Tutorial 1 - problems Multiple choice questions 1. The main functions of the financial system least likely include (choose 2 answers): a. preventing investors from generating abnormal profits by trading on information. b. allocating financial resources to their most productive uses. c. bringing together savers and borrowers. d. determining equilibrium interest rates e. determining the supply of money 2. A large manufacturing company holds its excess cash in 90-day commercial paper and negotiable certificates of deposit. The cash management policy of the company is best described as using: a. capital market instruments. b. money market instruments. c. intermediate-term debt instruments. 3. An airline company announces that it is offering 10 million shares to the public at £30 each. This transaction is most likely a sale in the: a. futures market. b. primary market. c. secondary market. 4. Kobe Inc. stock is cross-listed on exchanges in Tokyo and New York. Kobe stock is best described as a: a. private security. b. primary market security. c. public security. 5. Safe & Sound Partners Inc. invests primarily in fixed income securities deemed compliant with the fund's investment goal. Which are least likely to be part of this fund? a. warrants. b. commercial papers. c. repurchase agreements. 6. In an underwritten offering, the risk that the entire issue may not be sold to the public at the stipulated offering price is borne by the: a. issuer. b. investment bank. c. buyers of the part of the issue that is sold.
tt. A British shoemaker listed on the Alternative Investment Market of the London Stock Exchange, announced the sale of 86tt,432 shares to a small group of qualified investors at £0.55 per share. Which of the following best describes this sale? a. shelf registration. b. private placement. C. Initial Public Offering. 8. An Italian publicly traded company, to raise new capital, gave its existing shareholders the opportunity to subscribe for new shares. The existing shareholders could purchase two new shares at a subscription price of €5.65 per share for every 10 shares held. This is an example of a(n): a. rights offering. b. private placement. C. Initial Public Offering. Open questions 1. Briefly explain why regulations are needed in the financial system. Give an example of such regulation? 2. Why borrowers can be disinclined to borrow directly from lenders? 3. How can the ordinary saver reduce the risk she faces? 4. Would you prefer a financial asset that yield 6% p.a or a different one that yields 10%? 5. Martin is a worker with average income in Muddyshire. There are very few banks in Muddyshire and they are mainly interested in wealthy people with large deposits. Muddyshire's stock market is very small with sharp share prices fluctuations and very few brokers who charge high commissions. How Martin might try to save for his old age? 6. In Muddyshire (Question 3) what inducements would Martin need to persuade him to lend? tt. There are many banks in Vibrant County. They offer a wide range of attractive