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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
HD
EDUCATION
FINS 5512
Week 1 Assignment
TUTOR: Kumi
HD EDU
Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
Q1. The GFC stands for:
Select one:
A. Global Financial Crisis
B. Great Financial Catastrophe
C. Great Financial Crisis
D. Global Financial Collision
Q2. Why were banks subject to “runs” during the GFC?
I. Banks did not hold 100% reserves
II. The FRS lost confidence in the US banks
III. Liquidity transformation caused difficulties for banks to convert assets into cash
IV. Increased level of uncertainty in the financial system
Select one:
A. Only I and IV are correct
B. Only I and II are correct
C. Only II is correct
D. Only I is correct
E. Only I and III are correct
Q3. The following factors could contribute to the GFC:
I. Overheating of the economy because of extremely low interest rates
II. Deregulation of the financial system
III. Irrationality and greed of market participants
IV. Innovative financial products like CDO and CDS
V. Forged credit ratings
Select one:
A. Only I, II, and V are correct
B. None is correct
C. Only II is correct
D. Only I, IV and V are correct
E. All of the answers are correct
Q4. The GFC consists of two parts:
Select one:
A. Eurozone crisis and M&A of the Wall Street banks
B. Liquidation of liabilities by Wall Street Banks and Eurozone crisis
C. Liquidation of assets by Wall Street Banks and European private banks’ crisis
D. The FRS crisis and Eurozone crisis
E. Liquidation of assets by Wall Street banks and Sovereign debt crisis
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
Q1. A finance company is a type of a financial institution that:
I. Mostly assist with off-balance sheet advisory services
II. Obtains most of its funds by selling money market securities
III. Used to be more commonly known as a “merchant bank” but after deregulation extended the range of services and becomes a financial company
IV. Receives periodic payments and then makes payments in return when a specified event occurs
V. Obtains most of its funds from the savings of individuals are small businesses
Select one:
A. V is correct
B. IV is correct
C. II is correct
D. III is correct
E. I is correct
Q2. A unit trust is a type of a financial institution that:
I. Mostly assists with off-balance sheet advisory services
II. Obtains most of its funds by selling money market securities
III. Used to be more commonly known as “merchant bank” but rather deregulation extended the range of services and became a
Financial Company
IV. Received periodic payments and then makes payments in return when a specified event occurs
V. Obtains most of its funds from the public and generally specialises in certain investments specified in a separate document
Select one:
A. II is correct
B. I is correct
C. V is correct
D. IV is correct
E. III is correct
Q3. A contractual savings institution is a type of a financial institution that:
I. Obtains most of its funds from the savings of individuals and small businesses
II. Mostly assists with off-balance sheet advisory services
III. Obtains most of its funds by selling money market securities
IV. Receives periodic payments and then makes payouts in return when a specified event in the contract occurs
V. Has mostly ceased to exist due to financial deregulation
Select one:
A. III is correct
B. II is correct
C. I is correct
D. V is correct
E. IV is correct
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
Q4. An investment bank is a type of a financial institution that:
I. Mostly assists with off-balance sheet advisory services
II. Has mostly ceased to exist due to financial deregulation
III. Obtains most of its funds by selling money market securities
IV. Obtains most of its funds from the savings of individuals and small businesses
V. Receives periodic payments and then makes payments in return when a specified event occurs
Select one:
A. II is correct
B. V is correct
C. III is correct
D. I is correct
E. IV is correct
Q5. Any financial asset can be defined as the combination of the following attributes:
I. Risk
II. Frequency of Cash Flows
III. Yield
IV. Liquidity
V. Collateral
Select one:
A. All of the answers are correct
B. Only I, II, III and IV
C. Only II and III
D. Only I, II and III
E. Only I, III and IV
Q6. Financial markets:
I. Facilitate the exchange of financial assets
II. Reveal information about the prices of financial assets
III. Allow for the flows of funds between surplus entities and deficit entities
Select one:
A. Only II is correct
B. II and III are correct
C. Only I is correct
D. I, II, III are correct
E. I and II are correct
Q1. Which of the following are NOT classified as financial assets?
I. Bonds
II. Patents
III. Product equipment
IV. Stocks
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
V. Term deposits
VI. Negotiable certificates of deposit
Select one:
A. II, III and VI.
B. II and VI.
C. III and IV.
D. II and III.
E. II, III, V and VI.
Q2. Which of the following are NOT classified as financial assets?
I. Patents
II. Term deposits
III. Treasury Notes
IV. Inventory and spare parts
V. Negotiable certificates of deposits
VI. Preference shares
Select one:
A. II and IV
B. I,II, and VI
C. I, II, and III
D. I and VI
E. I and IV
Q1. Which of the following are NOT usually an example of a short-term discount security?
I. Term deposits
II. Commercial paper
III. Bank bills
IV. Term loans V. Debentures
VI. Unsecured notes
VII. Negotiable certificates of deposit
Select one:
A. Only IV, V, and VII
B. Only I, IV, and VI
C. Only II, IV, and VI
D. Only I, II, and VI
E. Only IV, and VI
F. Only IV, V and VI
G. Only III, IV, V, VI and VII
H. Only I, IV, V, and VI
Q1. Advantages of financial intermediation include:
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
I. Asset transformation resulting in the range of products with different maturities
II. Liability Management indicating the active management of uses of funds by banks
III. Credit Risk Transformation
IV. Liquidity Transformation measured by the ability of a borrower to obtain more cash in the situation of financial distress
V. Maturity Transformation leading to the ability of savers to hold deposits with banks for extremely long period of time (e.g. 30
years)
VI. Economies of scale
Select one: A. I and II are correct
B. Only IV is correct
C. IV, V, and VI are correct
D. None is correct
E. III and VI are correct
F. All of the answers are correct
G. IV and V are correct
H. Only V is correct
Q2. Advantages of financial intermediation include:
I. Asset Transformation resulting in the range of products to satisfy customers portfolio preferences
II. Liability Management including the active management of uses of funds by banks
III. Credit Risk Transformation
IV. Liquidity Transformation measured by the ability of savers to convert financial instruments into cash
V. Maturity Transformation leading to the ability of intermediaries to offer the range of products with different maturities
VI. Economies of scale
Select one:
A. III and VI are correct
B. All of the answers are correct
C. I and II are correct
D. I, III, IV, V, and VI are correct
E. None is correct
F. Only V is correct
G. IV and V are correct
H. Only IV is correct
Q3. Advantages of financial intermediation include:
I. Asset Transformation resulting in the range of products with different maturities
II. Liability Management indicating the active management of borrower’s credit rusk
III. Complete Mitigation of Credit Risk
IV. Liquidity Transformation measured by the ability of a borrower to obtain more cash in the situation of financial distress
IV. Physical asset Do not derive their value from
a contractual claim
V. Maturity Transformation leading to the ability of savers to hold deposits with banks for extremely long periods of time (e.g. 30
years)
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
VI. Diseconomies of scale
Select one:
A. III and VI are correct
B. Only IV is correct
C. I and II are correct
D. All of the answers are correct
E. IV and V are correct
F. None is correct
G. Only V is correct
H. IV, V, and VI are correct
Q4. Last year a firm’s founder arranged for an investor buys some existing shares in the firm from one of the founder’s family
members. This year the firm listed new shares in the stock exchange through an initial public offering (IPO). The purchase of shares
by the investor last year was a ________ transaction because ____________ .
Select one:
A. “secondary market”, “the transaction occurred prior to the firm’s IPO, which is the only time that a firm ever undergoes a primary
market transaction involving equity”
B. “primary market”, “the transaction involved the flow of funds to the firm”
C. “secondary market”, “the transaction did not involve the original issue of securities”
D. “primary market”, “the transaction occurred prior to the firm’s IPO”
E. “secondary market”, “the transaction was private and did not occur through a public stock exchange”
Q5. In 2009, Mark Zuckerberg arranged for Gary. V. to buy a substantial quantity of shares in Facebook from one of Mark’s family
members. Three years later, in 2012, Facebook listed shares on the NASDAQ stock exchange through an initial public offering (IPO).This private
purchase of shares by Gary. V. in 2009 was a ___________ transaction because ___________ .
Select one:
A. “secondary market”; “the transaction was private and did not occur through a public stock exchange”
B. “secondary market”; “the transaction did not involve the original issue of securities”
C. “secondary market”; “the transaction occurred prior to Facebook’s IPO, which is the only time that a firm ever undergoes a
primary market transaction involving equity”
D. “primary market”; “the transaction involved the flow of funds to Facebook”
E. “primary market”; “the transaction occurred prior to Facebook’s IPO”
Q6. Which of the following are the most likely examples of a retail market transaction?
I. HSBC (a bank) issues new ordinary shares in order to improve its capital base
II. Intel Corporation sells long-term bonds so that it can acquire Advanced Micro Devices (AMD)
III. The Reserve Bank of Australia intervenes in the currency market to improve the value of the Australian dollar
IV. A convenience store borrows from Commonwealth Bank of Australia in order to buy new fridges
Select one:
A. Only II is correct
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
B. Only IV is correct
C. I and IV are correct
D. II and IV are correct
E. I, II, and III are correct
Q7. Which of the following are the most likely examples of a retail market transaction?
