37. Exam Papers for Financial Markets and Institutions in BBA (With Answers), Exams of Management of Financial Institutions

Download 37. Exam Papers for Financial Markets and Institutions in BBA (With Answers) and more Exams Management of Financial Institutions in PDF only on Docsity! 2 Exam Papers for Financial Markets and Institutions in BBA (With Answers) PAPER # 1 **Time: 2 hours** **Instructions:** - Answer all questions. - Each question is worth 10 points. - Write your answers in the space provided. - You may use a calculator. **Part A: Multiple Choice Questions (1 point each)** Choose the correct option for each of the following questions. 1. Which of the following is not a money market instrument? a) Treasury bills b) Corporate bonds c) Commercial paper d) Certificates of deposit Answer: b) Corporate bonds 2. The Federal Reserve in the United States is responsible for: a) Fiscal policy b) Monetary policy c) Trade policy d) Regulatory policy Answer: b) Monetary policy 5 PAPER # 2 Section A: Multiple Choice Instructions: Choose the best answer for each of the following questions. 1. What is the primary function of financial markets? (a) To facilitate the exchange of goods and services (b) To provide a forum for businesses to raise capital (c) To allow investors to trade financial assets (d) All of the above Answer: (d) 2. Which of the following is NOT a type of financial market? (a) Money market (b) Capital market (c) Derivative market (d) Primary market Answer: (d) 3. What is the difference between primary and secondary markets? (a) Primary markets are where new securities are issued, while secondary markets are where existing securities are traded. (b) Primary markets are for institutional investors only, while secondary markets are for retail investors only. (c) Primary markets are less regulated than secondary markets. (d) All of the above. Answer: (a) 4. What is the role of financial intermediaries? (a) To channel funds from savers to borrowers (b) To reduce information asymmetry and transaction costs (c) To provide diversification and liquidity to investors (d) All of the above Answer: (d) 5. Which of the following is NOT a type of financial intermediary? (a) Commercial bank (b) Investment bank (c) Insurance company (d) Mutual fund (e) Hedge fund Answer: (e) 6 Section B: Short Answer Instructions: Write a brief answer to each of the following questions. 1. What are the different types of financial instruments? Answer: Financial instruments can be classified into two main categories: debt and equity. Debt instruments represent a loan to a borrower, while equity instruments represent ownership in a company. Some common types of debt instruments include bonds, bills, and notes. Some common types of equity instruments include stocks, shares, and options. 2. What are the main functions of financial markets? Answer: Financial markets serve a number of important functions, including:  Providing a forum for businesses to raise capital  Allowing investors to trade financial assets  Facilitating the transfer of wealth between savers and borrowers  Hedging against risk  Promoting economic growth and development 3. What are the main types of financial intermediaries? Answer: The main types of financial intermediaries include:  Commercial banks  Investment banks  Insurance companies  Mutual funds  Pension funds  Hedge funds Section C: Essay Instructions: Write an essay on one of the following topics: 1. Discuss the role of financial markets in the economy. 2. Explain the different types of financial instruments and their characteristics. 3. Evaluate the importance of financial intermediaries in the financial system. Sample essay: 7 Topic: Discuss the role of financial markets in the economy. Financial markets play a vital role in the economy by facilitating the flow of funds from savers to borrowers. This investment process allows businesses to raise capital to finance their growth and operations, and it provides individuals with a way to save for their future. Financial markets also help to promote economic efficiency by allocating resources to their most productive uses. Through price discovery, financial markets signal to businesses where there are opportunities for profitable investment and where there are risks that need to be mitigated. This information helps businesses to make better investment decisions, which ultimately benefits the economy as a whole. In addition, financial markets provide liquidity to investors, meaning that they can easily convert their financial assets into cash. This liquidity is important for businesses and individuals alike, as it allows them to meet their financial obligations and take advantage of new opportunities. Overall, financial markets play a crucial role in the economy by facilitating investment, allocating resources efficiently, and providing liquidity to investors. Answers:  Section A: (a), (b), (c), (d), (d)  Section B: 1. Debt and equity instruments. 2. Providing a forum for businesses to raise capital, allowing investors to trade financial assets, facilitating the transfer of wealth between savers and borrowers, hedging against risk, and promoting economic growth and development. 3. Commercial banks, investment banks, insurance companies, mutual funds, pension funds, and hedge funds.  Section C: The essay should discuss the role of financial markets in facilitating the flow of funds from savers to borrowers, promoting economic efficiency, and providing liquidity to investors. It should also provide examples of how financial markets benefit businesses, individuals, and the economy as a whole. 