Reference no: EM132403003

Global Financial Institutions and Markets

Question 1

a) In recent years, the government has increased its role in financial markets. So explain the government intervention in financial markets with suitable examples.

b) "The federal open market committee assesses the economic conditions, and identifies its main concerns about the economy to determine the monetary policy that would alleviate its concerns. Its monetary policy changes the money supply in order to influence interest rates, which affect the level of aggregate borrowing and spending by households and firms." In the spectrum explain the effects of a stimulative monetary policy. Also explain why a stimulative monetary policy might fail.

Question 2

a) "Money markets are used to facilitate the transfer of short-term funds from individuals, corporations, or governments with excess funds to those with deficient funds. Even investors who focus on long-term securities tend to hold some money market securities. Money markets enable financial market participants to maintain liquidity". Give a detailed discussion about the money market securities.

Question 3
The bond markets facilitate the flow of long-term debt from surplus units to deficit units. Explain the following in detail.
a) Bonds
b) Institutional participation in bond markets
c) Bond yields
d) Treasury and federal agency bonds
e) Municipal bonds

Question 4
a) Describe corporate bonds.
b) "Firms can issue corporate bonds to finance the restructuring of their assets and to revise their capital structure." Give a detailed description of the characteristics of corporate bonds.

c) Explain how corporate bonds finance restructuring.

Question 5
a) "Since the values of stocks change continuously, so do stock prices. Institutional and individual investors constantly value stocks so that they can capitalize on expected changes in stock prices." Explain the methods of valuing stocks.
b) Given the information for two stocks; measure the excess return above the risk-free rate per unit of risk (Sharpe Index)
Average return for A stock =16%
Average return for B stock = 14%
Average risk-free rate = 10%
Standard deviation of Sooner stock returns = 15%
Standard deviation of Longhorn stock returns = 8%

Question 6
Discuss the following in detail.
a) Initial public offerings
b) Process of going public
c) Underwriter efforts to ensure price stability
d) Initial returns of IPOs
e) Abuses in the TO market