I. The government issues Treasury Bonds to fund the purchase of a fleet of new submarines
II. You convert Australian dollars to Danish krone to go on exchange to Copenhagen Business School
III. Apple issues new shares so that it can fund the acquisition of Microsoft
IV. JB HiFi (a chain electronics retailer) issues commercial paper in order to buy its inventory for Q1 2018
Select one:
A. Only II is correct
B. II and IV are correct
C. Only IV is correct
D. II, III and IV are correct
E. None of these are examples of retail market transactions
Q8. Which of the following are the most likely examples of a retail market transaction?
I. A bank issues new ordinary shares in order to improve its capital base
II. A firm sells long-term bonds in order to acquire another firm
III. A central bank buys its domestic currency to try to improve its value
IV. A restaurant borrows from a bank in order to buy new kitchen equipment
Select one:
A. Only IV is correct
B. Only II is correct
C. II and IV are correct
D. I, II and III are correct
E. I and IV are correct
Q9. Which of the following are the most likely examples of a wholesale market transaction?
I. A bank issues new ordinary shares in order to improve its capital base
II. A firm sells long-term binds in order to acquire another firm
III. A central bank buys its domestic currency to try to improve its value
IV. A restaurant borrows from a bank in order to buy new kitchen equipment
Select one:
A. Only II
B. Only IV
C. Only II and III
D. Only I, II and IV are correct
E. Only I, II and III
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
Q10. Which of the following are the most likely examples of a retail market transaction?
I. A government issues bonds to buy military equipment
II. A college student buys Japanese Yen to use on a two-week snowboarding holiday to Japan
III. A firm issues new shares so that it can acquire another firm
IV. An electronics retailer sells commercial paper so it can buy inventory for its stores nationwide
Select one:
A. None of these are examples of retail market transactions
B. Only II is correct
C. II and IV are correct
D. II, III and iV are correct
E. Only IV is correct
Q11. The Reserve Bank of Australia (RBA) sells $500 million worth of its holdings of Australian Commonwealth Government
Securities (AGS) to a foreign central bank. The AGS being sold are short-term, discount Treasury Notes that mature 2 months from
now. This sale is BOTH a ____________ transaction AND a ____________ transaction.
Select one:
A. “primary market”; “wholesale market”
B. “secondary market”; “money market”
C. “retail market”; “money market”
D. “capital market”; “wholesale market”
E. “money market”; “primary market”
Q12. Which of the following is NOT true - a well-functioning financial market:
Select one:
A. Has a selection of financial assets with similar timings of cash flow.
B. Offers increased ease of restructuring portfolios of assets.
C. Has a quick assimilation of information into asset prices.
D. Has a steadily increasing liquidity for most assets.
Q13. Intermediated financial flows can be characterised by:
I. Greater flexibility
II. Intermediaries involved in transactions
III. Diversification of funding sources of a borrower
IV. Increased international profile
V. Low research and transaction costs
Select one:
A. Only I and II
B. Only I and V
C. Only II and V
D. Only III
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
E. Only II and IV
Q14. Direct financial allows a borrower to:
Select one:
A. Match amounts and maturity of investments with lenders
B. Lower search and transaction costs
C. Easily assess a lender’s level of default risk
D. Diversity their funding sources
Q1. Direct financial flows can be characterised by:
I. Greater flexibility
II. Brokers and dealers involved in transactions
III. Diversification of funding sources of a borrower
IV. Increased international profile
V. Low search and transaction costs
Select one:
A. Only II and V are correct
B. Only I, III, IV are correct
C. Only I, II, III and IV are correct
D. Only I and II
E. Only IV and V
F. Only III and IV
Q1. There are _ sectors in the economy available for flow of funds between deficit and surplus units.
Select one:
A. 4
B. 5
C. 1
D. 3
E. 2
Q2. With regards to the Australian economy, the following sectors tend to be more deficit ones:
I. Business corporations
II. Financial Corporations
III. Government sector
IV. Household sector
Select one:
A. I, II and III are correct
B. Only I and III are correct
C. Only I and II are correct
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
D> Only III is correct
Q1. Which of the following statements are true?
I. Money allows economic and financial transactions to be carried our more efficiently than bartering
II. Bartering suffers from the problem of the “double-coincidence of wants”
III. Money increases economic growth by assisting transfers from borrower to investors
Select one:
A. I and III are correct
B. II and III are correct
C. I and II are correct
D. I, II, and III are correct
E. Only I is correct
True or False question
Q1. After the GFC regulators around the world made banks hold 100% reserves up order to escape bank “runs” in future.
Select one:
True
False
Q1. Targeting inflation is the main objective of monetary policy and the direct responsibility of the RBA.
Select one:
True
False
Q2. Targeting inflation is the main objective of fiscal policy and the direct responsibility of the RBA.
Select one:
True
False
Q1. In the case of borrowers default, financial intermediaries are able to cease their obligation in relation to savers.
Select one:
True
False
Q2. Budget of the government, offical FOREX transactions and net sales of corporate securities have a profound impact on the daily liquidity of
the financial system.
Select one:
True
False
Q3. Maturity transformation allows to satisfy demand of surplus units in greater liquidity and, at the same time, to offer products with longer
maturities to borrowers.
Select one:
True
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
False
Q4. Maturity transformation allows to satisfy demand of surplus units in greater liquidity and, at the same time, to offer products
with shorter maturities to borrowers.
Select one:
True
False
Q5. Pooling small amounts of savings from many investors and offering them as loan products to surplus units is an example of Asset
Transformation.
Select one:
True
False
Q6. In capital market it is only possible to trade in existing securities, which are firstly issued in money markets.
Select one:
True
False
Q7. Financial intermediaries are able to perform maturity transformation because:
1) it is highly unlikely that all surplus units will demand deposits at the same time;
2) and because financial intermediaries rely on active assets management.
Select one:
True
False
Q8. Financial intermediaries are able to perform maturity transformation because:
1) it is highly unlikely that all surplus units will demand deposits at the same time;
2) and because financial intermediaries rely on liability management.
Select one:
True
False
Q9. Asset transformation is an example of benefits of direct finance.
Select one:
True
False
Q10. Liquidity position of a bank can be measured by your ability to open a credit account with the bank.
Select one:
True
False
Q11. Liquidity position of a bank can be measured by your ability to withdraw money without a notice from your demand account with the bank.
HD EDU
Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
Select one:
True
False
Q12. Surplus units generally cannot save money when engaging in contracts with financial intermediaries because the latter have to spend a lot on
assessing the creditworthiness of deficit units.
Select one:
True
False
Q13. It is impossible in the financial system to sell existing financial instruments to generate new flows of funds.
Select one:
True
False
Q14. Government can directly impact the funds available to the private sector through the transactions with government securities.
Select one:
True
False
Q15. With regard to asset transformation, financial intermediaries are able to provide deficit units with diverse loan products and at
the same time satisfy the varying preferences of investors offering them a range of deposit products.
Select one:
True
False
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
HD
EDUCATION
FINS 5512
Week 2 Assignment
TUTOR: Kumi
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
1. Which of the following institutions are supervised by APRA?
I. Building societies
II. Commercial banks
III. Credit unions
Select one:
A. Only II
B. Only II and III
C. All of the answers are correct
D. None of them
2. Which of the following balance sheet portfolio items is NOT a bank liability?
I Overdrafts
II Lease finance
III Call deposits
IV Share capital
V Consumer loans
VI Certificates of deposits
VII Term deposits
Select one:
A. I, II and VII
B. I, II, IV and V
C. Only I
D. II, V, and VII
E. I, V and VII
3. CEO and the board should attest that the designed risk management system is efficient in assessing identified risks.
Select one:
True
False
4. Which of the following are NOT the parts of the Pillar 2 principles:
I. Banks should develop internal processes to assess their overall capital adequacy
II. Supervisors should expect banks to operate on the level of minimum regulatory capital ratios
III. Supervisors should review banks internal capital adequacy assessments and strategies
IV. Supervisors should seek to intervene at an early stage to prevent capital falling below the minimum levels required
V. Supervisors should determine the minimum disclosure requirements
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
Select one:
A. V
B. I
C. I, II, III and IV
D. II and V
E. II
5. After applying the regulator-stipulated risk weightings, FanBank has estimated that it has risk-weighted assets of $13.33 billion out of a total
asset figure of $18.84 billion. What is the total capital (T1 + T2) requirement for FanBank ($million) if you assume Basel III requirements?
Select one:
A. $376.80 million
B. $799.80 million
C. $1333.00 million
D. The correct answer is not listed as an option.
E. $847.80 million
6. After applying the regulator-stipulated risk weightings, ParwadaBank has estimated that it has risk-weighted assets of $13.33 billion out of a
total asset figure of $19.13 billion.
How much ($million) must be CET1 capital out of ParwadaBank's total Tier 1 capital requirement ($million) if you assume Basel III requirements?
Select one:
A. The correct answer is not listed here.
B. $599.85 million
C. $860.85 million
D. $799.80 million
E. $1147.80 million
7. Export Finance and Insurance Corporation's function is:
Select one:
A. solely to lend directly to small- or medium-sized businesses involved in export trade
B. to encourage export trade by providing trade insurance and financial services
C. solely to provide insurance for Australian suppliers of goods and services against non-payment
D. solely to guarantee trade finance to small- or medium- sized businesses involved in export trade
8. Project sponsors are the originators of a project; they establish a project company into which they inject large amounts of debt, supported by
collateral security.
Select one:
True
False
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
9. The prudential supervisor of life insurance offices in Australia is the Australian Prudential Regulation Authority (APRA).
Select one:
True
False
10. An investor wants to make an investment to a fund. The investor thinks that he has to sell it very easily so he has some liquidity concerns.
