Secondary markets and financial institutions

Question 11 - From a trade basis, if U.S. trade deficits with Japan continues, and if U.S. inflation rates exceed that of Japan,

A- the yen is likely to appreciate against the dollar moving from 110 yen per dollar to 120 yen per dollar.

B- the yen is likely to appreciate against the dollar moving from 120 yen per dollar to 110 yen per dollar.

C- U.S. interest rates will be less than comparable rates in Japan.

D- the dollar is likely to appreciate against the yen.

Question 12 - Which of the four secondary markets listed below minimizes price risk, but search costs are often high?

A- direct search

B- brokered

C- dealer

D- auction

Question 13 - A Japanese auto in 1995 was priced at $15,000 when a yen cost $0.00625. Suppose the price in yen has not changed. What is the cost today if the exchange rate stands at ¥135/$?

A- ¥2,400,000

B- ¥2,025,000

C- $12,656

D- $17,778

Question 14 - A stock purchased at $40 at the beginning of the year paid $10 in dividends and was sold for a net price of $42 at the end of the year. The total annual return is

A- 25 per cent

B- 100 per cent

C- 30 per cent

D- 28.6 per cent

Question 15 - A Detroit bank pays 6% for a $100,000 six-month certificate of deposit, while a Windsor, Ontario bank advertises a rate of 7.5%. Which CD should the Detroit investor take? Refer to the foreign exchange rates below.

U.S. Equiv. Rates
Canada (dollar) $0.8345
180 day Forward $0.8225

A- Make the U.S. CD investment.

B- Make the Canadian CD investment.

C- The investor is indifferent between the two because of interest parity.

D- One is unable to make this calculation with the data provided

Question 16 - Regulators provide a valuable function for the capital markets because they

A- try to keep the market participants honest.

B- try to prevent excessive speculation from destabilizing the market.

C- make sure all pertinent information about publicly traded securities is disclosed.

D- all of the above

Question 17 - Using the security market line, calculate the required rate of return on a stock when the risk-free rate is 7%, the return on the market portfolio is 15%, and the beta is 1.5?

A- 12 %

B- 19%

C- 29.5%

D- 33%

Question 18 - What is the relationship between spot market prices and forward market prices of a good or financial asset?

A- Spot prices represent expected forward prices.

B- Forward prices are always higher than spot prices.

C- Spot prices are always higher than forward prices.

D- Forward prices are expected future spot prices.

Question 19 - A hedger in the financial futures market NOTE: the spot market is where assets are bought or sold with 'on-the-spot' delivery

A- seeks a position in the spot market to offset the price risk, which exists in the futures market.

B- will purchase financial futures if holding financial assets in the spot market.

C- seeks to offset the price risk in its spot market position with the nearly equal but opposite price risk of the futures position.

D- will always short financial futures to perfect the hedge.

Question 20 - If an American firm needs to pay 100,000 pounds in 90 days for British steel, it could protect itself against price risk by

A- selling pounds [in exchange for dollars] in the forward market for delivery in 90 days.

B- buying pounds [in exchange for dollars] in the futures market for delivery in 90 days.

C- selling pounds [in exchange for dollars] now.

D- wait 90 days and buy pounds [in exchange for dollars].