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Monash University
Semester One Final Examination 2013
Faculty of Business and Economics
Deartment of !ccountin" and Finance
E#!M $ODES% !F$2000
&'&(E OF )!)E*% F'+!+$'!( '+S&'&U&'O+S !+D M!*,E&S
E#!M DU*!&'O+% 3 hours
*E!D'+- &'ME% 10 minutes
THIS PAPER IS FOR STUDENTS STUDYING AT: (office use only - tick where applicable)
Berwick Clayton eninsula !istance E"ucation O#en Learnin$
Caul%iel" &i##slan" Sunway 'on$ (on$ Other )s#eci%y*
!urin$ an e+am, you must not ha-e in your #ossession, a .ook, notes, #a#er, calculator, #encil case, mo.ile
#hone or any other material/item which has not .een authorise" %or the e+am or s#eci%ically #ermitte" as note"
.elow0 1ny material or item on your "esk, chair or #erson will .e "eeme" to .e in your #ossession0 You are
remin"e" that #ossession o% unauthorise" materials in an e+am is a "isci#lina.le o%%ence un"er 2onash Statute
3010
!U&.O*'SED M!&E*'!(S
$!($U(!&O*S /ES +O
)ermitte" calculators4 Citi5en S678139, Casio F:;<2S scienti%ic calculator, the Casio F:;<1U scienti%ic
calculator, an" Shar# EL8=39 %inancial calculator, or calculators with an >a##ro-e" %or use> Faculty la.el*
O)E+ BOO, /ES +O
S)E$'F'$!((/ )E*M'&&ED '&EMS /ES +O
7his #a#er consists o% &0O SE$&'O+S ! 1 B2 Section ! contains 20 multile choice 3uestions4 Section
B contains 5 Short !ns6er 7uestions an" three #a$es o% %ormula #rinte" on a total o% 10 a"es0 !((
7UES&'O+S must .e attem#te"0
)(E!SE $.E$, &.E )!)E* BEFO*E $OMME+$'+-2 &.'S 'S ! F'+!( )!)E*2
S7U!EN7 I!4 ??????????000 !ES( NU2BE64 ????????0
&.'S E#!M'+!&'O+ )!)E* MUS& BE '+SE*&ED '+&O &.E !+S0E* BOO, !& &.E
$OM)(E&'O+ OF &.E )!)E*2 +O E#!M'+!&'O+ )!)E*S S.OU(D BE *EMO8ED F*OM
&.E E#!M'+!&'O+ *OOM
1FC<000 2inh @iet !o a$e 1 o% 10
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SE$&'O+ ! 920 Mar:s;
Choose the correct answer an" write "own your answers on the F'*S& #a$e o% your e+am scri#0
In Auestions reAuirin$ a "ay count con-ention, assume 3B9 "ays unless otherwise state"0 1ll
multile choice 3uestions MUS& .e answere"0
10 1 sa-in$s8sur#lus unit is an entity4
10 that nee"s to .orrow %un"s %rom a sur#lus unit
B0 whose income e+cee"s its s#en"in$
C0 whose s#en"in$ e+cee"s its income
!0 calle" a com#any
<0 I% interest rates mo-e lower a%ter a 7reasury note is issue", a hol"er sellin$ it into the
secon"ary markets4
10 recei-es a ca#ital $ain
B0 recei-es a ca#ital loss
C0 recei-es the ori$inal #rice, as short8term markets are not so a%%ecte" .y interest rate
mo-ements
!0 recei-es a hi$her yiel" owin$ to the time ela#se"
30 1 7reasury .on" "i%%ers %rom a 7reasury note in that it4
10 is issue" %or a #erio" less than a year
B0 #ays interest Auarterly, unlike the monthly interest #ayments %or a 7reasury note
C0 is a "iscount instrument
!0 is a lon$er term cou#on security
30 1n increase in the #rices o% $oo"s an" ser-ices causes the "eman" %or %un"s to CCCCC an"
market interest rates shoul" CCCCCCC0
10 %allD increase
B0 %allD "ecrease
C0 riseD increase
!0 riseD "ecrease
90 I% market interest rates mo-e u#war"s a%ter an in-estor .uys a $o-ernment .on", the in-estor
