Question 1

Monetary policy is one tool used by the RBA to enhance financial system stability.

Accepted Answer

A) True 
 B)False

Question 2

Risk-averse investors will always choose low risk and return investments.

Accepted Answer

A) True 
 B)False

Question 3

Explain how the flow-of-funds function and risk-transfer function were impaired during the GFC.

Accepted Answer

During the Global Financial Crisis (GFC)

Question 4

Provide a brief overview of Australia's financial markets in terms of the financial functions they perform.

Accepted Answer

Australia has three markets that arrange

Question 5

Derivative contracts can be used to both increase and decrease exposure to risk.

Accepted Answer

A) True 
 B)False

Question 6

Direct financing is a situation where:

Accepted Answer

A) deficit units raise funds from surplus units 
B) surplus units raise funds from deficit units 
C) deficit units raise funds from financial intermediaries 
D) financial intermediaries obtain funds from surplus units. 
E) None of these. 
A) deficit units raise funds from surplus units 
B) surplus units raise funds from deficit units 
C) deficit units raise funds from financial intermediaries 
D) financial intermediaries obtain funds from surplus units. 
E) None of these.

Question 7

The term 'flow of funds' refers to the exchange of value required to settle commercial transactions.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is NOT an example of market risk?

Accepted Answer

A) A share investor whose portfolio has been devastated by a stock-market crash. 
B) A loan on which the borrower is unable to make scheduled repayments. 
C) A borrower who finds that interest rates in the money market are higher than expected. 
D) An importer that has to cope with an unexpected depreciating exchange rate. 
E) A fund manager intending to sell at a future date that may face falling share prices. 
A) A share investor whose portfolio has been devastated by a stock-market crash. 
B) A loan on which the borrower is unable to make scheduled repayments. 
C) A borrower who finds that interest rates in the money market are higher than expected. 
D) An importer that has to cope with an unexpected depreciating exchange rate. 
E) A fund manager intending to sell at a future date that may face falling share prices.

Question 9

Mortgage-related securities:

Accepted Answer

A) are securities whose value depends on the value of mortgage-backed securities 
B) came to be known as 'toxic securities' 
C) were erroneously rated as being safe ('AAA')by the ratings agencies 
D) magnified the impact of defaulting sub-prime loans throughout the US financial system. 
E) All of these. 
A) are securities whose value depends on the value of mortgage-backed securities 
B) came to be known as 'toxic securities' 
C) were erroneously rated as being safe ('AAA')by the ratings agencies 
D) magnified the impact of defaulting sub-prime loans throughout the US financial system. 
E) All of these.

Question 10

Leveraged investments always produce better returns than unlevered investments.

Accepted Answer

A) True 
 B)False

Question 11

A firm does not have to repay its equity funds and is not obliged to pay dividends.Therefore equity is a cheaper source of funds than debt.

Accepted Answer

A) True 
 B)False

Question 12

According to Merton (1995), financial systems perform six functions.The function performed by the payment system is:

Accepted Answer

A) to provide the means for the settlement of commercial transactions 
B) to arrange the flow of funds from surplus to deficit units 
C) to provide ways for participants in the financial system to transfer and manage risk 
D) to promote the pooling of funds 
E) to provide ways of dealing with the incentive problems that arise in financial contracting. 
A) to provide the means for the settlement of commercial transactions 
B) to arrange the flow of funds from surplus to deficit units 
C) to provide ways for participants in the financial system to transfer and manage risk 
D) to promote the pooling of funds 
E) to provide ways of dealing with the incentive problems that arise in financial contracting.

Question 13

Why are financial systems susceptible to crisis?

Accepted Answer

Many financial arrangements rely on the

Question 14

Securities are financial contracts that are used by deficit units to raise funds and by surplus units for investment.

Accepted Answer

A) True 
 B)False

Question 15

Explain the six functions performed by the financial system.

Accepted Answer

The financial system performs six main f

Monetary policy is one tool used by the RBA to enhance financial system stability.

Risk-averse investors will always choose low risk and return investments.

Explain how the flow-of-funds function and risk-transfer function were impaired during the GFC.

Provide a brief overview of Australia's financial markets in terms of the financial functions they perform.

Derivative contracts can be used to both increase and decrease exposure to risk.

Direct financing is a situation where:

The term 'flow of funds' refers to the exchange of value required to settle commercial transactions.

Which of the following is NOT an example of market risk?

Mortgage-related securities:

Leveraged investments always produce better returns than unlevered investments.

A firm does not have to repay its equity funds and is not obliged to pay dividends.Therefore equity is a cheaper source of funds than debt.

According to Merton (1995), financial systems perform six functions.The function performed by the payment system is:

Why are financial systems susceptible to crisis?

Securities are financial contracts that are used by deficit units to raise funds and by surplus units for investment.

Explain the six functions performed by the financial system.

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

Monetary policy is one tool used by the RBA to enhance financial system stability.

Risk-averse investors will always choose low risk and return investments.

Explain how the flow-of-funds function and risk-transfer function were impaired during the GFC.

Provide a brief overview of Australia's financial markets in terms of the financial functions they perform.

Derivative contracts can be used to both increase and decrease exposure to risk.

Direct financing is a situation where:

The term 'flow of funds' refers to the exchange of value required to settle commercial transactions.

Which of the following is NOT an example of market risk?

Mortgage-related securities:

Leveraged investments always produce better returns than unlevered investments.

A firm does not have to repay its equity funds and is not obliged to pay dividends.Therefore equity is a cheaper source of funds than debt.

According to Merton (1995), financial systems perform six functions.The function performed by the payment system is:

Why are financial systems susceptible to crisis?

Securities are financial contracts that are used by deficit units to raise funds and by surplus units for investment.

Explain the six functions performed by the financial system.

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