10 businesses to raise capital for investment and by investors to save for retirement or other long-term goals. In addition to the two main types of financial markets, there are also a number of specialized financial markets, such as the foreign exchange market, the derivatives market, and the insurance market. 2. Discuss the functions of financial markets. Financial markets perform a number of important functions in the economy. These functions include:  Mobilizing savings and investment: Financial markets provide a way for businesses and investors to connect with each other. This allows businesses to raise capital for investment and investors to save for retirement or other long- term goals.  Pricing financial assets: Financial markets provide a mechanism for setting the prices of financial assets. This helps to ensure that financial assets are traded at a fair price.  Providing hedging and speculation opportunities: Financial markets allow businesses and investors to hedge against risk and speculate on future price movements. This can help businesses to reduce their risk and investors to generate higher returns. 3. Describe the different types of financial institutions. There are two main types of financial institutions: depository institutions and non- depository institutions.  Depository institutions: Depository institutions are financial institutions that accept deposits from the public. These institutions include commercial banks, savings banks, and credit unions. Depository institutions use these deposits to make loans to businesses and consumers.  Non-depository institutions: Non-depository institutions are financial institutions that do not accept deposits from the public. These institutions include investment banks, insurance companies, and mutual fund companies. Non-depository institutions raise funds by issuing securities or borrowing from banks. 4. Explain the role of financial intermediaries in the financial system. 11 Financial intermediaries play an important role in the financial system by connecting businesses and investors. Financial intermediaries also help to reduce risk and improve efficiency in the financial system. 5. Discuss the importance of financial markets and institutions in the economy. Financial markets and institutions play an important role in the economy by mobilizing savings and investment, pricing financial assets, and providing hedging and speculation opportunities. Financial markets and institutions also help to promote economic growth and stability. PAPER # 4 Section A: Multiple Choice (1 mark each) 1. Which of the following is NOT a function of financial markets? o a) To provide a means for businesses to raise capital o b) To facilitate the transfer of risk o c) To provide information about the value of assets o d) To determine the cost of capital Answer: d 2. Which of the following is a type of primary market? o a) Stock exchange o b) Bond market o c) Money market o d) Derivatives market Answer: a 3. Which of the following is a type of indirect financial intermediary? o a) Commercial bank o b) Investment bank o c) Mutual fund 12 o d) Insurance company Answer: c 4. Which of the following is a type of financial instrument? o a) Share o b) Bond o c) Loan o d) All of the above Answer: d 5. Which of the following is a factor that affects the yield on a bond? o a) Term to maturity o b) Credit risk o c) Liquidity o d) All of the above Answer: d Section B: Short Answer (5 marks each) 1. Explain the difference between primary and secondary markets. Answer: Primary markets are where new securities are issued and sold for the first time. Secondary markets are where existing securities are traded among investors. 2. What are the different types of financial intermediaries? Answer: Financial intermediaries can be classified into two main types: direct and indirect. Direct financial intermediaries, such as commercial banks, lend money directly to borrowers. Indirect financial intermediaries, such as mutual funds and insurance companies, pool the savings of investors and then use those funds to invest in securities. 3. What are the main functions of financial markets? Answer: 15 3. Which financial institution typically provides long-term loans for purchasing real estate? a) Commercial banks b) Credit unions c) Mortgage banks d) Investment banks **Answer: c) Mortgage banks** 4. What is the main role of the Securities and Exchange Commission (SEC) in the United States? a) Regulating commercial banks b) Overseeing insurance companies c) Regulating securities markets d) Managing monetary policy **Answer: c) Regulating securities markets** **Short Answer Questions (5 points each)** 5. Describe the difference between a primary market and a secondary market. Provide an example of each. **Answer: The primary market is where new securities are issued for the first time, and companies raise capital by selling them to investors. Examples include initial public offerings (IPOs). The secondary market is where previously issued securities are traded among investors, such as the New York Stock Exchange (NYSE) for stocks.** 6. Explain the concept of diversification in investment and why it is important. **Answer: Diversification is the practice of spreading investments across different asset classes or securities to reduce risk. It is important because it can help investors minimize the impact of poor performance in one investment on their overall portfolio. Diversification can enhance returns while reducing overall risk.