may4
10 sell the .on" .ack to 7reasury
B0 sell the .on" in the secon"ary markets %or a ca#ital loss
C0 sell the .on" in the secon"ary markets %or a ca#ital $ain
!0 hol" the .on" until the market rates return to their ori$inal le-el an" then ha-e a ca#ital $ain
B0 Banks ha-e $ra"ually mo-e" to lia.ility mana$ement in the mana$ement o% their .alance
sheets0 Ehich statement .est "escri.es lia.ility mana$ementF
10 7he loan #ort%olio is tailore" to match the a-aila.le "e#osit .ase0
B0 7he "e#osit .ase an" other %un"in$ sources are mana$e" in or"er to %un" loan an" other
commitments0
C0 7he ratio o% "e.t to eAuity is mana$e" to meet ca#ital a"eAuacy reAuirements0
!0 7he lia.ility to assets ratio is maintaine" within 6eser-e Bank stan"ar"s0
1FC<000 2inh @iet !o a$e < o% 10
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=0 1sset mana$ement %or .anks re%ers to4
10 mana$in$ the assets o% the .anksD that is, their "e#osits
B0 mana$in$ the real assets, the .ank .uil"in$s
C0 mana$in$ the loans #ort%olio
!0 #rotectin$ the "e#osits .y usin$ "eri-ati-es
;0 7he lia.ility o% sharehol"ers in Glimite" lia.ilityH com#anies si$ni%ies that4
10 cre"itors o% a com#any can call u#on the sharehol"ers in the case o% com#any "e%ault to
contri.ute an amount .ase" only on the current market #rice o% the shares
B0 sharehol"ers are only lia.le %or any amount that is un#ai" on the shares o% a com#any
C0 in the e-ent o% com#any "e%ault, the cre"itors ha-e no claim on the sharehol"ers %or any
contri.ution
!0 sharehol"ers "o not ha-e a ri$ht to #artici#ate "irectly in the "ay8to8"ay mana$ement o% a
com#any
I0 7he su.scri#tion #rice in a ri$hts o%%erin$ is $enerally4
10 .elow the current share #rice
B0 eAual to the current share #rice
C0 a.o-e the current share #rice
!0 not relate" to the share #rice
100 Ehat shoul" .e the #rice o% a share that constantly #ays J<090 annually in "i-i"en"s, i% the
$rowth rate is 5ero an" the reAuire" rate o% return is ;K #er annumF
10 J<<0;B
B0 J<;000
C0 J310<9
!0 J330=9
110 Ehich o% the %ollowin$ statements a.out .ank .ills is INCO66EC7F
10 7he interest rate on a .ank .ill is $enerally hi$her than on a .ank o-er"ra%t0
B0 7he interest rate on a .ank .ill is $enerally lower than the yiel" on a 7reasury note0
C0 7he interest rate on a .ank o-er"ra%t is $enerally hi$her than the yiel" on a 7reasury note0
!0 7he interest rate on a .ank o-er"ra%t is $enerally hi$her than the yiel" on a 7reasury .on"0
1<0 For a commercial .ill, the interest rate is Auote" as a/an4
10 annual #ercenta$e rate
B0 com#oun"e" annual rate
C0 e%%ecti-e rate
!0 hol"in$ #erio" yiel"
130 In a call o#tion, the4
10 .uyer is committe" to recei-e the un"erlyin$ asset at a s#eci%ie" time
B0 seller is committe" to han"in$ o-er the s#eci%ie" asset at a s#eci%ie" time
C0 seller may choose whether or not to "eli-er the un"erlyin$ asset at a s#eci%ie" time
!0 .uyer will choose to e+ercise the o#tion only i% the #rice o% the un"erlyin$ asset %alls
130 1n a$reement .etween two #arties to e+chan$e a series o% cash %lows similar to those
resultin$ %rom an e+chan$e o% "i%%erent ty#es o% .on"s is calle" a/an4
