7/29/2019 Chapter01 Problems

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Part 1 Intnoductionand Overview of Financial Markets

OUESTIONS1. Classify the following transactionsas taking place in the 8.

primary or secondarymarkets: LG 1-l)a. IBM issues$200 million of new common stock.b. The New Company ssues 50 million of commonstockin an IPO.c. IBM sells $5 million of GM preferredstock out of its

marketablesecuritiesportfolio.d. The Magellan Fund buys $100 million of previously

issued BM bonds.e. Prudential nsuranceCo. sells$10 million of GM com-

mon stock.Classify the foliowing financial instrumentsas money mar-ket securitiesor capital marketsecurities: LG I-2)a. Banker'sacceptancesb. Commercial paperc. Common stockd. Corporatebondse. Mortgagesf. Negotiable certificates of depositg. Repurchaseagreementsh. U.S. Treasury billsi. U.S. Tieasury notesj. Federal fundsHow does the location of the money market differ from thatof the capitalmarket? LG I-2)Which of the money market instruments has grown thefastestsince 1990? LG I-2)What are the major instruments raded n capital markets?(LG 1-2)Which of the capital market instruments has grown thefastestsince 1990?$G I-2\If a U.S. bank is holding Japanese en in its portfolio, whattype of exchange ate movement would the bank be mostconcernedabout? LG I-3)

What are the different types of financial institutions?Include a descriptionof the main servicesoffered by each.(LG I-s)How would economic ransactionsbetweensuppliersof funds(e.g.,households) ndusersof funds e.g.,corporations) ccurin a world without Fls? (LG I-6)Why would a world limited to the direct transferof fundsfrom suppliers of funds to users of funds likely result inquite low levels of fund flows? (LG I-6)How do FIs reducemonitoringcostsassociated ith the lowof funds rom fund suppliers o fund investors? LG l-6)How do FIs alleviate he problemof tiquidity and price riskfacedby investorswishing to invest n securitiesof corpora-tions? LG 1-6)How do financial institutions help individuals to diversifytheir portfolio risks?Which financial institution is best ableto achieve his goal?(LG 1-6)

14. What is meantby maturity intermediatron? LG I-6)15. What is meant by denomination ntermediation? LG I-6)16. What otherservicesdo Fls provide to the financial system?(L G 1-6)17. Why are FIs regulated? LG I-8)18. What events resulted in banks' shift from the traditional

banking model of "originate and hold" to a model of"originateand distribute?" LG l-6, LG 1-7, LG 1-8)1.9. How did the boom in the housing market in the early and

mid-2000s exacerbateFIs transition away from their role asspecialists n risk measurementand management? LG I-6,LG I-7, LG 1-8)

20. What countries have the most intemational debt securitiesoutstanding?LG 1-8)

21. What countrieshave he largest ommercialbanks? LG l-8)

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' ,I Go, g the New YonkStock ExchangeWeb site at www.nyse.com and find the latest figunes or- opNYSE olumedays.' ' ' ' 'Cfick n'flnvestorRelations." lickon "Financials." lickon "Transaction,/Statistics."lickon "DataLibrany."Clickon "NYSEStatisticsArchive."Under "NYSEDailyShaneVolume n NYSEListed ssues,"clickon the most recent date. Clickon "lnteractiveViewen Clickon "Market Activity."Clickon "NYSEGroupVolumeRecords-Top 1O Days."Thisbnings p a fi le hat contains he nelevant ata.Buestionsi1. What is the largestnumben f dailyshanesraded on the NYSE?On what daydid his occun?2. Calculatehe pencentagehange n dai ly radingvolumesince he 2.4 bi l l ion hanes raded onJune1B, 2O1O.