International Financial Markets
Exam Materials
Course Introduction
International Financial Markets explores the structure, functioning, and dynamics of global financial markets, including foreign exchange, international equity, and bond markets. The course examines the roles of various institutions, regulatory frameworks, and the impact of macroeconomic factors on capital flows across countries. Students will analyze financial instruments, risk management practices, and the effects of globalization and technological advancements on market efficiency. Emphasis is placed on understanding cross-border investment, arbitrage opportunities, and the implications for multinational firms, investors, and policymakers in a rapidly evolving international financial environment.
Recommended Textbook
Financial Institutions and Markets 7th Edition by Ben Hunt
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14 Chapters
1469 Verified Questions
1469 Flashcards
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Page 2
Chapter 1: Overview of the Financial System
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95 Flashcards
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Sample Questions
Q1) Identify the correct statement about Australia's financial system.
A)The main source of funds is household savings.
B)Savings can be in the form of deposits and/or investments.
C)Governments are a source of savings when they have budget surpluses.
D)Firms are a source of savings when they retain earnings.
E)All of these.
Answer: E
Q2) Discuss the relative risks of debt and equity from the perspective of (i)an investor supplying funds to a firm, and (ii)the firm itself.
Answer: (i)Supplying funds as debt is less risky than supplying funds as equity because the firm is required to pay interest on debt before it is able to make dividend payments to shareholders.Likewise, should the firm be liquidated it is required to repay its debts before making any distributions to owners.Hence it is more risky to supply equity because of its residual claim and thus the required returns on equity will exceed those of debt.(ii)The more debt the firm uses, the higher is its risk of insolvency, whereas the use of equity reduces the financial risk of the firm.
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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) Credit and debit cards have become the most frequently used non-cash retail payment instruments.
A)True
B)False
Answer: True
Q2) Charge cards are issued by banks to allow customers to access their funds.
A)True
B)False
Answer: False
Q3) Explain how the RBA helps ADIs manage periods of intraday illiquidity. Answer: Two mechanisms are available to ADIs provided they have sufficient ES funds to meet their RTGS obligations by days' end.These are RBA repos and the auto-offset process.An RBA repo is an interest free loan of ES funds from the RBA to the ADI.It is arranged by the RBA agreeing to purchase eligible securities on the basis that the ADI will purchase them back later in the day at the same price.The auto-offset process within RTGS will keep payments which it was unable to clear for later retesting.It can also look for offsetting payments between two ADIs and pre-clear these payments.
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Page 4
Chapter 3: Introduction to the Flow of Funds
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98 Flashcards
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Sample Questions
Q1) Wide bid-ask spreads enhance market liquidity because they reward dealers. A)True
B)False
Answer: False
Q2) Maturity transformation is achieved by a liquid secondary market.
A)True
B)False Answer: True
Q3) The bid-ask spread within a market is an indicator of the liquidity within that market.
A)True
B)False Answer: True
Q4) The Australian Securities Exchange regulates the issue of new securities. A)True
B)False Answer: False
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Page 5
Chapter 4: Funds Management
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) Fund managers arrange the collective investment of (mainly)retail investments.
A)True
B)False
Q2) 'Balanced portfolios' can be broadly defined as those with a lower proportion of growth assets and a higher proportion of defensive assets when compared to 'growth portfolios'.
A)True
B)False
Q3) Private equity funds are organised as:
A)partnerships
B)unlisted companies
C)listed companies
D)ETFs
E)unlisted public unit trusts.
Q4) Which of the following statements is true about fund managers?
A)Fund managers generally provide payment services and investment products.
B)Fund managers provide a 'safe haven' for investors' funds.
C)Fund managers earn an interest rate spread.
D)Fund managers have both low- and high-risk investment products.
E)None of these.
Page 6
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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) 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.
Q2) The main use of funds by ADIs is:
A)as cash
B)as liquid assets
C)in trading securities
D)for loans and advances
E)for bill acceptances.
Q3) Typically wholesale borrowers are charged the bank's prime rate.
A)True
B)False
Q4) Compare how banks lend to small business and how they lend to big business.
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Chapter 6: The Stability of Deposit-Taking Institutions
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77 Flashcards
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Sample Questions
Q1) Losses incurred by a rogue trader are classified as an operating risk.
A)True
B)False
Q2) Funding risk is best defined as:
A)the risk of an ADI being unable to meet their financial obligations as they fall due
B)the risk the ADI will not be able to settle their payment system obligations
C)the risk of an ADI loss resulting from a borrower failing to make its agreed loan payments
D)the risk that the ADI cannot continue to fund their assets, such as the inability to roll-over maturing debts
E)the chance of losses arising from unexpected movements in a market variable.
Q3) Comment on the relative performance of financial regulators in the US and in Australia in recent years.
Q4) What has motivated the latest reforms to the Basel Accord (known as Basel III)? Briefly describe these reforms.
Q5) Basel III introduces new liquidity requirements on banks.
A)True
B)False
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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) The RBA conducts its open market operations only when it wants to change the cash rate.
A)True
B)False
Q2) Money-market dealers want to be 'hit'.
A)True
B)False
Q3) Discuss the risks faced by investors in the money market.
Q4) Trades in the money market are settled on the following basis:
A)T + 0
B)T + 1
C)T + 2
D)T + 3
E)instantly.
Q5) According to Moody's ratings designations, P-2 issuers have a 'superior' ability to repay short-term debt obligations
A)True
B)False
Q6) How has the GFC impacted the contribution of the money market to the flow-of-funds?
Page 9
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Chapter 8: The Bond Market
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124 Flashcards
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Sample Questions
Q1) Which of the following is NOT one of the major categories of issuer within the bond market?