Moreover, he looks for a fund which is investing to instruments that has coupon payments. This fund is:
I)Property trust
II)Mortgage trust
III)Fixed-Interest trust
IV)Listed trust
V)Unlisted trust
Select one:
A. I, IV
B. II,V
C. III
D. V
E. III, IV
11. The advantage of a CD to a bank in the liability management approach is:
Select one:
A. it is a discount security
B. it can be sold quickly in the money market for cash.
C. it is a negotiable instrument.
D. its rate of interest may be adjusted quickly.
13. Tier 1 capital is the highest quality capital which consists of upper and lower Tier 1 capital.
Select one:
True
False
14. FanBank has estimated that it has risk-weighted assets of $9.13 billion out of a total asset figure of $36.75 billion.
What is the total capital (T1 + T2) requirement for FanBank ($million) if you assume Basel III requirements?
Express your answer in millions of dollars to two decimal places. Do not write "$" and do not write "millions".
Answer: 730. 40
15. In the standardised approach of estimating credit risk in Pillar 1 of Basel III, banks:
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
Select one:
A. provides its own estimates for all interest rate risk items.
B. estimate its own probability of default and effective maturity, while regulator-defined estimates for other credit risk components are used.
C. assign each balance sheet assets and each off-balance sheet item a risk weight that is derived from either an approved external ratings
agency or a weight specified by the regulator.
D. provides its own estimates for all credit risk items.
16. Which of the following best describes a finance company?
Select one:
A. A financial institution that aims to achieve high investment returns on its invested funds by using exotic financial products
B. A mutual fund managed by a financial intermediary that specialises in investing in short-term debt instruments
C. A financial institution that pools funds for individuals and then invests them in both the money and capital markets
D. A financial institution whose function is to provide cash income for employees of corporations or governments after they retire
E. A financial institution that sells unsecured notes and uses the funds to make loans to household borrowers and companies
17. Which of the following statements about project-finance on a non-recourse basis is true?
I. Project finance loans are provided to the project sponsors who then fund the project under development.
II. Project financing is typically provided by a single lender due to the small scale of most projects relative to traditional lending.
III. Project finance loans are secured by the assets and operations of the project’s sponsors.
Select one:
A. None of the listed statements are true.
B. I and II
C. I
D. I and III
E. III
18. In Australia, self-managed superannuation funds or SMSFs are not a popular choice among investors.
Select one:
True
False
19. Cash management trusts provide retail savers with an investment opportunity that returns a yield that is derived mainly from yields in the
wholesale money markets.
Select one:
True
False
20. Which of the following is NOT associated with the purpose of regulating financial institutions?
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
Select one:
A. Lowering the cost of funds
B. Maintaining the soundness and stability of the financial system
C. Providing stability of the money supply
D. Directing flow of funds to priority areas
21. Debenture is an unsecured bond issued by corporations.
Select one:
True
False
22. ASIC requires banks to maintain a minimum holding of 9 percent of its liabilities in highly liquid assets such as cash and money market
securities approved by APRA.
Select one:
True
False
23. Which of the following statements regarding capital adequacy requirements is incorrect?
Select one:
A. Existing credit-risk guidelines are extended to include market risk arising from bank's trading activities.
B. Tier 2 capital is divided into upper and lower Tier 2 parts.
C. Regulators focus on credit risk, market risks, operational risk and type of capital held.
D. Eligible Tier 1 capital must constitute at least 70% of a bank's capital base.
24. SwanBank has assets of $17.69 billion. After applying the regulator-stipulated risk weightings, the institution estimates total risk-weighted
assets of $13.79 billion.
Assuming Basel III requirements, what is the minimum Tier 1 capital (in $million) required out of SwanBank's total capital requirement?
Select one:
A. The correct answer is not listed here.
B. $620.55 million
C. $1061.40 million
D. $1103.20 million
E. $796.05 million
25. After applying the regulator-stipulated risk weightings, FanBank has estimated that it has risk-weighted assets of $13.81 billion out of a total
asset figure of $24.28 billion.
What is the total capital (T1 + T2) requirement for FanBank ($million) if you assume Basel III requirements?
Select one:
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
A. The correct answer is not listed.
B. $1092.60 million
C. $828.60 million
D. $1381.00 million
E. $1104.80 million
26. Finance companies generally:
Select one:
A. issue shares and use the proceeds to buy bonds.
B. raise funds in financial markets to lend to households and companies.
C. raise funds from banks to lend to households and companies.
D. issue bonds and use the proceeds to buy shares.
27. Which of the following statements about project-finance on a non-recourse basis is true?
I. Project financing is typically provided by a single lender due to the small scale of most projects relative to traditional lending.
II. Project finance loans are secured by the assets and operations of the project.
III. Project finance loans are provided to a separate legal entity that is established for the purpose of the project.
Select one:
A. I and III
B. II
C. I
D. I, II, and III
E. II and III
28. Self-managed superannuation funds are managed and operated by large financial institutions.
Select one:
True
False
29. From the point of view of the unit holder, units in a listed property trust tend to be more liquid than units in an unlisted property trust.
Select one:
True
False
30. Which of the following about a bank's activities is incorrect?
Select one:
A. bank's loans are its assets.
B. Off-balance-sheet business items are contingent liabilities.
C. Liability management is the management of a bank's loans.
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
D. Banks typically have high credit ratings.
32. Which of the following statements about market-rate-related items such as forward-rate agreements is incorrect?
Select one:
A. They are generally called off-balance-sheet items
B. They are liabilities that may require an outflow of funds for a bank
C. They are included in the BIS capital-adequacy guidelines
D. They form a small part of banks' OBS business
33. Which of the following is NOT one of the principal aims of Basel III?
I Bring the exposures from all off-sheet balance sheet transactions to accounts
II Improve the risk management and governance of banks
III Attempting to align economic and regulatory capital more closely to reduce the scope for regulatory arbitrage.
IV Ensuring that credit risk, operational risk and market risk are quantified based on data and formal techniques
V Strengthen the level of transparency and disclosure by banks
VI To boost the banking sector’s ability to absorb shocks arising from both financial and economic stress
Select one:
A. II, V, VI
B. I, III, and IV.
C. Only I.
D. III, IV, and VI.
E. II, III, V, and VI.
34. Basel III was developed in 2010 to enhance the risk coverage of the Basel II framework by enhancing capital adequacy requirements. In view
of strengthening capital base, which one of the following does not serve the purpose:
Select one:
A. Increase minimum Tier 1 capital to 6% of risk-weighted assets by 2015.
B. Increase minimum Common Equity Tier 1 capital to 4.5% of risk-weighted assets by 2015.
C. Tighter definition of Common Equity Tier 1 capital to include only common stocks, retained earnings, and other comprehensive income.
D. Minimum net stable fund ratio (NSFR) to ensure that assets at greater risk of suffering a one-year stress event are matched with
longer term sources of financing.
35. After applying the regulator-stipulated risk weightings, Parwada Bank has estimated that it has risk-weighted assets of $9.65 billion out of a
total asset figure of $21.38 billion.
What is the minimum Tier 1 capital (in $million) required out of Parwada Bank's total requirement if you assume Basel III requirements?
Select one:
A. $1282.80 million
B. The correct answer is not listed here.
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
C. $962.10 million
D. $772.00 million
E. $434.25 million
37. A fund that aims to achieve high investment returns by using exotic financial products is called a:
Select one:
A. a hedge fund.
B. project fund.
C. money market fund.
D. leverage fund.
41. Alternatives to the usual source of long-term bank funds that have the characteristics of both debt and equity are called:
Select one:
A. subordinated notes
B. transferable certificates of deposit
C. secured debentures
D. promissory notes
42. Which of the following categories represents the most significant proportion of total market-rate-related off-balance-sheet business of the
banks?
Select one:
A. Interest rate futures
B. Foreign exchange contracts
C. Interest rate swaps
D. Currency swap agreements
43. Basel II requires that at least half of the risk-based capital ratio must take Tier 1 capital that is at least 4.5%.
Select one:
True
False
44. Swan Bank has assets of $20.76 billion. After applying the regulator-stipulated risk weightings, the institution estimates total risk-weighted
assets of $12.31 billion.
Assuming Basel III requirements, what is the minimum Tier 1 capital (in $million) required out of Swan Bank's total capital requirement?
Select one:
A. $984.80 million
B. The correct answer is not listed here.
C. $1245.60 million
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
D. $553.95 million
E. $934.20 million
45. Parwada Bank has estimated that it has risk-weighted assets of $12.73 billion out of a total asset figure of $29.08 billion.
How much ($million) must be CET1 capital out of Parwada Bank's total Tier 1 capital requirement if you assume Basel III requirements?
Express your answer in millions of dollars to two decimal places. Do not write "$" and do not write "millions".
Answer: 572.85
47. Investment banks are conservative organisations that only adopt financial innovations once they have been tried and tested.
