Explain capital in a money market or capital market, Financial Management

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Question 1:

(a) Advise a risk averse individual whether to invest his capital in a money market or capital market. Justify your answer.

(b) Explain five types of Money market instruments and three types of Capital market instruments.

Question 2:

(a) By clearly illustrating banking fragility, explain the rationale for banking sector supervision.

(b) Discuss the important factors required for financial regulation.

Question 3:

(a) What type of financial transaction is being carried out from the activities below i.e. arbitrage, hedging or speculation? Please explain.

i. Mr. Fowler buys Euros in New York, where they are quoted at 1 Euro per US$1, and sells them in Paris where the rate is 0.95 Euro per US$1.

ii. Robin buys in Microsoft because she thinks that the internet is going to have an even greater impact on business than market prices reflect and because she believes that the company is going to be one of the best placed to exploit the phenomenon.

iii. Kevin holds shares in a variety of listed companies. He buys a derivative product, the value of which goes up if share prices in general go down.


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