A)Commonwealth Treasury
B)State government
C)Local government
D)Non-government issuers
E)None of these.
Q2) Assuming constant yields, bond prices will:
A)trend upwards for discount bonds
B)trend downwards for discount bonds
C)follow a 'saw-tooth' pattern
D)follow a 'saw-tooth' pattern and trend upwards for discount bonds
E)follow a 'saw-tooth' pattern and trend downwards for discount bonds.
Q3) The degree of price risk faced by bond investors increases in proportion to the period for which they hold the bonds.
A)True
B)False
Q4) Calculate the settlement price (per $100 of face value)on 7 September 2015 of the 4.5% 15 April 2020 Treasury bond at a yield of 4% p.a.(f = 38, d = 183).
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Chapter 9: Shares
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Sample Questions
Q1) The dilution of control of a firm can be a disadvantage of an IPO.
A)True
B)False
Q2) Provide an overview of the methods used by Virgin Blue to raise equity.
Q3) P/E ratios are used in combination with expected earnings to provide estimates of share price changes.
A)True
B)False
Q4) Woolworths Ltd shares are trading at $37.53, it has 1.25 billion ordinary shares issued and annual earnings available to ordinary shareholders of $2.35 billion.What is Woolworths P/E ratio?
Q5) Preference shares are considered more risky than ordinary shares.
A)True
B)False
Q6) Ordinary shares:
A)are perpetual and transferable
B)have limited liability
C)entitle owners to vote in elections for the company's board of directors
D)entitle owners to participate in the profits of the company.
E)All of these are correct.
Page 11
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Chapter 10: The Share Market
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84 Verified Questions
84 Flashcards
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Sample Questions
Q1) Explain how share price indices are calculated.Explain the difference between a price index and an accumulation index.Describe the set of indices based on the prices of ASX-listed stocks.
Q2) CFDs are both OTC and exchange-traded.
A)True
B)False
Q3) Describe the structure of Australia's share market in terms of the number of listed companies, their relative size and their liquidity.
Q4) As a monopoly, the ASX does not have to contend with competition.
A)True
B)False
Q5) All else the same, trading on the ASX is cheaper under an ATS than under open outcry.
A)True
B)False
Q6) The index level yesterday was 6000 points.At that time, the combined market capitalisation of the shares in the index was $800 billion.The next day the market capitalisation of the shares in the index was $825 billion.Given this information, calculate the new index level.
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) If 1 AUD is buying 0.42 GBP, then 1 GBP buys:
A)2.38 AUD
B)0.42 AUD
C)1.42 AUD
D)0.58 AUD
E)2.40 AUD
Q2) Distinguish between 'spot' and 'forward' foreign exchange contracts.
Q3) The NZD is quoted as a direct quote against the USD A)True
B)False
Q4) Clearly explain how dealers set their forward exchange rate quotes.What would be the consequences if they did not set forward rates in this way? Use examples to illustrate your answer.
Q5) An FX dealer agrees to supply $20 million NZD in exchange for AUD through a 150 day forward FX contract.The spot rate is AUD/NZD1.0987 and interest rates are 5% in New Zealand and 3.5% in Australia.a)Calculate the forward AUD/NZD rate using a 365-day-year for both countries.(Do not round your answer.)
b)Demonstrate how a FX dealer will ensure the supply of foreign currency required to settle a forward FX contract in a risk-free manner.
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Chapter 13: Financial Futures
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) Futures contracts specify:
A)the contract item
B)the settlement date
C)how the contract can be settled
D)the settlement price.
E)All of these.
Q2) The Australian futures market is for use by wholesale traders only.
A)True
B)False
Q3) The value of a BAB futures contract is 100 minus the yield.
A)True
B)False
Q4) Suggest how a gold miner could hedge their exposure to a fall in the price of gold.
Q5) Speculators buy futures contracts whereas hedgers sell them.
A)True
B)False
Q6) An arbitrage trade should generate a risk-free profit.
A)True
B)False
Page 14
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Chapter 14: Swaps
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88 Flashcards
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Sample Questions
Q1) Identify the correct statement regarding a plain vanilla swap.
A)Interest and principal payments are exchanged at the beginning of the swap.
B)The net settlement is a single payment at the end of the swap term.
C)The fixed-rate payments are set equal to the expected floating-rate payments.
D)The flow of payments between parties may change direction during the life of the swap.
E)There is no default risk involved in a plain vanilla swap.
Q2) Credit default swaps inflicted large losses on Australian banks during the GFC. A)True
B)False
Q3) Swap dealers need to match each swap-rate paying and swap-rate receiving client.
A)True B)False
Q4) Swaps have little exposure to default risk. A)True
B)False
Q5) An interest-rate swap converts a floating-rate borrower into a fixed-rate borrower. A)True
B)False
15
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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) How does the ASX increase liquidity in its options market?
A)It concentrates trading in a small number of contracts.
B)Brokers must charge fixed, low commissions.
C)It has only four contract dates per year.
D)It authorises dealers to make the market for specific contracts.
E)It allows options to be written over any listed share.
Q2) Futures contracts, like options contracts, have an asymmetric payoff at expiry.
A)True
B)False
Q3) The holder of an option contract:
A)has purchased it from the seller by paying the exercise price
B)is known as the 'short' position
C)has the obligation to settle the contract
D)can choose to buy or sell the contract item on the exercise date
E)will exercise the option contract at expiry if it is advantageous for them to do so.
Q4) A $12.00 call that cost 65 cents will be allowed to lapse if the share price at expiry has reached only $12.25.
A)True
B)False
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