Select one:
True
False
48. The superannuation fund that involves the amount of benefit paid out on retirement being calculated by a formula based at the time when a
person joined the fund is called:
Select one:
A. a defined benefit fund.
B. an accumulation fund.
C. a defined termination fund.
D. a defined payout fund.
49. Which of the following best describes a managed fund?
Select one:
A. A financial institution that pools funds for individuals and then invests them in both the money and capital markets
B. A financial institution that sells unsecured notes and uses the funds to make loans to household borrowers and companies
C. A mutual fund managed by a financial intermediary that specialises in investing in short-term debt instruments
D. A financial institution whose function is to provide cash income for employees of corporations or governments after they retire
E. A financial institution that aims to achieve high investment returns on its invested funds by using exotic financial products
51. Which of the following about bank lending to government is incorrect?
Select one:
A. Banks invest in government securities because they are a source of liquidity
B. Securities issued by governments are usually regarded as low risk.
C. Banks invest in T-notes because they provide short-term income streams.
D. Government securities enable a bank to manage the maturity structure of its balance sheet.
52. Banks are required to report only large overnight FOREX exposures.
Select one:
True
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
False
54. Swan Bank has assets of $30.12 billion. The bank estimates total risk-weighted assets of $13.16 billion.
Assuming Basel III requirements, how much ($millions) must be maximum CET1 capital with additional buffers out of Swan Bank's total Tier 1
capital requirement?
Express your answer in millions of dollars to two decimal places. Do not write "$" and do not write "millions".
Answer: 1579.20
55. FanBank has assets of $24.97 billion. After applying the regulator-stipulated risk weightings, the institution estimates total risk-weighted assets
of $10.37 billion.
Assuming Basel III requirements, what is the total capital (T1 + T2) requirement for FanBank ($million)?
Select one:
A. $1037.00 million
B. $829.60 million
C. $1123.65 million
D. $622.20 million
E. The correct answer is not listed.
56. Which of the following liability types represents a main source of funding for finance companies?
Select one:
A. Debentures and unsecured notes
B. Fixed-term deposits
C. Borrowings from non-residents (overseas)
D. Bills of exchange
57. Which of the following statements about project-finance on a non-recourse basis is true?
I. Project financing is typically provided by a single lender due to the small scale of most projects relative to traditional lending.
II. Project finance loans are secured by the assets and operations of the project.
III. Project finance loans are provided to a separate legal entity that is established for the purpose of the project.
Select one:
A. I
B. II
C. I and III
D. I, II, and III
E. II and III
58. In Australia, the prudential supervisor of life insurance offices is:
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
Select one:
A. ASIC.
B. APRA.
C. the Reserve Bank of Australia.
D. PSLI.
59. An investor who is not interested in regular income stream but wants an increase in capital amount should invest in:
Select one:
A. capital stable fund
B. balanced growth fund
C. managed growth fund
D. capital guaranteed fund
60. Foreign currency liabilities have increased in importance as a source of funds for Australian banks.
Which of the following statements is NOT a major reason?
i. deregulation of the foreign exchange market
ii. diversification of funding sources
iii. demand from multinational corporate clients
iv. internationalisation of global financial markets
v. avoidance of the non-callable deposit prudential requirement
vi. expansion of banks' asset-base denominated in foreign currencies
Select one:
A. v
B. ii
C. i
D. All of the given answers are correct.
61. Which of the following categories represents the most significant proportion of total off-balance-sheet business of the banks?
Select one:
A. Trade and performance-related items
B. Direct credit substitutes
C. Commitments
D. Market-rate-related transactions
62. General reserves are typically included into Tier 1 Capital according to Basel II.
Select one:
True
False
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
63. Which of the following is not one of the principal aims of Basel III:
Select one:
A. Boost the banking sector's ability to absorb shocks arising from financial and economic stress
B. Improve risk management and governance
C. Bring all off-balance sheet exposures to accounts
D. Strengthen banks' transparency and disclosure.
64. After applying the regulator-stipulated risk weightings, FanBank has estimated that it has risk-weighted assets of $9.15 billion out of a total
asset figure of $18.71 billion.
What is the total capital (T1 + T2) requirement for FanBank ($million) if you assume Basel III requirements?
Select one:
A. $549.00 million
B. $374.20 million
C. $915.00 million
D. $841.95 million
E. The correct answer is not listed as an option.
65. A ________ is a financial intermediary that deals mainly in the flow of funds between members. Membership is generally derived from some
common bond.
Select one:
A. savings bank
B. superannuation fund
C. credit union
D. merchant bank
66. Which of the following statements about project-finance on a non-recourse basis is true?
I. Project financing is typically provided by a single lender due to the small scale of most projects relative to traditional lending.
II. Project finance loans are secured by the assets and operations of the project.
III. Project finance loans are provided to a separate legal entity that is established for the purpose of the project.
Select one:
A. I
B. I, II, and III
C. II
D. I and III
E. II and III
67. A whole-of-life insurance policy includes a risk component and an investment component, thus accumulating bonuses and a surrender value.
Select one:
True
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
False
72. Which of the following are NOT the parts of Basel III framework:
I. Pillar 1 consisting of Credit Risk, Operational Risk and Default Risk components
II. Value at Risk models as a standardised approach to Credit Risk
III. Supervisory Review of solvency
IV. Market Discipline requirements encouraging institutions to disclose relevant information only to its shareholders
Select one:
A. All options are the parts of Basel III framework
B. Only I, III and IV
C. Only I
D. All of the options are not the parts of Basel III frameworks
E. Only II and III
73.FanBank has estimated that it has risk-weighted assets of $12.70 billion out of a total asset figure of $18.54 billion.
What is the total capital (T1 + T2) requirement for FanBank ($million) if you assume Basel III requirements?
Express your answer in millions of dollars to two decimal places. Do not write "$" and do not write "millions".
Answer:1016000
74. After applying the regulator-stipulated risk weightings, ParwadaBank has estimated that it has risk-weighted assets of $14.49 billion out of a
total asset figure of $18.15 billion.
What is the minimum Tier 1 capital (in $million) required out of ParwadaBank's total capital requirement if you assume Basel III requirements?
Select one:
A. $1159.20 million
B. $816.75 million
C. $652.05 million
D. The correct answer is not listed here.
E. $1089.00 million
77. Which of the following statements regarding life insurance companies is true?
Select one:
A. None of the other statements about life insurance companies is true.
B. As outflows of funds for life insurance offices are relatively difficult to predict, they
C. overweight the level of short-maturity securities in their portfolios due to the matching principle.
D. As inflows of funds for life insurance offices are relatively easy to predict, they have very little need for longer-term assets in their portfolios.
E. Life insurance companies invest primarily in government bonds and tend to avoid equity-related investments.
78. Which of the following best describes a cash management trust?
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
Select one:
A. A financial institution that sells unsecured notes and uses the funds to make loans to household borrowers and companies
B. A financial institution that aims to achieve high investment returns on its invested funds by using exotic financial products
C. A mutual fund managed by a financial intermediary that specialises in investing in short-term debt instruments
D. A financial institution that pools funds for individuals and then invests them in both the money and capital markets
E. A financial institution whose function is to provide cash income for employees of corporations or governments after they retire
80. The interest rate BBSW refers to:
Select one:
A. the reference rate for medium-term funding.
B. a rate calculated each day from the offer rate of the last daily sale in the bank bill market.
C. the average mid-point of the bid and offer rates in the bank bill market.
D. the bank bill security rate.
81. Off-balance-sheet transaction can be either market or non-market-related.
Select one:
True
False
82. A standard eligible mortgage is defined as a residential mortgage where an authorised deposit taking institution has:
I. prior to loan approval and as part of the loan origination and approval process, documented, assessed and verified the ability of the borrowers to
meet their repayment obligation
II. valued any residential property offered as security
III. established that any property offered as security for the loan is readily marketable
Select one:
A. II and III
B. All of the options
C. I and II
D. I and III
E. None of the options
83.OhBank is a small Australian bank. The government regulator has provided OhBank with the following table of risk weights of different
residential mortgage types:
STANDARD ELIGIBLE MORTGAGES NON-STANDARD ELIGIBLE MORTGAGES
LVR (%) No LMI At least 40% insured with LMI No LMI At least 40% insured with LMI
0-60 35% 35% 50% 35%
60.01-80 35% 35% 75% 50%
80.01-90 50% 35% 100% 75%
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
90.01-100 75% 50% 100% 75%
>100.01 100% 75% 100% 100%
"LMI" = Lenders Mortgage Insurance
You have the following formation about some home loans that OhBank Bank issued recently:
• A loan of $760,000 to Mr Singh who purchased an apartment for $800,000. Mr Singh took out lenders mortgage insurance ("LMI") on the full
value of the property.
• A loan to Mr & Mrs Huang for a house at a purchase price of $3.2 million. They chose not to take out LMI. They put down a deposit of $0.8
million toward the purchase price.
• A loan to Bad Luck Brian, who borrowed 85% of his house's $800,000 purchase price and obtained full LMI. Since taking possession of the
house, Brian's house has been exposed to a toxic chemical leak. OhBank's independent valuer estimates this will cause Brian's house to fall in
value by 95%. In addition, they estimate the property will not be able to be sold for 10 years.
Assuming Basel III requirements, what is the minimum amount of total capital (T1 + T2) required to support these 3 mortgages?
Select one:
A. $0.2768 million
B. $0.1344 million
C. $0.2061 million
D. $0.1072 million
E. $0.1717 million
F. $0 million
G. $0.3072 million
H. $0.1520 million
84. SwanBank has assets of $21.38 billion. After applying the regulator-stipulated risk weightings, the institution estimates total risk-weighted
assets of $9.65 billion.
Assuming Basel III requirements, what is the minimum Tier 1 capital (in $million) required out of SwanBank's total capital requirement?
Select one:
A. $1282.80 million
B. $962.10 million
C. The correct answer is not listed here.
D. $772.00 million
E. $434.25 million
86.Under which of the following situations would Company X be unlikely to employ the services of an investment bank?
