Questions and Answers of Financial Markets Institutions

Suppose the Australian dollar to U.S. dollar exchange rate is 1.0757 and the euro to the U.S. dollar exchange rate is 0.7234, what would be the value of Australian dollar to euro exchange rate?
Suppose a country announces that it will put quotas and tariffs on imported goods to promote domestic production. How will it affect the country’s currency in the long run?
During the 1997 Asian financial crisis, the Thai baht was trading at $0.02475 per Thai baht. The Thai baht is trading at $0.03093 per Thai baht now. What is the percentage change in the Thai baht's
Argentina has unexpectedly announced higher tariffs on imported dairy products in the near future. What would the impact of these tariffs be on the value of the Argentine peso?
The Argentinian peso trades at 0.067 peso per U.S. dollar. How many Argentinian pesos would you tip a taxi driver if you give her a $5 bill?
Suppose the U.S. government announces to implement a new economic program that will strengthen the dollar in relation to other currencies. If you are an investor and have the option of investing in
The Georgian Lari (GEL) is trading 2.41 Laries per U.S. dollar. If the expected U.S. inflation rate in the United States is 2% and 6% in Georgia, what is the expected exchange rate?
Due to increasing wealth, what would happen to the value of the Singapore dollar if Singaporeans significantly increased their consumption of foreign goods and services as compared to locally
The current exchange rate between U.S. dollar and the Australian dollar is U.S. $1 = AUD$1.31. If the U.S. dollar is expected to appreciate by 5% relative to the Australian dollar, what is the new
Suppose that the U.S. Federal Reserve decides to raise interest rates to combat inflation. How will this decision affect the exchange rate between the U.S. dollar and the euro?
If the interest rate is 6% in the United States and 8% in Australia, what is the expected rate of depreciation of foreign currency?
If you expect higher productivity in your country due to some technological changes, what would you expect regarding the domestic currency?
On June 23, 2016, the United Kingdom voted on whether to remain or leave the European Union. From June 16 to June 23 the exchange rate between the British pound and the dollar increased from 1.4075
The short-term rate in Japan is 3% and in the United States it is 4%. The current exchange rate is $1 = ¥109. What is the expected forward exchange rate?
Short-term interest rates in Australia and the United States are 1% and 3% respectively. The current exchange rate is AUD $1.0757 per U.S. dollar. Suppose a forward exchange rate of 1.0500 AUD per
Suppose the Fed decided to purchase $2,000,000 worth of foreign assets for $2,000,000. Calculate the effect of the using T-accounts. What would be your answer if the Fed decided to do it through
How do the sterilized and unsterilized approaches affect exchange rates? Which approach is better for currency exchange rate appreciation?
In practice, people often use The Big Mac index, which provides an interesting perspective into the determination of foreign exchange rates; in the United States, a Big Mac is selling at a price of
If the interest rate is 8% on euro deposits and 4% on dollar deposits, while the euro is trading at $1.45 per euro, what does the market expect the exchange rate to be one year from now assuming the
If the dollar begins trading at $1.45 per euro, with the same interest rates given in problem 3, and the ECB raises interest rates so that the rate of the euro deposits rises by 2%, what will happen
Suppose a country has a fixed exchange rate. In what situations would a central bank's intervention be necessary? State the advantages and disadvantages of such interventions.
Fixed exchange rate fuels a country’s economic growth. Briefly discuss the advantages and disadvantages.
Suppose your country has perfect capital mobility, would a sterilized approach work? Will it affect the country? Why or why not?
The World Trade Organization (WTO) is the sole international organization that coordinates international trade between all the countries around the world. Discuss its functions in a global financial
What are the detrimental effects of balance-of payments deficits on a country?
What problem would a country face if it ties its own currency exchange rate to another currency? Can such a country face a policy trilemma? Briefly describe this phenomenon.
The International Monetary Fund (IMF) is responsible for stimulating international monetary unity and encouraging collaboration within financial intermediaries. How does it safeguard and maintain
How do controls on capital outflow or inflow work for a country’s economy? Is control in general a good tool?
Recently the IMF became a lender of last recourse. Explain why this was the case. What unfavorable developments might this involve?
