International Financial Markets
Test Questions
Course Introduction
International Financial Markets is an in-depth exploration of the structures, functions, and dynamics of global financial markets. The course examines the key instruments, institutions, and participants involved in international capital flows, including foreign exchange, eurocurrency, international bonds, and equity markets. Students will analyze factors influencing exchange rates, interest rate parity, market efficiency, and the balance of payments, as well as the impact of regulatory frameworks and geopolitical events. Through real-world case studies and practical applications, the course provides insight into the challenges and opportunities faced by investors, multinational corporations, and policymakers in an increasingly interconnected 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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Chapter 1: Overview of the Financial System
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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) Risk-averse investors will always choose low risk and return investments.
A)True
B)False
Answer: False
Q3) Debt financing can be raised by firms in the __________________________markets.
A)money and share
B)bond and FX
C)share and derivative
D)money and bond
E)share and FX
Answer: D
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Page 3
Chapter 2: The Payments System
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Sample Questions
Q1) Explain how a bank's payment for a wholesale parcel of bonds is settled and how the settlement process differs from the settlement of a retail payment order.
Answer: A bond transaction is settled three days after the trade date.When the payment is due, it is made as a real-time gross settlement transfer of exchange settlement funds.On the due date, the payment will be queued within the RTGS system for individual processing throughout the day.When it reaches the top of the queue, it is cleared by checking the payer has sufficient ES funds, and if so, the payment is immediately settled.Retail payment orders, on the other hand, are settled on a net deferred (i.e.overnight)basis.This involves firstly clearing the payments.At the end of the day ADIs agree on the net amounts required to settle the payment orders of their depositors.Settlement occurs at 9 a.m.the next day with a payment of the net amounts using ESAs.
Q2) RTGS clears payments and then places them in a queue for settlement.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Introduction to the Flow of Funds
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Sample Questions
Q1) Ratings agencies have an unblemished reputation for providing reliable ratings.
A)True
B)False
Answer: False
Q2) The process of revaluing securities on the basis of their current market value is known as:
A)marking-to-market
B)pricing-to-market
C)valuing-to-market
D)revaluing-to-market
E)calculating-to-market.
Answer: A
Q3) 'Trading' in the financial markets is the process through which a buyer and seller agree to the terms of the trade.
A)True
B)False
Answer: True
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Chapter 4: Funds Management
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Sample Questions
Q1) The superannuation schemes that are operated on a for-profit basis are the 'retail' and 'corporate' schemes.
A)True
B)False
Q2) Compulsory superannuation will provide an adequate retirement income and so overcome the need for the age pension.
A)True
B)False
Q3) What type of assets do fund managers invest in?
Q4) What is the role of superannuation and what are the general functions of the superannuation fund manager?
Q5) If aggregate superannuation fund assets experienced a significant increase over a period of a year the most likely explanation would be:
A)increased payments from contributors
B)strong positive returns on investments
C)decreased payments from funds to retirees
D)reduced fees charged by managers
E)changes to superannuation tax rules by government.
Q6) What benefits can a fund manager provide to a retail investor?
6
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Chapter 5: Authorised Deposit-Taking Institutions
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Sample Questions
Q1) A bank acting as a bill acceptor charges a fee of 110 basis points on an issue of 90-day bank bills with a face value of $10,000,000.Given that the market yield at the time of issue was 5.35%, calculate the fee income (in $)for the bank.
Q2) An investment increases in value from $100 000 in January 2005 to $200 000 in January 2015.What is the effective rate of return?
Q3) A bank accepts 90 day bills with a face value of $20 million for a fee of 120 bps.This bill is sold to an investor at a yield of 4% p.a.The amount received by the borrower is $19 804 666.30.
A)True
B)False
Q4) ADIs enhance the flow of funds through intermediation by transforming:
A)many small loans into fewer, larger deposits
B)long-term deposits into short-term loans
C)the risk posed by borrowers into a risk acceptable by depositors
D)interest expense into interest revenue.