I Another company has expressed interest in acquiring Company X, and Company X wants to receive the highest price possible
II Company X wants to raise funds through the sale of new shares at a guaranteed price per share
III Company X wants to execute a hostile takeover of another company
IV Company X wants a new fund manager for its employees’ superannuation investments
V Company X wants to divest some of its assets into a separate listed entity
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
Select one:
A. Only I
B. II and IV
C. I, III, and V
D. I and IV
E. Only IV
F. I and II
87. Which of the following statements about superannuation funds is false?
Select one:
A. None of the other four statements regarding superannuation is false.
B. A defined benefit superannuation fund involves the calculation of its payout amount through a formula based at the time that the payee
entered the fund.
C. An accumulation superannuation fund has any shortfall in its promised payout guaranteed by the Commonwealth government,
while any excess funds in the plan above the promised amount also belong to the government.
D. A defined benefit fund obliges the employer to make good on any shortfall in the fund when the benefit is to be paid out.
E. Rather than having their superannuation entitlements taxed as ordinary income, an early retiree has the ability to hold their eligible
superannuation funds in a rollover scheme that keeps their funds in a taxation environment that is more favourable.
90. With regard to bank bills, the bill is sold at a discount:
Select one:
A. because the bank needs to find a buyer.
B. to encourage buyers.
C. because the difference between the initial price and the final sale price is the return to the holder.
D. because the bank pays the face value of the funds to the borrower at maturity.
91.Banks are required to report only large overnight FOREX exposures.
Select one:
True
False
93. After applying the regulator-stipulated risk weightings, Oh Bank has estimated that it has risk-weighted assets of $12.65 billion out of a total
asset figure of $20.65 billion.
How much ($million) must be CET1 capital out of Oh Bank's total Tier 1 capital requirement ($million) if you assume Basel III requirements?
Select one:
A. $759.00 million
B. The correct answer is not listed here.
C. $1239.00 million
D. $929.25 million
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
E. $1012.00 million
94. OhBank is a small Australian bank. The government regulator has provided OhBank
with the following table of risk weights of different residential mortgage types:
STANDARD ELIGIBLE MORTGAGES NON-STANDARD ELIGIBLE MORTGAGES
LVR (%) No LMI At least 40% insured with LMI No LMI At least 40% insured with LMI
0-60 35% 35% 50% 35%
60.01-80 35% 35% 75% 50%
80.01-90 50% 35% 100% 75%
90.01-100 75% 50% 100% 75%
>100.01 100% 75% 100% 100%
"LMI" = Lenders Mortgage Insurance
You have the following formation about some home loans that Oh Bank Bank issued recently:
• A loan of $570,000 to Mr Singh who purchased an apartment for $600,000. Mr Singh took out lenders mortgage insurance ("LMI") on the full
value of the property.
• A loan to Mr & Mrs Huang for a house at a purchase price of $2.9 million. They chose not to take out LMI. They put down a deposit of $0.725
million toward the purchase price.
• A loan to Bad Luck Brian, who borrowed 85% of his house's $700,000 purchase price and obtained full LMI. Since taking possession of the
house, Brian's house has been exposed to a toxic chemical leak. Oh Bank's independent valuer estimates this will cause Brian's house to fall in
value by 95%. In addition, they estimate the property will not be able to be sold for 10 years.
Assuming Basel III requirements, what is the minimum amount of total capital (T1 + T2) required to support these 3 mortgages?
Select one:
A. $0.1822 million
B. $0 million
C. $0.2444 million
D. $0.1134 million
E. $0.2672 million
F. $0.0907 million
G. $0.1506 million
H. $0.1313 million
96. The main difference between project finance and other forms of lending is:
Select one:
A. the project company, which is set up as a separate legal entity, relies heavily on venture capitalists for equity funding
B. the lenders have a claim on the assets of the project as well as the sponsors
C. lenders base their participation on expected future cash flows and assets of the project
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
D. lenders take a major equity stake in the project
97. Which of the following statements about superannuation funds is false?
Select one:
A. A defined benefit superannuation fund involves the calculation of its payout amount through a formula based at the time that the payee
entered the fund.
B. None of the other four statements regarding superannuation is false.
C. An accumulation superannuation fund maintains constant superannuation payouts irrespective of the strength of the performance of the
plan’s investments.
D. A defined benefit fund obliges the employer to make good on any shortfall in the fund when the benefit is to be paid out.
E. Rather than having their superannuation entitlements taxed as ordinary income, an early retiree has the ability to hold their eligible
superannuation funds in a rollover scheme that keeps their funds in a taxation environment that is more favourable.
98. An investor is considering different methods of investment, including a public unit trust. Which of the following is NOT a function of a public
unit trust?
Select one:
A. Acting as a vehicle for the pooling of investor funds.
B. Locking in a trust unit price by listing on the Australian Securities Exchange.
C. Providing a level of investor protection though the appointment of a trustee.
D. Allowing small investors access to larger investment opportunities.
99. Which of the following is NOT associated with Australian regulatory structure?
I. Regulation of market integrity and consumer protection by ASIC
II. Supervision of competition policy by Australian Competition and Consumer Committee(ACCC)
III. Maintaining the soundness and stability of the financial system by RBA
IV. Prudential regulation of authorised deposit taking institutions by APRA and emergency liquidity support of the overall financial system together
with ensuring solvency of individual financial institutions by RBA
Select one:
A. Only II
B. Only IV
C. Only I and III
D. Only II and IV
102. Which of the following are the parts of the Pillar 2 principles:
I. Banks should have developed internal processes to assess their overall capital adequacy
II. Supervisors should expect banks to operate above minimum regulatory capital ratios
III. Supervisors should review banks internal capital adequacy assessments and strategies
IV. Supervisors should seek to intervene at an early stage to prevent capital falling below the minimum levels required
V. Supervisors should determine the minimum disclosure requirements
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
Select one:
A. II and V
B. II
C. I
D. I, II, III and IV
E. V
103. After applying the regulator-stipulated risk weightings, ParwadaBank has estimated that it has risk-weighted assets of $13.00 billion out of a
total asset figure of $21.86 billion.
What is the minimum Tier 1 capital (in $million) required out of ParwadaBank's total capital requirement if you assume Basel III requirements?
Select one:
A. The correct answer is not listed here.
B. $585.00 million
C. $1311.60 million
D. $1040.00 million
E. $983.70 million
104. FanBank has assets of $30.78 billion and estimates total risk-weighted assets of $6.89 billion.
Assuming Basel III requirements, what is the total capital (T1 + T2) requirement for FanBank ($million)?
Express your answer in millions of dollars to two decimal places. Do not write "$" and do not write "millions".
Answer: 551200000
107. In an accumulation superannuation fund:
Select one:
A. superannuation income varies depending on how well the plan's investments have performed
B. if the funds in the plan exceed the promised amount, the excess remains with the issuing firm or institution
C. all of the earnings' taxes are paid by the employer
D. the employee is promised an allocated benefit based on earnings and years of service
108. Which of the following statements is FALSE?
Select one:
A. Capital guaranteed funds provide a risk-free investment.
B. Hedge fund is a type of managed fund.
C. Trust deed is the document detailing the sources, uses and disbursement of funds in a trust
D. The responsible entity is both the trustee and the manager of the trust fund.
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
110.If you take out a mortgage from a bank, the mortgage is a/an:
Select one:
A. liability to both you and the bank.
B. asset to both you and the bank.
C. liability to the bank and an asset to you.
D. liability to you and an asset to the bank.
112.The risk-weighted amount of an off-balance-sheet transaction is calculated by:
I. Multiplication of a risk weight by loan-to-valuation ratio.
II. Multiplication of credit equivalent amount by the risk weight referring to the counterparty or type of asset.
III. Conversion of the notional amount of the off-balance-sheet transaction into a credit equivalent.
Select one:
A. I and II
B. Only II
C. II and III
113.FanBank has estimated that it has risk-weighted assets of $7.95 billion out of a total asset figure of $18.99 billion.
What is the total capital (T1 + T2) requirement for FanBank ($million) if you assume Basel III requirements?
Express your answer in millions of dollars to two decimal places. Do not write "$" and do not write "millions".
Answer: 0.636
116.The main difference between project finance on a non-recourse basis and other forms of lending is:
Select one:
A. the project company, which is set up as a separate legal entity, relies heavily on lenders for equity funding
B. the sponsor provides majority funding in the project
C. the lenders have a claim on the assets of the project as well as on the sponsors
D. a project company is usually established as a separate legal entity and lenders rely heavily on expected future cash flow.
117.Which of the following statements about superannuation funds is false?
Select one:
A. A defined benefit fund obliges the Commonwealth government to make good on any shortfall in the fund when the benefit is to be
paid out.
B. An accumulation superannuation fund varies its superannuation income depending on the strength of the performance of the plan’s
investments.
C. Rather than having their superannuation entitlements taxed as ordinary income, an early retiree has the ability to hold their eligible
superannuation funds in a rollover scheme that keeps their funds in a taxation environment that is more favourable.
D. A defined benefit superannuation fund involves the calculation of its payout amount through a formula based at the time that the payee
entered the fund.
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
E. None of the other four statements regarding superannuation is false.
118.The main feature of cash management trusts is:
Select one:
A. they allow individuals to access the money markets.
B. they provide liquidity and access to funds.
C. that many are associated with stockbrokers and the electronic purchasing and selling of securities by investors.
D. all of the given answers.
123. After applying the regulator-stipulated risk weightings, Fan Bank has estimated that it has risk-weighted assets of $13.81 billion out of a total
asset figure of $24.28 billion.