1FC<000 2inh @iet !o a$e 3 o% 10
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10 cre"it swa#
B0 interest rate swa#
C0 yiel" cur-e swa#
!0 notional s#rea"
190 In a %i+e"8%or8%loatin$ interest rate swa#4
10 the amounts #aya.le .etween #arties "e#en" on a s#eci%ie" #rinci#al that is e+chan$e" at the
outset
B0 one #arty #ays another #arty an amount calculate" accor"in$ to a %loatin$ interest rate on a
notional #rinci#al, in e+chan$e %or an amount calculate" on the .asis o% a %i+e" interest rate
C0 only interest %lows are e+chan$e" until maturity, when the #rinci#al is e+chan$e" accor"in$ to
the "i%%erence in the interest rates o-er the li%etime o% the swa#
!0 the amounts #aya.le .etween #arties "e#en"s on a s#eci%ie" #rinci#al that is e+chan$e" at the
.e$innin$ an" at the en"
1B0 Borrowers may access the international "e.t markets i%4
10 they ha-e a num.er o% "e.t issues alrea"y
B0 they ha-e a lar$e num.er o% shares on issue
C0 a lar$e num.er o% in-estors are willin$ to .uy their shares
!0 they ha-e $oo" cre"it stan"in$
1=0 Ehich o% the %ollowin$ .est "e%ines a euromarket8ty#e transactionF
10 1 transaction con"ucte" in GEuro#ean currency unitsH within the Euro#ean Union0
B0 1 %inancial transaction "enominate" in a currency outsi"e the currency o% the country where
the "e.t issue is ma"e0
C0 1 wholesale %orei$n e+chan$e transaction o% a $o-ernment or institutional in-estor0
!0 1 %inancial transaction in US!, con"ucte" solely within the Euro#ean markets0
1;0 Ehen an in-estment .ank hel#s a com#any sell lar$e #arcels o% shares "irectly to institutional
in-estors, this is calle"4
10 "ue "ili$ence
B0 #ri-ate #lacement
C0 securitisation
!0 un"erwritin$
1I0 1 "e%ine" .ene%it #lan4
10 is always %ully %un"e", with no short%all reAuirement
B0 may ha-e a short%all, .ut the Commonwealth $o-ernment will make $oo" the short%all
C0 may ha-e a short%all, .ut the em#loyer will make $oo" the short%all
!0 is where the em#loyee .ears the risk i% the #er%ormance o% the in-estment is .a"
<00 Ehich o% the %ollowin$ statements a.out li%e insurance com#anies is F1LSEF
10 1s in%lows o% %un"s are relati-ely #re"icta.le, they ha-e a -ery sta.le le-el o% lia.ilities0
B0 7hey ha-e $reatly increase" their assets o-er the #ast "eca"e0
C0 7hey sell contracts that o%%er %inancial co-er a$ainst #remature "eath0
!0 7hey ha-e lar$e amounts o% short8term liAui" securities0
920 < 1 mar: = 20 mar:s;
1FC<000 2inh @iet !o a$e 3 o% 10
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SE$&'O+ B 950 Mar:s;
7uestion 1
!iscuss the three channels throu$h which 6B1 "ecision to increase interest rate a%%ect
%uture "omestic &! $rowth0
910 mar:s;
7uestion 2
a* Ehat are the three main %inancial system re$ulators an" what are their main %unctionsF
.* In 2arch <013, the Cy#rus $o-ernment has to consi"er a new one8o%% le-y on .ank
"e#osit in or"er to secure a Euro#ean .ailout0 Ehat were the main concerns o% this
#olicyF
9> ? @ =10 mar:s;
7uestion 3
1 hi$hly rate" cor#oration has issue" J1 million o% .on"s, with a %i+e"8interest cou#on
eAual to current interest rates o% 13 #er cent #er annum, cou#ons #ai" hal%8yearly an" a