Name the five institutions within the World Bank Group. How do they aim to fulfill the motto “Working for a world free of poverty”?
Some central banks do not pay interest on required reserves. Some bankers see this as a tax on their business. Can you explain why?
The balance sheet of KriBank starts with an allowance for loan losses of $2.66 million. During the year, KriBank writes-off worthless loans amounting to $1.68 million, recovers $0.44 million on loans
All commercial banks within a country hold a proportion of their total deposits with the central bank (for example, the Federal Reserve in the United States). Why do commercial banks hold such
Excess reserves are insurance from deposit outflow. Suppose you hold 15 million required reserves and 45 million excess reserves at the central bank. The total interest payment on reserves from the
Suppose you are a bank manager and are responsible for liquidity management and reserves. The central bank decides not to pay interest on excess reserves, which you may be holding there. You decide
In mid-1980, Willem G&H issued a standard 35-year fixed rate mortgage at 8.6% for $170,000. Forty-eight months later, the mortgage rates jumped to 15%. If G&H sells the mortgage, how much of a loss
What is the role of overnight loan market in sustaining the growth of an economy?
Refer to the previous problem. In 1984, Congress allowed G&H to sell mortgages at a loss and to amortize the loss over the remaining life of the mortgage. If this were used for the previous problem,
Describe the relationship between interest rates and investment decisions.
Assume that the following banks have the same net amount of 2 million, but they are different due to the capital structure:Which Bank is more attractive for shareholders? Which bank is riskier in
For the upcoming week, Nobel National Bank plans to issue $50 million in mortgages and purchase $200 million 31-day T-bills. New deposits of $70 million are expected and other sources will generate
Why do banks need to hold capital? Are there any costs associated with holding a large amount of capital?
Analyze the term “liability management” in the context of retail banking.
The source of bank operating income has changed over the years. Discuss.
What is equity multiplier? When are bank shareholders better off in terms of this coefficient?
What is the importance of a bank’s net interest margin?
How can banks benefit from off-balance operations? Is this activity associated with bank risk profile?
What is the logic behind provision for loan losses? Is this the same as a loan write-off? Can the provision of bad loans be the source of large expenses for banks?
What does the month-end balance sheet for NewBank look like?
How is Net Interest Margin (NIM) a good measure for bank performance? Bank management performance?
ROA and ROE are considered as the performance evaluation tools for banks. Do they always move in the same direction? How does an increase in capital affect them?
Calculate NewBank’s ROE and final balance sheet.
Go to http://www.fdic.gov/regulations/laws/. This site reports on the most significant pieces of legislation affecting banks since the 1800s. Summarize the most recently enacted bank regulation
Refer to the previous problem. The bank commits to a loan agreement for $20 million to a commercial customer. Calculate the bank’s capital ratio before and after the agreement. Calculate the
Consider a failing bank. A deposit of $180,000 is worth how much if the FDIC uses the payoff method? The purchase-and-assumption method? Which is more costly to tax payers?
The Office of the Comptroller of the Currency is responsible for many of the regulations affecting bank operations. Go to www.occ.treas.gov/. Click on "Law and Regulations" in the far-right column
Creation of the FDIC encouraged reluctant depositors to put their money into the banking system. Aside from the benefit of reducing the probability of a bank run, what other positive impact has this
Discuss the role of financial regulation in a world moving toward financial deregulation.
Why should a bank's capital requirements enhance its profitability in the long run?
What are the supervision procedures undertaken by banks to sustain the current economy growth?
What are the risk management activities undertaken by central banks to sustain economic growth?
What is the importance of deposit insurance premiums for banks?
What are the disclosure requirement measures that are undertaken by banks to enhance users’— stakeholders and/or investors, and bank customers— understanding?
Given the set of new regulations included in the Dodd-Frank Act of 2010, do you think this was an easy bill to pass? Discuss reasons why financial industry lobbyists argued against the passing of
Go to www2.fdic.gov/SDI/SOB. Select "Historical Statistics on Banking," then "Commercial Bank Reports." Finally, choose "Number of Institutions, Branches and Total Offices." In looking at the trend
"The banking industry in Canada is less competitive than the banking industry in the United States because in Canada only a few large banks dominate the industry, while in the United States there are
What is the downside of branch banking, especially in view of the increasing number of local and international players in the banking arena?