What is the total capital (T1 + T2) requirement for Fan Bank ($million) if you assume Basel III requirements?
Select one:
A. $1381.00 million
B. $485.60 million
C. $828.60 million
D. The correct answer is not listed as an option.
E. $1092.60 million
128.The financial institution that pools funds for individuals and then invests them in both the money and capital markets is a：
Select one:
A. savings bank.
B. credit union.
C. investment bank.
D. managed fund.
131. With regard to Basel III, BIS introduced a capital conservation buffer and, as a result, increased maximum CET1 capital up to 4.5%.
Select one:
True
False
136. Which of the following statements with regard to life insurance companies is true?
Select one:
A. Life insurance companies are more likely to acquire short-term assets than long-term securities, for liquidity reasons.
B. The Reserve Bank of Australia regulates life insurance companies.
C. Life insurance companies are more likely to acquire long-term assets because their liabilities are long-term in nature.
D. Life insurance companies tend to acquire short-term assets because they have relatively predictable inflows and outflows.
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
137. When a bank raises funds in the international markets to fund new lending growth and hedges the exposure of the raised debt to interest rate
risk with the help of derivatives, it is involved in:
Select one:
A. asset management
B. off-balance-sheet management
C. derived management
D. liability management
139. Match OBS services with corresponding examples:
A performance bond provided by the bank to UNSW on behalf of a construction firm bidding to upgrade student learning spaces around the
Quadrangle.
Answer 1
Trade and performance related items
A credit card limit provided by the bank that has been fully drawn down and used by the card holder.
Answer 2
Not a contingent liability
A standby letter of credit provided by the bank on behalf of a U.S.-based firm purchasing a gas turbine from a Swiss manufacturer, with the bank
making payment only in the event that the U.S. firm fails to.
Answer 3
Direct credit substitutes
An underwriting agreement obliging a bank to buy unsubscribed shares of the company at the IPO.
Answer 4
Commitments
A credit derivative provided by the bank to a hedge fund, whereby the bank will make a compensation payment to the holder if the Greek
government defaults on their debt.
Answer 5
Foreign exchange, interest rate and other market rate related contracts
141. ZeinBank has assets of $28.85 billion. The bank estimates total risk-weighted assets of $12.08 billion.
Assuming Basel III requirements, what is the minimum Tier 1 capital (in $million) required out of ZeinBank's total capital requirement?
Express your answer in millions of dollars to two decimal places. Do not write "$" and do not write "millions".
Answer: 72.48
142. Export finance corporations assist corporations to import foreign goods from the international markets at a favourable exchange rate.
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
Select one:
True
False
143. Which of the following are potential components of the due diligence process in a M&A transaction?
Select one:
A. All of the statements listed here are components of due diligence.
B. Verifying that the target firm does not contain any hidden tax or legal liabilities that would make the deal unprofitable
C. Inspecting the revenue streams reported in the accounting statements of the target firm for signs of manipulation.
D. Analysing whether the target firm’s existing customer contracts are likely to be continued/renewed
E. Confirming that the target firm has the rights to all intellectual property used in all core aspects of its business model
146. Which of the following statements are NOT FALSE in regard to Basel III liquidity standards:
I. LCR = HQLA divided by net cash inflows over a 30 day period. LCR is required to be maintained of at least 100%
II. 60% of HQLA must be of Level 1 funds, which can be easily converted to cash
III. NSFR aims to enhance short-term stability by requiring financial institutions to fund their activities with stable sources of money-market
funding
Select one:
A. All of the options are false
B. II
C. I and II
D. I
E. All of the options are true
150. SwanBank has assets of $20.50 billion. After applying the regulator-stipulated risk weightings, the institution estimates total risk-weighted
assets of $14.82 billion.
Assuming Basel III requirements, what is the minimum Tier 1 capital (in $million) required out of SwanBank's total capital requirement?
Select one:
A. $666.90 million
B. $1230.00 million
C. $1185.60 million
D. $922.50 million
E. The correct answer is not listed here.
151. FanBank has assets of $29.03 billion and estimates total risk-weighted assets of $12.41 billion.
Assuming Basel III requirements, what is the total capital (T1 + T2) requirement for FanBank ($million)?
Express your answer in millions of dollars to two decimal places. Do not write "$" and do not write "millions".
Answer:992.80
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
153. Which of the following statements about project-finance on a non-recourse basis is true?
I. Project financing is typically provided by a single lender due to the small scale of most projects relative to traditional lending.
II. Project finance loans are provided to the project sponsors who then fund the project under development.
III. Project finance loans are secured by the assets and operations of the project.
Select one:
A. I
B. III
C. II
D. I, II and III
E. None of the listed statements are true.
155. All of the following are categories of managed fund EXCEPT:
Select one:
A. public unit trusts
B. superannuation funds
C. hedge funds
D. exchange traded funds
156. Which of the following is/are not typically associated with hedge funds?
I Use of minimal financial leverage
II Charging high management fees
III Use of a limited partnership ownership structure
IV Use of short-selling
V Use of closed-ended fund structure
VI Use of derivative instruments
VII Investment in highly illiquid assets
Select One
A. II and VII
B. I, V and VII
C. II, III and VI
D. IV, VI, and VII
E. I, II, III and VII
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
HD
EDUCATION
FINS 5512
Week 3 Assignment
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
TUTOR: Kumi
1. When the owners of a company hire full-time executives to be responsible for the day-to-day decisions, this _____ the _____ problem.
Select one:
a. lessens, shareholder-lender
b. lessens, managers-shareholders
c. brings on, managers-shareholders
d. brings on, shareholder-lender
2. Because of their _____ liability, corporate stockholders are more interested in chances of _____.
Select one:
a. limited; failure than success
b. limited; success than failure
c. unlimited; success than failure
d. unlimited; failure than success
3. An issue of new shares to the public must have:
Select one:
a. a prospectus attached.
b. an underwriter.
c. detailed documents called covenants.
d. a memorandum of understanding in place.
4. If a stock exchange provides a market for the trade of specific share market related derivative products, which of the following options is
generally incorrect?
Select one:
a. The derivative products provide an investment tool to take advantage of future share price movements.
b. The derivative products facilitate the management of risk within an existing share portfolio.
c. The derivative products provide protection against adverse movements in share prices.
d. The derivative products remove the share price volatility of stocks listed on the stock exchange.
5. The major supervisors of the Australian share market are:
Select one:
a. RBA and ASX.
b. ASIC and ASX.
c. APRA and ASX.
d. EFIC and ASIC.
6. Problems associated with calculating an internal rate of return include:
Select one:
a. negative cash flows during the project's lifetime.
b. choosing one project from two or more projects.
c. timing of cash flows.
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
d. All of the given answers.
7. Prudent financial management would dictate that a company should not take on more debt than can be serviced, under pessimistic conditions,
without jeopardy to thecompany's existence. Therefore, a proportion of total funding should be provided byequity participants. Which of the
following main criteria would be determinants of the appropriate ratio of debt to equity?
I Limit imposed by lenders
II Norm in the industry
III History of the ratio for the firm
IV Company's capacity to service debt
V Maximisation of shareholder wealth
Select one:
a. I, II, III, IV
b. II, III, V
c. II, III, IV, V
d. III, IV, V
8. Financing for high-risk companies is often in the form of:
Select one:
a. limited liability shares.
b. no-liability shares.
c. limited instalment receipts.
d. contributing shares.
9. A company is advised to issue convertible notes. They are advised of the conditions applicable to the convertible note issue. Which of the
following conditions is incorrect?
Select one:
a. The holder of the note has the right to convert the note into preference shares.
b. Notes are generally available on a pro-rata entitlement to shareholders.
c. Entitlements to convertible notes are generally not renounceable.
d. Notes are usually issued at a price close to the current share price at the time of issue.
10.A dividend reinvestment plan generally _______ on the security.
Select one:
a. decreases the return
b. increases the return
c. has no effect on the return
d. has an uncertain effect
11.The owners of _______ face limited liability.
Select one:
a. listed and unlisted corporations only
b. unlisted corporations only
c. listed corporations only
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
d. listed corporations and partnerships only
e. None of the above and/or below
12.Which of the following about a corporation is incorrect?
Select one:
a. The executive management group of a corporation is responsible to its board of directors.
b. Under corporation law the board of directors of a corporation must report to its shareholders.
c. The directors of a corporation have a legal responsibility to make sure the corporation acts in the shareholders' best interests.
d. The shareholders of a publicly listed small corporation have the right to participate in the day-to-day management of the business.
14. The reason for the requirement by the ASX for companies to abide by the Corporations Act 2001 (Cwlth) is to:
Select one:
a. Ensure that there will be an active market in the company's shares.
b. Maintain investor confidence in the company's creditworthiness.
c. Ensure a minimum number of shareholders in the company.
d. Ensure that information which may have a material effect on the share price provided to the market.
15. The corporate bond that pays a variable rate of interest based on interest rate changes for a reference rate is a/an:
Select one:
a. adjustable note.
b. convertible note.
c. floating rate note.
d. straight corporate bond.