maturity o% se-en years0
a* Ehat amount woul" the cor#oration ha-e raise" on the initial issue o% the .on"sF
.* 1%ter one year, yiel"s on i"entical ty#es o% securities ha-e %allen to 1< #er cent #er
annum0 7he e+istin$ .on" now has e+actly si+ years to maturity0 Ehat is the -alue, or
#rice, o% the e+istin$ .on" in the secon"ary marketF
c* E+#lain why the -alue o% the .on" has chan$e"0
93? @ ? 3 = 10 mar:s;
7uestion @
a* E+#lain what is Bank 1cce#te" Bill )B1B*F
.* 1 customer o% a .ank has J<=9 000 in sur#lus %un"s that nee" to .e in-este" %or a short
#erio" o% time0 7he .ank o%%ers to sell a I08"ay ne$otia.le certi%icate o% "e#osit to the
customer at a yiel" o% B039 #er cent #er annum0 Calculate the %ace -alue o% the security
an" a"-ise the customer o% the "ollar return on the C!0
9A ? A = 10 mar:s;
1FC<000 2inh @iet !o a$e 9 o% 10
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!F$2000 F'+!+$'!( '+S&'&U&'O+S !+D M!*,E&S
7uestion A
:YL has a current share #rice o% J190900 7he com#any has ma"e a renouncea.le ri$hts
issue o%%er to sharehol"ers0 7he o%%er is a three8%or8ten #ro8rata issue o% or"inary shares at
J190390
a* Ehat is the #rice o% the ri$htF
.* Calculate the theoretical GE+86i$htsH share #rice0
c* E+#lain why an actual e+8ri$hts #rice o% a share may at times "i%%er %rom the calculate"
theoretical #rice0
9@? 3 ? 3 = 10 mar:s;
7uestion >
1n in-estor enters into a lon$ call o#tion on Boral Limite" shares with an e+ercise #rice
o% J=0<9 #er share in two months, an" #ays a #remium o% J00=0 #er share0
a* Calculate the .reak8e-en #rice %or the short8call #osition0
.* !raw a %ully la.elle" "ia$ram o% the lon$8call an" short8call #ositions0
c* 1t what minimum stock #rice will the o#tion .uyer e+ercise the o#tion on the e+#iration
"ateF
93 ? A ? 2 = 10 mar:s;
7uestion B
1n 1ustralian com#any is e+#ortin$ iron ore to Ma#an0 7he com#any has a recei-a.le o%
MY9 000 000 "ue in three monthsH time0 7he com#any a##roaches its .ank an" enters
into a %orwar" e+chan$e contract0 7he s#ot rates are Auote" as 11U!/MY;<039N30,
%orwar" #oints =N90
a* Ehat is the three month .i"/ask %orwar" rateF
.* Ehat transaction shoul" the 1ustralian com#any take to he"$e their #ositionF
c* 'ow much will the 1ustralian com#any recei-e )in 1ustralian "ollar* i% they he"$e their
#osition0 'ow much will they recei-e i% they "o not he"$e an" the %uture s#ot rate is
11U!/MY;<001N 0B0
"* In #art c, which o#tion is .etter %or the 1ustralian %irmF Ehy woul" they he"$eF
92 ? 3 ? 3 ? 2 = 10 mar:s;
1FC<000 2inh @iet !o a$e B o% 10
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7uestion 5
a* It is sai" that the "istinction .etween merchant .anks an" in-estment .anks has .ecome
.lurre"0 Brie%ly "iscuss the ori$ins o% merchant .ankin$ an" in-estment .ankin$0 E+#lain
why these two ty#es o% institutions ha-e .ecome -ery similar in their .usiness acti-ities
.* 'ow "oes a restricti-e co-enant minimi5e o.Oecti-e risksF
9A ? A = 10 Mar:s;
1FC<000 2inh @iet !o a$e = o% 10
OFFICE USE ONLY
!F$2000 F'+!+$'!( '+S&'&U&'O+S !+D M!*,E&S
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