Final Exam Anwer of Finance Essay
TO BE RETURNED AT THE END OF THE EXAMINATION.
THIS PAPER MUST NOT BE REMOVED FROM THE EXAM CENTRE.
25556 The Financial System
Special exam, spring semester, 2011
Time Allowed: 3 hours plus 10 minutes reading time.
Exam day and date:
1. Exam Paper: • Please ensure that your name and student number are at the top of this page. • There are three parts to this exam: Part A, Part B and Part C. All questions are compulsory. • This paper will be …show more content…
a) FRAs establish forward rates whereas futures establish future spot rates;
b) futures contracts can be closed out only on their contract date;
c) the settlement date in a 1:4 FRA is in four months;
d) a 2:5 FRA in April provides the same hedge as a 90-day BAB futures contract;
e) FRAs are a standardised contract with a face value of $1 million.
13. Our study of Australia’s foreign exchange market revealed
a) the AUD must be purchased in Australia;
b) the RBA does not conduct trades in the AUD because the currency has been floated;
c) purchases of EUR in Australia can be paid for with USD;
d) the RBA trades in the market to keep the exchange rate in line with its target rate;
e) both (a) and (c) are correct.
14. Identify the most correct statement concerning share valuation
a) fundamental analysts assume the share market is semi-strong efficient;
b) technical analysts assume markets are weak form efficient;
c) a high price-earnings ratio indicates investors expect the firm’s earnings will increase;
d) the estimation of the price of preference shares requires a dividend growth model;
e) both (a) and (b) are correct.
15. It is clear from our study of the Australian share market that
a) The order book records at-market orders that have not resulted in a trade;