Q1:

Choose True or False with justification or correction :

1. The agency problem results from a managers concerns about corporate goals and can only be solved through stock options.

2. Government bonds are issued by governments to finance the budget deficit, they are short term and less risky than stocks and corporate bonds.

3. Financial Derivatives can be traded in the future markets. They include futures, options and bills.

4. The goal of the firm is to maximize profits, to achieve this goal for each alternative being considered, the financial manager would select the one that is expected to result in the highest return and the lowest risk.

Q2: Explain the graph in your own words.

Clearing & Settlement Process Client B Client B Securities Depository BuyerSeller Buying Broker Buying Broker Stock Settlement MCDR On T+2 Exchange Selling Selling Broker Broker Funds Settlements Bank Buyer Seller Client S Client S