Question 1

Australia went through a process of increasing regulations on the financial system in the 1980s.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following categories of institutions accept deposits from, make loans to and provide payment services for Australian households?

Accepted Answer

A) ADIs. 
B) Wholesale banks. 
C) Investment banks. 
D) Insurance companies. 
E) Fund managers. 
A) ADIs. 
B) Wholesale banks. 
C) Investment banks. 
D) Insurance companies. 
E) Fund managers.

Question 3

The boom in 'sub-prime' lending (which was the source of the GFC)was motivated by the:

Accepted Answer

A) desire to help low-income minority groups 
B) belief that the repayment capacity of borrowers had been misrepresented 
C) desire for high risk and return investments 
D) belief that housing prices would always rise 
E) provision of subsidies by the US government. 
A) desire to help low-income minority groups 
B) belief that the repayment capacity of borrowers had been misrepresented 
C) desire for high risk and return investments 
D) belief that housing prices would always rise 
E) provision of subsidies by the US government.

Question 4

The pooling of funds is required because surplus units typically prefer short-term contracts for small amounts whereas deficit units commonly require large amounts for long periods.

Accepted Answer

A) True 
 B)False

Question 5

The size of risk premiums will change over time.

Accepted Answer

A) True 
 B)False

Question 6

Tom and Ben both intend to invest $50,000 (that they have each received from an inheritance)in Macquarie Group shares that are currently trading at $50 per share.Tom prefers an unlevered investment, whereas Ben decides to borrow a further $50,000 at 10% pa so that he can initially purchase $100,000 in shares.Compare the potential returns and risks for a one year investment (ignoring transaction costs and taxes)for two investors assuming firstly, the share price increases from $50 to $60, and secondly, the share price falls from $50 to $40.

Accepted Answer

(i)The share price increases from $50 to

Question 7

Explain the term 'financial innovation'.

Accepted Answer

Financial innovation is the process of i

Question 8

Explain the risk transfer function, carefully describing the main categories of risk.

Accepted Answer

The risk transfer function refers to the

Question 9

Define leverage and briefly explain the risks posed by it.

Accepted Answer

Leverage refers to the use of debt finan

Question 10

Of the following, which is NOT a feature of debt?

Accepted Answer

A) Interest payments. 
B) Maturity date. 
C) Dividends. 
D) Security arrangements. 
E) Risk premiums. 
A) Interest payments. 
B) Maturity date. 
C) Dividends. 
D) Security arrangements. 
E) Risk premiums.

Question 11

The expected return on an investment:

Accepted Answer

A) will be negatively related to the risk of the investment 
B) will increase when risk-free rate increases, all else being equal 
C) is the difference between r risk-free and r risk premium 
D) Includes interest and dividends, but not capital gains or losses. 
E) All of these. 
A) will be negatively related to the risk of the investment 
B) will increase when risk-free rate increases, all else being equal 
C) is the difference between r risk-free and r risk premium 
D) Includes interest and dividends, but not capital gains or losses. 
E) All of these.

Question 12

Firms and the government are the largest sources of finance in the Australian financial system.

Accepted Answer

A) True 
 B)False

Question 13

The flow of funds is arranged directly when funds are deposited with banks, and indirectly when funds are invested in securities.

Accepted Answer

A) True 
 B)False

Question 14

Provide a brief overview of the GFC.

Accepted Answer

The Global Financial Crisis (GFC), also

Question 15

Discuss the relative risks of debt and equity from the perspective of 
(i)an investor supplying funds to a firm, and (ii)the firm itself.

Accepted Answer

(i)Supplying funds as debt is less risky

Question 16

The financial authority that has responsibility for the stability of the financial system in Australia is:

Accepted Answer

A) the Reserve Bank of Australia 
B) the Australian Prudential Regulation Authority 
C) the Australian Securities and Investments Commission 
D) the Australian Treasury 
E) the Council of Financial Regulators. 
A) the Reserve Bank of Australia 
B) the Australian Prudential Regulation Authority 
C) the Australian Securities and Investments Commission 
D) the Australian Treasury 
E) the Council of Financial Regulators.

Question 17

Investors in mortgage-backed securities used to finance sub-prime loans were well aware of the risks involved.