E)All of these.
Q5) Describe the sources of funds for Australian ADIs and explain how ADIs have adjusted their funding sources since the GFC.
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Chapter 6: The Stability of Deposit-Taking Institutions
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Sample Questions
Q1) The 'counter-cyclical capital buffer':
A)can be imposed by APRA during periods of high credit growth in the banking system
B)form part of the Basel III reforms
C)should discourage excessive growth in risky bank assets during periods of high growth
D)is an additional equity buffer of 2.5 per cent of a bank's risk-weighted assets
E)All of these.
Q2) The capital adequacy requirement specifies:
A)an ADI's minimum amount of equity capital
B)a minimum amount of liquid assets to be held by an ADI
C)a minimum amount of exchange settlement funds to be held by an ADI
D)the need to diversify lending
E)All of these.
Q3) Explain how financial crises can be triggered and the RBA's role in overseeing financial system stability.
Q4) Present two reasons that explain how the CAR may achieve its aims.
Q5) Explain the purpose of the capital adequacy requirement (CAR).
Q6) Describe how ADIs manage their credit risk exposure.
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Page 8
Chapter 7: The Money Market
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Sample Questions
Q1) Suppose that the opening yield in the 90-day bill market usually varies by two basis points (up or down)from the closing rate on the previous business day.Calculate the price risk faced by a dealer who is holding 90-day bills with a face value of $100 million, given that the market closed at 5.00 per cent.
Q2) Both bills and promissory notes can be used to borrow funds only for periods that are less than a year.
A)True
B)False
Q3) The main influences on short-term interest rates in recent years have been:
A)the business cycle
B)the RBA's monetary policy
C)changes in the risk premium in the 90-day BBSW
D)the demand for funds by business.
E)All of these.
Q4) Calculate the yield from an investment in a 90-day bank-accepted bill purchased at 4.75 per cent and sold 35 days later at 4.92 per cent.
Q5) What are the objectives of monetary policy?
Q6) How does the level of the cash rate influence the economy?
Q7) Explain how the money market assists the RBA in carrying out its functions.
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Chapter 8: The Bond Market
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Sample Questions
Q1) Australia's bond market is conducted by the ASX.
A)True
B)False
Q2) The correlation between bond yields and the expected inflation rate is known as the Fisher effect.
A)True
B)False
Q3) Credit wrapping is generally used by:
A)corporate borrowers with speculative-grade credit ratings
B)financial institutions
C)issuers of mortgage backed securities
D)non-resident issuers
E)corporate borrowers with investment-grade credit ratings.
Q4) Treasury bonds:
A)have a number of series
B)have a range of terms (i.e.maturities)
C)are (approximately)par bonds when a new bond series is first issued
D)have a range of coupon rates
E)All of these.
Q5) Provide a brief description of semi-government bonds.
Page 10
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Chapter 9: Shares
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Sample Questions
Q1) Fund managers that invest in emerging unlisted firms are known as 'business angels'.
A)True
B)False
Q2) Compare the various methods a listed company can use to raise extra external equity capital.
Q3) ABC Ltd has recently held a rights issue on a 1-for-4 basis.The cum-rights price is $3.50 and the subscription price is $3.20.Calculate the theoretical fair value of a right and the ex-rights price.
Q4) Rights issues allow shareholders to increase their wealth because they can buy shares at a discount.
A)True
B)False
Q5) An initial public offering:
A)does not always raise additional equity funds for the business
B)is the initial sale of shares to the public
C)is also known as a 'float'
D)is the process by which shares become listed on the ASX
E)All of these.
Q6) Provide an overview of the methods used by Virgin Blue to raise equity.
Page 11
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Chapter 10: The Share Market
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Sample Questions
Q1) As a monopoly, the ASX does not have to contend with competition.
A)True
B)False
Q2) The ASX is listed on the ASX.