What are the pros and cons of setting up a bank holding company?
What are the advantages and disadvantages of international banking facilities introduced in the global banking market?
What are the advantages and disadvantages of allowing foreign banks to open branches in your country?
State the relationship between the process of bank consolidation and the too-big-to-fail policy.
What is the difference between an inflationary and a recessionary scenario? How does the central bank deal with the two situations?
What are banking assets and how can they be sustained?
Describe the contribution of the Glass-Steagall Act towards the banking industry. Compare the Glass- Steagall Act with the Basel 1.
Explain the purpose of the Gramm-Leach-Bliley Act towards the banking industry. Compare the contribution of the Gramm-Leach-Bliley Act with Basel 2 and Basel 3.
Suppose you want to buy a stock, which will pay $1 dividend in next year, the price of this stock will be $55 in next year. How much are you willing to pay for this stock today, if your required rate
Why would economic growth affect the value of a stock?
There are a number of indexes that track the performance of the stock market. It is interesting to review how well they track along with each other. Go to http://bloomberg.com. Click the "Stocks" tab
Why do people invest in stocks? Is stock a riskier investment than bonds? Why or why not? How is preferred stock similar to bonds? To common stock?
What are the limitations of the generalized dividend model?
Sime Darby's stock price is currently $20.00. It is expected to pay a dividend of $0.80 a share in the current year. Stock analysts predict its price one year from now to be $24.50. Calculate the
To capture investor interests, Exchange Traded Funds (ETF) have become the latest market innovation. Since 1990, they have been actively traded in a form of basket of securities. What are the main
What is a present value of a stock, if the price for now is $40? Use a discount rate of 10% and period of 45 years. Please refer to the generalized dividend valuation method.
What is the motivation for buying foreign stocks?
Find the current market price of company's share, assuming D0 = $1.5, dividend growth rate 5% and required rate 12%. Use the Gordon Model for share value evaluation.
Langkasuka Holdings expects to pay an annual dividend of $1.50 per share and stock analysts expect the dividend to growth by 7% indefinitely. If Langkasuka Holdings' current share price is $25, what
Alfa international paid $2.00 annual dividend on common stock and promises that the dividend will grow by 4% per year. If the stock's market price for today is $20, what is required rate of return?
Patimas Computers is currently paying dividends of $0.50 a share. These dividends are expected to grow at a rate of 20% for the next two years and at a constant growth rate of 3% thereafter. What
A start-up technology company has projected earnings per share of $4.50. If the average technology industry P/E ratio is 30, what would the company's projected stock price be?
Refer to the previous exercise. What is the implicit required rate of return if dividends are expected to grow at a 5% annual rate?Data from previous exerciseA start-up technology company has
The average industry P/E ratio for IT companies is 27, what is a price of ABC share, if the expected dividend is 1.15 per share?
Suppose you are faced the following situation: you decide to buy company's share which is going to pay an annual dividend of $5 and promising the growth rate of 5%; You have estimated risk of the
The price of a 145-day commercial paper is $4,525. If the annualized discount rate is 5.25%, what will the commercial paper will pay at the day of maturity?
Your minimum discount rate bid of 0.35% for a $10,000 T-bill that matures in 91 days has been accepted. Calculate your annualized investment rate.
In this exercise we will practice collecting data from the Web and graphing it using Excel. Use the example on pages 50-52 as a guide. Go to https://fred .stlouisfed.org/series/DJIA, and select "10
In Web Exercise 1 you collected and graphed the Dow Jones Industrial Average. Now go to www.forecasts .org. Click on "Stock Market Forecast" and then on "Dow Jones Industrial Average" in the left
Using the data provided in the previous problem, calculate the price difference using the duration formulaData From Exercise 11Calculate the duration of a five-year bond with a face value of $1,000
Explain the relationship between risk-loving and riskaverse investors, and the strategy of diversification.
The demand curve and supply curve are estimated to be the same as in problem 4. Following a dramatic increase in the value of the stock market, many retirees started moving money out of the stock
A commercial banking system is usually regulated by central banks. For instance, the European Central Bank (ECB) requires holding minimum reserves for banks located in the Euro area. Branches located

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