Accepted Answer

A) True 
 B)False

Question 18

Depending upon the circumstances, equity can also be referred to as:

Accepted Answer

A) ordinary shares 
B) common stock 
C) risk capital 
D) shareholders' funds. 
E) All of these. 
A) ordinary shares 
B) common stock 
C) risk capital 
D) shareholders' funds. 
E) All of these.

Question 19

The GFC:

Accepted Answer

A) prompted a 'flight to quality' that pushed up the interest rate on government securities 
B) caused a sharp contraction in lending that prevented many firms from being able to refinance their maturing debt 
C) prompted the US government to 'bail-out' financial institutions, including Lehman Brothers 
D) reinforced the view that markets are 'self-correcting' 
E) lead to widespread failures of financial institutions in Australia. 
A) prompted a 'flight to quality' that pushed up the interest rate on government securities 
B) caused a sharp contraction in lending that prevented many firms from being able to refinance their maturing debt 
C) prompted the US government to 'bail-out' financial institutions, including Lehman Brothers 
D) reinforced the view that markets are 'self-correcting' 
E) lead to widespread failures of financial institutions in Australia.

Question 20

What role did incentive problems play in the GFC?

Accepted Answer

Incentive problems played a significant

Australia went through a process of increasing regulations on the financial system in the 1980s.

Which of the following categories of institutions accept deposits from, make loans to and provide payment services for Australian households?

The boom in 'sub-prime' lending (which was the source of the GFC)was motivated by the:

The pooling of funds is required because surplus units typically prefer short-term contracts for small amounts whereas deficit units commonly require large amounts for long periods.

The size of risk premiums will change over time.

Explain the term 'financial innovation'.

Explain the risk transfer function, carefully describing the main categories of risk.

Define leverage and briefly explain the risks posed by it.

Of the following, which is NOT a feature of debt?

The expected return on an investment:

Firms and the government are the largest sources of finance in the Australian financial system.

The flow of funds is arranged directly when funds are deposited with banks, and indirectly when funds are invested in securities.

Provide a brief overview of the GFC.

Discuss the relative risks of debt and equity from the perspective of (i)an investor supplying funds to a firm, and (ii)the firm itself.

The financial authority that has responsibility for the stability of the financial system in Australia is:

Investors in mortgage-backed securities used to finance sub-prime loans were well aware of the risks involved.

Depending upon the circumstances, equity can also be referred to as:

The GFC:

What role did incentive problems play in the GFC?

The Payments System

Introduction to the Flow of Funds

Funds Management

Authorised Deposit-Taking Institutions

The Stability of Deposit-Taking Institutions

The Money Market

The Bond Market

Shares

The Share Market

Foreign Exchange and Global Capital Markets

Financial Futures

Swaps

Exchange-Traded Options

Filters

Exam 1: Overview of the Financial System

Australia went through a process of increasing regulations on the financial system in the 1980s.

Which of the following categories of institutions accept deposits from, make loans to and provide payment services for Australian households?

The boom in 'sub-prime' lending (which was the source of the GFC)was motivated by the:

The pooling of funds is required because surplus units typically prefer short-term contracts for small amounts whereas deficit units commonly require large amounts for long periods.

The size of risk premiums will change over time.

Explain the term 'financial innovation'.

Explain the risk transfer function, carefully describing the main categories of risk.

Define leverage and briefly explain the risks posed by it.

Of the following, which is NOT a feature of debt?

The expected return on an investment:

Firms and the government are the largest sources of finance in the Australian financial system.

The flow of funds is arranged directly when funds are deposited with banks, and indirectly when funds are invested in securities.

Provide a brief overview of the GFC.

Discuss the relative risks of debt and equity from the perspective of (i)an investor supplying funds to a firm, and (ii)the firm itself.

The financial authority that has responsibility for the stability of the financial system in Australia is:

Investors in mortgage-backed securities used to finance sub-prime loans were well aware of the risks involved.

Depending upon the circumstances, equity can also be referred to as:

The GFC:

What role did incentive problems play in the GFC?

The Payments System

Introduction to the Flow of Funds

Funds Management

Authorised Deposit-Taking Institutions

The Stability of Deposit-Taking Institutions

The Money Market

The Bond Market

Shares

The Share Market

Foreign Exchange and Global Capital Markets

Financial Futures

Swaps

Exchange-Traded Options

Filters