Q1) Active secondary markets do NOT:
A)provide investors with liquidity
B)raise funds for the issuers of securities
C)perform price discovery
D)perform maturity transformation
E)assist the operation of primary markets.
Answer: B
Q2) Price resilience refers to the ability of a market to handle normal-sized trades without disrupting prices.
A)True
B)False
Answer: True
Q3) Strong-form market efficiency implies that security prices are always fair.
A)True
B)False
Answer: True
Q4) Wide bid-ask spreads enhance market liquidity because they reward dealers.
A)True
B)False
Answer: False
Page 5
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Chapter 4: Funds Management
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) Asset consultants:
A)give financial advice to retail investors
B)provide advice to trustees on the allocation of funds between asset classes
C)consolidate retail savings to make collective investments
D)facilitate long-term savings to provide a retirement income.
E)All of these.
Q2) 'Growth assets' can be broadly defined as being lower risk and lower return assets such as bonds, money market securities and bank deposits.
A)True
B)False
Q3) The superannuation schemes that are operated on a for-profit basis are the 'retail' and 'corporate' schemes.
A)True
B)False
Q4) The problem of travellers not taking due care of their luggage because they have purchased a travel insurance policy is known as information asymmetry.
A)True
B)False
Q5) How is the performance of investment managers compared?
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Chapter 5: Authorised Deposit-Taking Institutions
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) Explain how wholesale deposits are normally arranged.How is the depositor's desire for liquidity met?
Q2) Of the following, which is NOT one of the main elements of ADI lending standards in relation to housing loans in Australia?
A)All borrowers are required to take out lenders mortgage insurance (LMI).
B)Loans are made to borrowers who have been assessed as having the capacity to repay.
C)Loans generally do not exceed 80 per cent of the property's value.
D)The lender has reliable documentary evidence supporting the borrower's capacity to repay and of the property's value.
E)Loans are secured.
Q3) Loans to business are generally made on a standardised basis in terms of the loan application process and the interest rate charged.
A)True
B)False
Q4) Loans to business are usually in the form of an overdraft.
A)True
B)False
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Chapter 6: The Stability of Deposit-Taking Institutions
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Sample Questions
Q1) What is market risk? Calculate the fall in value in a $10 million parcel of 60-day money market securities when the money market yield rises unexpectedly from 5.5% to 5.75%.
Q2) The RBA's responsibility for financial system stability is carried out in a number of ways.These do NOT include:
A)influencing the rate of economic activity and inflation through monetary policy
B)ensuring the payments system is sound
C)acting as lender of last resort to the banking system
D)being prepared to bail-out institutions that are 'too-big-to-fail'
E)regularly reviewing the stability of the domestic and global financial systems.
Q3) Explain how ADIs have changed their management of funding risk post GFC.
Q4) The principal roles of an ADI's management team include:
A)to grow the business as quickly as possible
B)to provide its depositors with a safe place for their funds
C)to make the highest return possible for shareholders
D)to avoid taking any risks
E)All of these.
Q5) Describe how ADIs manage their credit risk exposure.
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Chapter 7: The Money Market
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95 Verified Questions
95 Flashcards
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Sample Questions
Q1) What is the BBSW and how is it 'discovered'?
Q2) Identify the correct statement below.
A)Money-market securities are a form of secured loan arrangement.
B)Most companies can raise funds by issuing commercial paper.
C)The return on promissory notes can be considered a 'risk-free' rate.
D)Money-market securities can trade at a premium to their face value.
E)Generally, the interest rate paid by issuers of BABs will exceed the rate earned by investors in BABs.
Q3) Explain the activities of dealers in the money market.
Q4) Discuss the purposes of the Reserve Bank's trading activities in the money market.
Q5) Suppose you expect that short-term yields are about to fall.Suggest an investment strategy that would profit from this expectation.
Q6) The main difference between promissory notes and BABs is that:
A)the yield on promissory notes is considered a 'risk-free' rate
B)promissory notes trade at a common yield
C)BABs are much riskier because the borrowers are less creditworthy
D)BABs are accepted before they are issued
E)All of these.
Q7) Describe the impact of the GFC on money market rates in Australia.
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Chapter 8: The Bond Market
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124 Flashcards
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Sample Questions
Q1) What was the price, per $100 of face value, of an 8.7% 15 August 2014 Treasury bond settled on 21 April 2008 at a yield of 5.8% p.a.? (f = 116, d = 181)
A)$114.52
B)$116.71
C)$118.87
D)$115.52
E)None of these.
Q2) Australia's principal bond market is the wholesale, OTC, primary market for Commonwealth government, state governments and non-government issuers.