16. Increasing the financial leverage of a company will _______ shareholders' expected returns and ______ their risk.
Select one:
a. increase; not affect
b. increase; decrease
c. increase; increase
d. decrease; increase
17. Ordinary shares in limited liability companies are the major source of external equity funding for Australian companies. Which of the following
statements regarding the issuance of ordinary shares by a newly listed limited liability company is incorrect?
Select one:
a. Shares may be issued on a fully paid or partly paid basis.
b. A holder of instalment receipts only has to pay the remaining amount when due or called.
c. Share price is determined with reference to a range of variable factors.
d. No liability company can issue shares only on a fully paid basis because of the risk.
18.A company may raise additional equity capital through:
Select one:
a. a rights issue.
b. a placement.
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
c. a dividend reinvestment scheme.
d. all of the given answers.
19.You bought 2,000 common shares of an Australian publicly-listed company, OzCpy, which has 200,000,000 shares outstanding. The share price
was $1 per share. Which of the following statement(s) would apply to you?
Select one:
a. Your maximum loss of buying those shares is around $2,000
b. You are one of the company's shareholders
c. You are one of the actual owners of the company
d. Only two of the statements apply to you
e. All three statements apply to you
20.The owners of _______ face unlimited liability.
Select one:
a. sole proprietorships only
b. sole proprietorships and partnerships only
c. corporations only
d. partnerships and corporations only
21.Which of the following statements regarding agency problem in a modern corporation are true?
Select one:
a. Agency problems in modern corporations could be reduced by monitoring management behaviour.
b. Agency problems in modern corporations could be reduced by the threat of takeovers by another firm.
c. Modern corporations are destined to fail because ‘managers’, and not the ‘owners’, run the business.
d. Any two of the three statements are true
e. None of the three statements are true
22.Which of the following statements about share markets is false?
Select one:
a. They help carry out direct financing.
b. Most of the trading takes place in already-issued shares.
c. Share markets have aided in the increase in importance of corporations.
d. Every time a listed company's shares are bought or sold, the company receives funding.
23.Which one of the following conditions for an equity warrant that is generally attached to a bond issue is NOT correct?
Select one:
a. The holder has a conditional option to convert into ordinary shares of a company.
b. A warrant holder receives dividend payments over the life of the warrant.
c. Warrants may be detachable and traded separately from the bond issue.
d. The cost of borrowing through a bond issue may be lower with a warrant attached.
24.The rules that apply to listed companies about promptly advising a stock exchange of any material changes relating to the corporation are called:
Select one:
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
a. informational disclosure.
b. continuous disclosure.
c. transaction disclosure.
d. related parties disclosure.
25.Which of the following statements is correct for an investment proposal with a positive NPV?
Select one:
a. The discount rate exceeds the required rate of return.
b. The IRR is greater than the required rate of return.
c. Accepting the investment proposal has an uncertain effect on shareholders.
d. The present value of the cash flow equals the cost of the investment.
26.An increase in a firm's level of debt will:
Select one:
a. reduce the business risk of the firm.
b. increase the variability in earnings per share.
c. lower the expected return on shareholders' funds.
d. increase the return to the debt holders.
27.Most companies raise funds by selling their securities in a:
Select one:
a. public float.
b. private placement.
c. stock exchange.
d. direct placement.
28.Compared with a pro-rata issue of shares, placements usually:
Select one:
a. take a longer time to organise.
b. can be carried out much more quickly.
c. involve a far greater discount to the current market price.
d. involve no more than 50 participants.
29.Before making a rights issue, a company's management must consider several important variables.
Which of the following is NOT one of these variables?
Select one:
a. The ability of the company to service the increased equity on issue
b. The costs of alternative funding sources
c. Whether there will be a sufficient take-up rate of the issue
d. The effect on the firm's profits
31.The owners of _______ face unlimited liability.
Select one:
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
a. corporations only
b. unlisted corporations only
c. corporations and sole proprietorships only
d. unlisted corporations and sole proprietorships only
e. None of the above and/or below
32.An initial public share offering represents the share market's _____ role.
Select one:
a. interest rate
b. information
c. primary
d. Secondary
33.Which of the following is NOT a similarity between a right and a warrant?
Select one:
a. They both provide the right, without the obligation, to purchase a specified number of shares at a predetermined price.
b. A right and a warrant both result in the company raising additional equity capital.
c. A right and a warrant can both be detached from the debt issue and traded separately.
d. A right and a warrant both have similar maturities.
35.When a company's project results in a return and profits which exceed the cost of its debt borrowing:
Select one:
a. both the debt holders and shareholders can share in the profits.
b. only the shareholders may share in the profits.
c. the interest payments to the debt holders may increase.
d. its cost of capital increases.
37.Among many issues companies when going public should consider, which of the following should not be among the key consideration:
Select one:
a. Preserve your corporate culture
b. Ensure local markets for issuance
c. Obtain a fair launch price
d. Offer different issue price to different investor
38.A pro-rata share rights offer of 1:5 gives existing shareholders:
Select one:
a. the right to purchase one new share for every five shares held.
b. the right to purchase five new shares for every one share held.
c. the right to purchase one share for every 1/5 shares held.
d. the right to purchase 10 shares for every five shares held.
41.The members of the board of directors of a corporation are elected by the:
Select one:
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
a. executive management group.
b. shareholders.
c. creditors.
d. debt holders.
42.A well-developed secondary market is likely to:
Select one:
a. aid in raising extra finance.
b. help manage risk exposures of investors.
c. help with corporate agency problems.
d. include all of the given answers.
44. Examples of debt instruments listed on a stock exchange do NOT include:
Select one:
a. corporate bonds.
b. floating rate notes.
c. convertible notes.
d. promissory notes.
45. Suppose an investor is considering one of two investments that are identical in all respects except for risk. If the investor anticipates a fair
return for the risk of the security he invests in, he can expect to _____ .
Select one:
a. earn no more than the Treasury-bill rate on either security
b. pay more for the security that has higher risk.
c. pay more for the security that has lower risk.
d. earn more if interest rates are lower.
47. Compared with raising debt through a bank, the raising of equity through an IPO is generally:
Select one:
a. cheaper.
b. dearer.
c. roughly the same.
d. much cheaper.
48. Compared with straight debt, convertible notes may offer a company:
Select one:
a. lower borrowing costs.
b. higher borrowing costs.
c. a chance to issue more shares at maturity.
d. the opportunity to reduce debt.
49. Which of the following is NOT a feature of a dividend reinvestment scheme for a company?
Select one:
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
a. Shareholders can acquire company shares at little or no transaction cost.
b. Shareholders can increase their return on the company share concerned.
c. The company can obtain additional equity funding.
d. The shareholders can redeem shares for dividends.
50.If a growing organisation wanted to set itself up so it had greater access to a wider range of capital, it would become a:
Select one:
a. sole proprietorship.
b. partnership.
c. general partnership.
d. listed corporation.
53. Which of the following statements about company-issued equity warrants is incorrect?
Select one:
a. The terms of a warrant may allow the warrant to be detachable from the bond issue.
b. A company-issued equity warrant generally attaches to a bond issue.
c. Because company-issued equity warrants are attached to a bond they have no value.
d. Warrants may lower the costs of borrowing associated with the issue of the underlying corporate bond.
56. An investment decision differs from a financing decision in that:
Select one:
a. investment decisions relate to assets that the firm has invested in, while financing decisions relate to the firm's financial assets.
b. an investment decision first determines what assets the firm will invest in, while a financing decision considers if the existing investments should
be refinanced.
c. a financing decision first determines what financial assets the firm will invest in, while an investment decision considers how the funds will be
invested.
d. an investment decision first determines what assets the firm will invest in, while a financing decision considers how the investments
under consideration are to be funded.
58. A preference share issue offers all of the following advantages to a company except:
Select one:
a. a flexible dividend policy.
b. fixed interest borrowings that can count as equity.
c. extension of the equity base of the company.
d. an indefinite maturity.
60. A primary aim of corporate management should be to:
Select one:
a. maximise the company's profit.
b. maximise the number of shareholders.
c. maximise the shareholders' wealth.
d. minimise the company's costs.
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
64. For listing on the ASX, a firm must meet a number of criteria. Among them are
Select one:
a. continuous disclosure, either profits test or assets test
b. continuous disclosure, profits test, assets test
c. domiciled in Australia, continuous disclosure, either profits test or assets test
d. domiciled in either Australia or New Zealand, continuous disclosure, profits test, assets test
65. A company with an increasing ratio of total assets to equity is _________ dependent on external financing.
Select one:
a. less
b. not at all
c. more
d. rarely
68. The buyer of a convertible security accepts a lower rate of interest because of:
Select one:
a. a lower default risk.
b. the possibility that the company may recall the security.
c. the accessibility of funds.
d. the possibility of becoming a shareholder in the future.
69. Holders of ________ preference shares are entitled to dividend payments beyond the stated dividend rate.
a. participating
b. cumulative
c. non-cumulative
d. secured
70. The most appropriate goal for corporate management, according to finance theory, is to:
a. maximise the company’s market share.
b. maximise the current profits of the company.
c. maximise the company’s share price.
d. minimise the company’s liabilities.
71. The basic role of a company underwrite about to list a new share issue on a stock exchange is to:
a. provide advice on the timing of the share issue.
b. ensure the company complies with the stock exchange’s listing rule.
c. establish a deep and liquid secondary market in the shares.
d. purchase any unsold shares on issue.
72. Which of the following statements, in regard to the provision of an interest rate market by a stock exchange, is NOT correct?
a. It is beneficial to both borrowers and lenders because it can add liquidity.
b. It can reduce investors’ transaction costs.
c. It can reduce investors’ transaction costs.
