Financial Institution & Investment Management - Final Exam

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DEPARTMENT OF ACCOUNTING
Time Allotted: 1:30 hr

Max Weight: 50%
Financial Institutions & Investment Management Final Exam

Name__________________________ __________
ID. No. __________________________________
GENERAL DIRECTIONS:
1. Make sure that the exam paper contains 5 pages including the cover page and the answer sheet.
2. Read the instructions carefully for each part of the exam and attempt accordingly.
3. Use of pencils and red pens are not allowed.
4. Mobile phone should be switched off.
5. Any action taken by exam invigilator during exam time will not be compromised
6. Put aside any materials not allowed on the instructor’s desk.
7. Write your answers on the separate answer sheet provided.
8. Please write your name on both the question paper and answer sheet.
1
Part I. True/False Items
Instruction: Read the following statements and write "True" if the statement is
correct and write "False" if the statement is wrong in the space provided ONLY (1
point each).
1. The lower the P/E ratio, the higher the earnings compared to the stock price, and the more
attractive the stock.
2. Bonds, stocks and other financial instruments do not wear out over time and usually
generate returns.
3. The financial system provides liquidity for savers holding financial instruments but in need
of money.
4. The financial system permits individuals and institutions to engage both on risk sharing and
risk reduction.
5. A fourth market consists of trading conducted by non-exchange member broker-dealers and
institutional investors of exchange-listed stocks.
6. The future market has higher flexibility as compared to the forward market.
7. The basic objective of market analysis is to know the fair valuation of shares for buying
and selling.
8. The intrinsic value of a financial asset is equal with the expected net earnings flows over a
number of years discounted to the present time by a suitable discount rate.
9. When we say “money has alternative uses and opportunity costs”, we mean the money
today is more valuable than the same tomorrow or a few days hence.
10. Two investments can be compared in terms of the actual rate of return above the risk-free
return as compared to return on other similar assets.
Part II. Multiple Choices (1.5 points each)
Instruction: Choose the best answer and proved your answer on the space provided
1. Most investors are risk-averse which means____________.
A. they will assume more risk only if they are compensated by higher expected return.
B. they will always invest in the investment with the lowest possible risk.
C. they will always invest in the investment with the lowest possible risk.
D. they avoid the stock market due to the high degree of risk.
2. Based on type financial claims, financial markets can be classified as:
A. capital markets C. money market
B. equity market D. all
3. Treasury bills are traded in the __________.
A. money market. C. government market.
B. capital market. D. regulated market.
4. The coupon rate is another name for the_____________________.
A. market interest rate. C. stated interest rate.
B. current yield. D. yield to maturity.
5. Dividends are paid________________.
A. monthly. C. semi-annually.
B. quarterly. D. yearly.
6. Which of the following is not a characteristic of investments companies?
A. pooled investing. C. managed portfolios.
B. diversification. D. reduced expenses.
2
7. Investors should be willing to invest in riskier investments only________________.
A. if the term is short.
B. if there are no safe alternatives except for holding cash.
C. if the expected return is adequate for the risk level.
D. if they are true speculators.
8. Financial risk is most associated with_______________.
A. the use of equity financing by corporations.
B. the use of debt financing by corporations.
C. Equity investments held by corporations.
D. Debt investments held by corporations.
9. The feasibility of converting an asset quickly and without significantly affecting its price is
called:
A. divisibility D. low risk
B. marketability E. both A and B
C. liquidity
10. __________is the market which helps existing investors to sell their securities.
A. Primary market C. Capital market
B. Secondary market D. Commodity market
11. Fundamental analysis is the process of evaluating a security to make forecasts about its future
price. This includes the following except:
A. Performance of the overall industry
B. Domestic political conditions
C. Relevant trade agreements and external politics
D. The company’s financial statements
12. In which financial market the investor has a right to convert the currency on a future date?
A. Spot market C. Option market
B. Future market D. Swap market
13. The financial market where National Bank of Ethiopia sales treasury bills can be regarded as:
A. Over-the-counter market
B. Third market
C. Auction market
D. Primary market
14. The financial assets are different from the physical assets in that the financial assets:
A. Determine the production capacity of the society
B. Are no more than the sheets of paper
C. Do have a corresponding liabilities associated with them
D. All
15. Savers generally minimize their holding of money and holds bonds and other financial assets
until spendable funds really are needed, because:
A. Money generally earns the lowest rate of return of all assets traded in the financial system.
B. The purchasing power can seriously be eroded by inflation.
C. Only A
D. Only B
E. A and B are answers
16. A future contract is an agreement to trade an asset:
3
A. In the future at a price determined today
B. Today at a price prevailing at some future date
C. In the future at a price prevailing in the future
D. Today at a price determined today
17. Financial markets and institutions:
A. Involve the movement of huge quantities of money
B. Affect the profits of businesses
C. Affect the types of goods and services produced in an economy
D. Do all of the above
E. Do only A and B of the above
18. Markets in which funds are transferred from those who have excess funds to those who have a
shortage of available funds are called:
A. Commodity markets
B. Funds market
C. Financial markets
D. Derivative exchange markets
19. Which of the following statements about the characteristics of debt and equity are true?
A. They both can be long-term financial instruments
B. They both involve a claim on the issuer’s income
C. They both enable a corporation to raise funds
D. All
20. The money market is a market in which _________ are traded.
A. New issues of securities
B. Previously issued securities
C. Short-term debt instruments
D. Long-term debt and equity instruments
Part Three: Discussion and work out (2.5 points each)
1. List three types of foreign exchange markets and discuss their differences.
2. Discuss the difference between market analysis and fundamental analysis.
3. If we receive Br. 11,600 at the end of three years, and if it is discounted to the present day
at 7%, calculate the present value.
4. What will be the value of the principal of Br. 100,000 at the time of maturity of 6 years at
9% return?
4
All financial intermediary
institutions in the intermediation
market
a. buy primary securities and sell
secondary securities
b. borrow short and lend long
c. borrow in small denominations
and lend in large
d. buy from brokers and dealers and
sell to the public
ANSWER SHEET
Part I: True or False

1. 2. 3. 4. 5.
6. 7. 8. 9. 10.
Part II: Multiple Choices

1. 5. 9. 13. 17.
2. 6. 10. 14. 18
3. 7. 11. 15. 19.
4. 8. 12. 16. 20.

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Time Allotted: 1:30 hr

Financial Institutions & Investment Management Final Exam

Part I: True or False

Part II: Multiple Choices

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