A)True
B)False
Q3) The ASX is facing competition from:
A)Chi-X and CFDs
B)high frequency trading and CFDs
C)high frequency trading and Chi-X
D)Chi-X and 'dark pools'
E)'dark pools" and CFDs.
Q4) The share market is a market for corporate control.
A)True
B)False
Q5) Explain contracts for difference and demonstrate how an investor can use these contracts in strategies to profit from forecasted increases and decreases in share values.
Q6) What is the role of the ASX 200? Describe how the S&P Australian Index Committee determine the shares in this index.
Page 12
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Chapter 11: Foreign Exchange and Global Capital Markets
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Sample Questions
Q1) Suppose the spot exchange rate is AUD/SGD0.9820, and that interest rates in Australia are 5% p.a.while those in Singapore are 3% per annum.
A.Calculate the 180-day forward rate.(Note that Singapore uses a 365-day financial year.)
B.What is the size of the forward premium or forward discount?
C.What arbitrage opportunity would exist if you were able to trade a 180-day forward contract at AUD/SGD0.9820?
Q2) Foreign exchange markets facilitate cross-currency payments. A)True B)False
Q3) Why do Australian borrowers access overseas capital markets?
Q4) Identify and briefly explain the functions of FX markets.
Q5) Given the quote USD/JPY102.51, calculate (i)the amount of JPY that can be purchased with 100 000USD, and (ii)the amount of USD that can be purchased with 1million JPY.
Q6) A floating exchange rate means the FX markets determine the price of the currency. A)True B)False
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Chapter 13: Financial Futures
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Sample Questions
Q1) Suppose that in June, when the 90-day BBSW is 5%, the prices for the September and December BAB futures contracts are 95.10 and 95.15, respectively.
A)The 180-day rate will be 4.85%.
B)The 90-day rate is expected to be 4.90% in September.
C)The 180-day rate will be 4.95%.
D)The futures market expects the RBA will cut the cash rate by 25 basis points in September.
E)There would be a normal yield curve in the money market.
Q2) Liquidity in the futures market is restricted by the use of fully standardised contracts.
A)True B)False
Q3) Describe the trading in BAB futures required to hedge a one-year $50 million bill facility using 90 day bills given it is now February and the facility will begin in March.What will be the effective cost of funds established for the facility if in February the price of March, June, September and December BAB futures are 96.00, 95.80, 95.50 and 95.00 respectively.
Q4) Why do most futures contracts require mandatory cash settlement? What does this entail?
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Page 14
Chapter 14: Swaps
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Sample Questions
Q1) Describe the main features of a fixed-for-floating (plain vanilla)interest rate swap.
Q2) Credit default swaps are contracts where the protection buyer agrees to pay a fee to the protection seller in return for a specified series of payments.
A)True
B)False
Q3) 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
Q4) Explain how a firm could use a swap to hedge its interest rate exposure under a two-year bill facility, and demonstrate how the swap determines its effective interest rate for the first two quarters of the facility, assuming that it commences in June and the swap rate is 6%.Assume further that 90-day BBSW is 5.45% in June and 5.55% in September, and that the swap periods are 90 days.
Q5) Describe how a swap converts a floating-rate payer into a fixed-rate payer, and vice versa.
Q6) Explain the main features and use of overnight indexed swaps.
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Page 15
Chapter 15: Exchange-Traded Options
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Sample Questions
Q1) Option strategies are formed by combining option positions or combining an option position with a position in the underlying asset.
A)True
B)False
Q2) In order to closeout an unprofitable position on a short put, the option trader would:
A)buy puts with the same expiry date and exercise price
B)sell puts with the same expiry date and exercise price
C)buy calls with the same expiry date and exercise price
D)sell calls with the same expiry date and exercise price.
E)Short option positions must be maintained until expiry.
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) Describe a buy-and-write strategy and explain its potential payoffs.
Q5) What advantages and disadvantages does hedging an interest rate exposure with options have compared to hedging with futures?
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