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
d. Its main function is to serve as a primary market for debt issues.
73. Common shareholders are:
a. guaranteed a periodic distribution of dividends
b. guaranteed a distribution in the wind-up of the company.
c. guaranteed both a periodic distribution of dividends and a distribution in the windup the company.
d. not guaranteed a periodic distribution or a distribution in the wind-up of the company.
74. The subscription price in a rights offering is generally:
a. below the current share price.
b. equal to the current share price.
c. above the current share price.
d. not related to the share price.
75. Which of the following statements is NOT a feature of convertible notes?
a. Convertible notes offer a lower interest rate than straight debt instruments.
b. Convertible notes are usually made available to ordinary shareholders.
c. Maturity of convertible notes is usually shorter than straight debt instruments.
d. Note holders can generally participate in new issues of equity.
76. Which of the following statement is true?
a. The conflict of interests between the goals of the firm’s owners and those of its managers is the antagonism theory.
b. With their management contracts, the managers have the incentive to act in the best interests of the shareholders.
c. The firm’s owners will always act in the best interests of the managers.
d. Two of the three statements are true.
e. All three statements are false.
77. The primary market role of a stock exchange is:
a. to trade the shares of the largest corporations
b. to ensure the sale of new-issue securities.
c. to ensure deep trades in listed securities.
d. to ensure that information about listed companies is quickly reflected in share prices.
78. A future contract is a:
a. contract that provides a specified commodity or instrument to be bought at a future date at a price determined at the expiry date.
b. contract that provides a specified commodity or instrument to be bought at a future date at a price decided today.
с. right to buy a specified commodity or instrument at a price determined today.
d. right to buy a specified commodity or instrument at a price determined at the expiry date.
79. A company with a ____ ratio of debt to equity is ___ dependent on external financing.
a. lower; less
b. lower; more
c. higher; less
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
d. higher; more
80. Compared with retail sector companies, banks have a:
a. high equity-to-debt ratio
b. low gearing ratio
c. high debt-to-equity ratio
d. conservative gearing ratio
81. Individuals may find it more advantageous to purchase claims from a financial intermediary rather than directly purchasing claims in capital
markets because:
l. Intermediated investments usually offer higher rates of return than direct capital market claims.
II. Intermediaries can exploit economies of scale in investing that individual investors cannot.
IlI. Intermediaries are better diversified than most individuals.
a. I only
b. I and II only
c. Il and III only
d. l, ll, and III
82. A preference share issue offers all of the following advantages to a company except:
a. a flexible dividend policy
b. fixed interest borrowings that can count as equity.
c. extension of the equity base of the company.
d. an indefinite maturity.
83. Which of the following would NOT relate to agency costs involving management’s desire to maximise its benefits?
a. Management goals to achieve sales growth.
b. Management goals to achieve market share.
c. Management remuneration packages.
d. Management reports to shareholders.
84. Which of the following statements about share markets is false?
a. They help carry out direct financing.
b. Most of the trading takes place in already-issued shares.
c. Share markets have aided in the increase in importance of corporations.
d. Every time a listed company’s shares are bought or sold, the company receives funding.
85. The risk that arises from the failure of parties to complete and resolve a transaction is called:
a. Herstatt risk.
b. default risk.
c. settlement risk.
d. market risk.
86. Which of the following is generally NOT a characteristic of rights?
a. No expiration date
b. If exercised, result in the dilution of earnings for earnings for existing shareholders.
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
c. Saleability.
d. Potential listing on a stock exchange.
87. You bought 2,000 common shares of an Australian publicly. listed company, OzCpy, which has 200,000,000 shares outstanding. The share
price was $1 per share. Which of the following statement(s) would apply to you?
a. Your maximum loss of buying those shares is around $2,000
b. You are one of the company's shareholders.
c. You are one of the actual owners of the company.
d. Only two of the statements apply to you
e. All three statements apply to you
88. You bought 2,000 common shares of an Australian publicly. listed company, OzCpy, which has 200,000,000 shares outstanding. The share
price was $1 per share. Which of the following statement(s) would apply to you?
a. Your maximum loss of buying those shares is around $2,000
b. You are one of the company's partners in a partnership.
c. You are one of the actual owners of the company.
d. Only two of the statements apply to you
e. All three statements apply to you
89. Any unpaid dividends that must be paid before payment of dividends to ordinary shareholders are called _____ preference shares.
a. participating
b. cumulative
c. non-cumulative
d. secured
90. Which of the following statement is true?
a. The conflict of interests between the goals of the firm's owners and those of its managers is the agency problem.
b. With their management contracts, the managers have the incentive to act in the best interests of the shareholders.
c. The firm's owners will always act in the best interests of the managers
d. Two of the three statements are true
e. All three statements are true
91. Agency problems are reduced by:
a. monitoring management behaviour.
b. the shareholders’ ability to sell their shares.
c. the threat of takeover by another firm.
d. all of the given answers.
92. From a company’s viewpoint, the existence of an active, liquid, well-organised market in existing shares:
a. facilitates the raising of further capital in the secondary market.
b. maintains the share price above the initial issue price.
c. encourages successful primary market issues.
d. is of little or no consequence.
93. In option markets, option premiums are paid by:
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
a. option writers to buyers.
b. option buyers to sellers.
c. both option buyers and sellers.
d. put option buyers only.
94. A company with an increasing ratio of total assets to equity is ____ dependent on external financing.
a. less
b. not at all.
c. more.
d. rarely.
95. While takeover a company issues additional shares to fund the acquisition of the shares in target company this is called:
a. a seasoned share offering.
b. an equity-funded takeover.
c. an initial share takeover.
d. a rights offering.
96. Companies are interested in a good secondary market for the trading of their shares because
a. New funds can be raised as secondary market trading settles.
b. It helps support the future issuance of securities.
c. Investors are likely to sell securities if there is a good secondary market.
d. It helps speculators trade up the company’s share price.
97. Which one of the following is not a main principle that form the basis of a stock exchange’s listing rules?
a. sufficient investor interest must be shown to warrant an entity’s participation in the markets.
b. information must be produced according to the highest standards.
c. minimum standards of quality size, operations and disclosure must be satisfied.
d. security holders must be consulted on matters of significance except for agreements between the entity and related parties.
98. Which of the following is NOT an advantage for a company that sells a company issued option with a rights issue?
a. It may add to the marketability of the associated rights issue.
b. It reduces the necessity for the company to increase dividend payments immediately.
c. If the holder of the option exercises the right to shares offered then the company raises additional equity funds.
d. There is no certainty that the future funds from the exercise of the option will eventuate.
99. Agency problems would be less likely to exist in a:
a. sole proprietorship
b. partnership
c. private company
d. public company
100. The key aspect of the agency relationship for the corporate form of business is that:
a. the firm's owners will always act in the best interests of the managers.
b. the managers will always act in the best interests of the firm's owners.
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Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
c. with their management contracts, the managers have the incentive to act in the best interests of the shareholders.
d. the managers have different incentives from the shareholders.
101. When a company undertakes an initial public offering (IPO) it may”
a. issue and list debentures in the capital markets.
b. offer shares to a few public institutional investors.
c. issue and list shares in the primary share market.
d. directly list corporate bonds in the capital markets.
102. Agency theory is concerned with:
a. a conflict between owners and managers
b. the agents who act on behalf of the company.
c. the relationship between employees.
d. the conflict of interests between outside agents and the company.
103. Which of the following does NOT apply to a dividend reinvestment plan?
a. A dividend reinvestment plan forms additional equity financing for the company.
b. For a dividend reinvestment scheme the company typically bears the associated transaction costs.
с. Companies have encouraged shareholders to use dividend reinvestment plans.
d. Shareholders have the chance of purchasing additional shares through a dividend reinvestment plan.
104. Which of the followings is an objective of private equity funds?
a. Improve a company’s performance in preparation for an IPO.
b. Break up a company to sell components separately.
c. None of them
d. Both of them
105.___ are promised a fixed periodic dividend, the payment of which must be paid before that of ordinary shares.
a. Common shareholders.
b. Preferred shareholders.
c. Stakeholders
d. Creditors
106. When a company wants to increase the marketability of a rights issue, it may offer:
a. preference shares attached
b. options attached
c. convertible notes attached.
d. dividends attached.
107. The placement of ordinary shares for a company has this advantage.
a. money can be raised in a short time.
b. ownership of existing shareholders becomes more concentrated.
c. the price will be at no discount.
d. shares will be sold to a large number of investors.
HD EDU
Reference: CHRISTOPHER VINEY PETER PHILLIPS, Financial Institutions Instruments &Markets [M] 9TH EDITION
108. A company may seek to raise further funds by issuing additional ordinary shares. The terms and conditions of the new share issue are
determined by the board of directors in consultation with its financial advisers and others, and having regard to the preferences of existing
shareholders and the needs of the company.
Which of the following is LEAST likely to be a determinant of the price that is eventually struck?
a. The discount to current market price that can be offered to shareholders.
b. The company's cash requirements.
c. The projected earnings flow from the new investments.
d. The cost of alternative funding sources.
109. A pro-rata share rights offer means that the offer:
a. must be made to all the stakeholders of a company.
b. must be made to bond holders and shareholders who get their offer in before a cut-off date.
c. must be made to shareholders on the basis of the number of shares already held.
d. is made only to the shareholders with the largest number of shares on the share register at a cut-off date.