A)True
B)False
Q3) Treasury bonds:
A)trade 'ex-interest' between the 9th and 15th of each month
B)are priced using a semi-annual compound rate
C)pay interest once or twice a year
D)are mostly traded on an 'ex-interest' basis.
E)All of these.
Q4) Briefly describe the main trading and settlement arrangements in the wholesale bond market.
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Chapter 9: Shares
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96 Verified Questions
96 Flashcards
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Sample Questions
Q1) The maximum loss possible on an investment in shares can exceed 100% when the shares are:
A)ordinary
B)preference
C)redeemable
D)partly paid
E)convertible.
Q2) 'Top-down' and 'bottom-up' refer to different approaches that can be taken as part of fundamental analysis.
A)True
B)False
Q3) A listed company can raise additional capital through all of the following means EXCEPT:
A)an IPO
B)retained earnings
C)private placement
D)dividend reinvestment schemes
E)rights issues.
Q4) Provide an overview of the methods used by Virgin Blue to raise equity.
Q5) Discuss the venture capital market in Australia.
Page 11
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Chapter 10: The Share Market
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84 Flashcards
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Sample Questions
Q1) A share price index level considered in isolation conveys no useful information.
A)True
B)False
Q2) Describe the dimensions of the Australian share market by considering the number of listed firms, and their size distribution.Assess the liquidity of the market and explain how liquidity can differ among listed firms.Support your comments with reference to the indicators of liquidity.
Q3) The ASX is listed on the ASX.
A)True
B)False
Q4) If the index level today is 6188 points and the index level yesterday was 6000 points, what was the weighted average of the changes in the share prices between day one and day two?
Q5) The turnover of shares in the market is much greater for large-cap firms than for smaller firms.
A)True
B)False
Q6) Provide a brief overview of the ASX's admission and listing rules.
Q7) Identify and briefly explain the competitive pressures faced by the ASX.
Page 12
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Chapter 11: Foreign Exchange and Global Capital Markets
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126 Verified Questions
126 Flashcards
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Sample Questions
Q1) Identify and briefly explain three ways in which an Australian company could access direct financing offshore.
Q2) The value of currencies is most commonly expressed in terms of:
A)the USD
B)the EUR
C)the CNY
D)the AUD
E)a trade weighted index.
Q3) An exchange rate indicates the value of one currency in terms of another.
A)True
B)False
Q4) All transactions that involve a settlement date after the spot date are forward FX contracts.
A)True
B)False
Q5) The expectation that Australia's interest rates will remain relatively high may contribute to the strength of the AUD.
A)True
B)False
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Chapter 13: Financial Futures
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115 Flashcards
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Sample Questions
Q1) The 10-year bond futures contract can be settled by the delivery of a 10-year bond with a face value of $100 000.
A)True
B)False
Q2) What is a futures contract? How do they differ from forward contracts? Explain the positions that can be established in a futures contract and how they are used by traders.
Q3) If December 2015 30-day interbank futures contracts are trading at 94.015, the total value of two contracts is:
A)$14 758
B)$14 500
C)$29 758
D)$29 506
E)$29 515
Q4) Strip hedging with BAB futures requires the trader to take a position in contracts with successive contract dates.
A)True
B)False
Q5) Distinguish between the price and value of a BAB futures contract.
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Chapter 14: Swaps
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88 Verified Questions
88 Flashcards
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Sample Questions
Q1) The main users of swaps are:
A)households
B)small business
C)large companies
D)banks
E)the Commonwealth government.
Q2) Swaps are an example of an exchange-traded instrument.
A)True
B)False
Q3) Compare the features of a plain vanilla swap with those of a cross-currency swap.
Q4) The effective interest rate payable by a floating rate borrower who has become the fixed rate payer in a swap is the swap rate.
A)True
B)False
Q5) The swap rate in the overnight indexed swap market can serve to indicate the market's expectation about future changes by the RBA in its target cash rate.
A)True
B)False
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Chapter 15: Exchange-Traded Options
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) A call option can be used to hedge the risk of a price rise in the underlying asset.
A)True
B)False
Q2) Describe how to construct the common option strategies and explain when they would be considered.Provide examples using data on actual options traded on the ASX.
Q3) A call option's intrinsic value forms an asymmetric pattern in relation to the price of the underlying asset when the option is at-the-money.
A)True
B)False
Q4) Compare the hedging capabilities of futures and options.
Q5) Why can a long call option be considered a leveraged investment?
Q6) Call options:
A)have intrinsic value equal to S - X
B)have positive intrinsic value when S > X
C)have intrinsic value X > S
D)have negative intrinsic value when X > S
E)have positive intrinsic value when S > X and negative intrinsic value when X > S
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Page 16