** 16 **Essay Questions (15 points each)** 7. Discuss the role of commercial banks in the financial system, including their primary functions, and how they differ from investment banks. **Answer: Commercial banks serve as financial intermediaries, accepting deposits from individuals and businesses and providing loans. They facilitate payments, offer savings and checking accounts, and play a crucial role in the payment system. In contrast, investment banks primarily deal with capital market activities, such as underwriting securities, mergers and acquisitions, and advisory services. They do not generally accept deposits or provide traditional banking services.** 8. Analyze the impact of the 2008 financial crisis on the financial markets and institutions. Discuss the key factors that led to the crisis and the regulatory changes implemented in its aftermath. **Answer: The 2008 financial crisis had a profound impact on financial markets and institutions. It was caused by factors like subprime mortgage lending, securitization, and the collapse of Lehman Brothers. It led to a credit crunch, bank failures, and a severe economic downturn. Regulatory changes, such as the Dodd-Frank Act, aimed to enhance financial oversight, improve transparency, and prevent excessive risk-taking by financial institutions.** PAPER # 6 Instructions: Answer all questions. Section A: Multiple Choice (1 mark each) 1. Which of the following is NOT a function of financial markets? o A. To provide a platform for borrowers and lenders to meet and exchange funds o B. To facilitate the transfer of risk o C. To provide information about the value of assets o D. To create money 2. Which of the following is NOT a type of financial market? 17 o A. Money market o B. Capital market o C. Foreign exchange market o D. Commodity market 3. Which of the following is NOT a type of financial institution? o A. Commercial banks o B. Investment banks o C. Insurance companies o D. Investment funds 4. Which of the following is NOT a function of financial institutions? o A. To provide financial services to individuals and businesses o B. To facilitate the flow of funds in the economy o C. To manage risk o D. To create money 5. Which of the following is NOT a type of debt security? o A. Bonds o B. Commercial paper o C. Mortgages o D. Stocks Section B: Short Answer (5 marks each) 1. Explain the difference between primary and secondary financial markets. 2. Describe the different types of financial institutions and their functions. 3. Discuss the different types of debt securities and their characteristics. 4. Explain the different types of equity securities and their characteristics. 5. Discuss the different factors that affect the prices of financial securities. 20 PAPER # 7 Section A: Multiple Choice Questions (1 mark each) 1. Which of the following is a financial intermediary? a) Stock exchange b) Commercial bank c) Federal Reserve d) Mutual fund 2. What is the primary role of a central bank in a country's financial system? a) Regulating stock markets b) Issuing currency c) Providing insurance services d) Conducting monetary policy 3. What is the function of the Securities and Exchange Commission (SEC) in the United States? a) Regulating commercial banks b) Enforcing accounting standards c) Managing monetary policy d) Supervising consumer protection 4. Which of the following is an example of a money market instrument? a) Corporate bond b) Treasury bill c) Common stock 21 d) Residential mortgage 5. What does the term "liquidity" refer to in financial markets? a) The ease of converting an asset into cash without loss of value b) The total market capitalization of a stock exchange c) The interest rate set by the Federal Reserve d) The creditworthiness of a financial institution Section B: Short Answer Questions (5 marks each) 6. Explain the role of commercial banks in the financial system and provide an example of a service they offer. 7. Define "monetary policy" and discuss how the central bank uses it to influence the economy. 8. Describe the difference between primary and secondary financial markets. Provide examples of securities traded in each market. 9. What are the major functions of an investment bank in the financial system? Give examples of services offered by investment banks. 22 Section C: Essay Questions (15 marks each) 10. Discuss the causes and consequences of the 2008 financial crisis. What regulatory changes were implemented in response to this crisis? 11. Explain the concept of risk management in financial institutions. Provide examples of strategies that banks use to manage risk effectively. Sample Answers: Section A: 1. b) Commercial bank 2. b) Issuing currency 3. b) Enforcing accounting standards 4. b) Treasury bill 5. a) The ease of converting an asset into cash without loss of value Section B: 6. Commercial banks play a crucial role in the financial system by accepting deposits, providing loans, and offering a wide range of financial services to individuals and businesses. For example, a commercial bank may offer services such as savings accounts, checking accounts, personal loans, business loans, and mortgage loans. 7. Monetary policy refers to the management of the money supply and interest rates by the central bank to achieve specific economic objectives. The central bank uses tools