《financial markets》课后习题解答实用文档.docx

《financial markets》课后习题解答实用文档.docx

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《financialmarkets》课后习题解答实用文档

《financialmarkets》课后习题解答

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ANSWERSTOQUESTIONSFORCHAPTER1

（Questionsareinboldprintfollowedbyanswers.）

1.Whatisthedifferencebetweenafinancialassetandatangibleasset?

Atangibleassetisonewhosevaluedependsuponcertainphysicalproperties,e.g.land,capitalequipmentandmachines.Afinancialasset,whichisanintangibleasset,representsalegalclaimtosomefuturebenefitsorcashflows.Thevalueofafinancialassetisnotrelatedtothephysicalforminwhichtheclaimisrecorded.

2.WhatisthedifferencebetweentheclaimofadebtholderofGeneralMotorsandanequityholderofGeneralMotors?

Theclaimofthedebtholderisestablishedbycontract,whichspecifiestheamountandtimingofperiodicpaymentsintheformofinterestaswellastermtomaturityoftheprincipal.Thedebtholderstandsasacreditorandincaseofdefault,hehasapriorclaimonfirmassetsovertheequity-holder.

Theequityholderhasaresidualclaimtoassetsandincome.Hecanreceivefundsonlyafterotherclaimantsaresatisfied.Incomeisintermsofdividends,theamountandtimingofwhicharenotcertain.

3.Whatisthebasicprincipleindeterminingthepriceofafinancialasset?

Thepriceofanyfinancialassetisthepresentvalueoftheexpectedcashflowsorastreamofpaymentsovertime.Thus,thebasicvariablesindeterminingthepriceare:

expectedcashflows,discountrateandthetimingofthesecashflows.

4.Whyisitdifficulttodeterminethecashflowofafinancialasset?

Theestimationanddeterminationofcashflowsisdifficultbecauseofseveralreasons.Theseincludeaccountingmeasures,possibilityofdefaultoftheissuer,andembeddedoptionsinthesecurity.Interestpaymentscanalsochangeovertime.Thereisuncertaintyastotheamountandthetimingofthesepayments.

5.Whyarethecharacteristicsofanissuerimportantindeterminingthepriceofafinancialasset?

Thecharacteristicsoftheissuerareimportantbecausethesedeterminetheriskinessoruncertaintyoftheexpectedcashflows.Thesecharacteristics,whichdeterminetheissuer’screditworthinessordefaultrisk,haveanimpactontherequiredrateofreturnforthatparticularfinancialasset.

6.Whatarethetwoprincipalrolesoffinancialassets?

Thefirstroleoffinancialassetsistotransferfundsfromsurplusspendingunits（i.e.personsorinstitutionswithfundstoinvest）todeficitspendingunits（i.e.personsorfirmsneedingfundstoinvestintangibleassets）.

Thesecondroleistoredistributeriskamongpersonsorinstitutionsseekingandprovidingfunds.Fundsproviderssharetherisksofexpectedcashflowsgeneratedbytangibleassets.

7.InSeptember1990,astudybytheU.S.Congress,OfficeofTechnologyAssessment,entitled“ElectronicBulls&Bears:

U.S.SecuritiesMarketsandInformationTechnology,”includedthisstatement:

Securitiesmarketshavefivebasicfunctionsinacapitalisticeconomy:

a.Theymakeitpossibleforcorporationsandgovernmentalunitstoraisecapital.

b.Theyhelptoallocatecapitaltowardproductiveuses.

c.Theyprovideanopportunityforpeopletoincreasetheirsavingsbyinvestinginthem.

d.Theyrevealinvestors’judgmentsaboutthepotentialearningcapacityofcorporations,thusgivingguidancetocorporatemanagers.

e.Theygenerateemploymentandincome.

Foreachofthefunctionscitedabove,explainhowfinancialmarkets（orsecuritiesmarkets,intheparlanceofthisCongressionalstudy）performeachfunction.

Thefiveeconomicfunctionsofafinancialmarketare:

（1）transferringfundsfromthosewhohavesurplusfundstoinvesttothosewhoneedfundstoinvestintangibleassets,

（2）transferringfundsinsuchawaythatredistributestheunavoidableriskassociatedwiththecashflowgeneratedbytangibleassets,（3）determiningthepriceoffinancialassets（pricediscovery）,（4）providingamechanismforaninvestortosellafinancialasset（toprovideliquidity）,and（5）reducingthecostoftransactions.

ThefiveeconomicfunctionsstatedintheCongressionalStudycanbeclassifiedaccordingtotheabovefivefunctions:

1.“theymakeitpossibleforcorporationsandgovernmentalunitstoraisecapital”--functions1and2;

2.“theyhelptoallocatecapitaltowardproductiveuses”--function3;

3.“theyprovideanopportunityforpeopletoincreasetheirsavingsbyinvestinginthem”--functions1and5;

4.“theyrevealinvestors’judgmentsaboutthepotentialearningcapacityofcorporations,thusgivingguidancetocorporatemanagers”--function3;

5.“theygenerateemploymentandincome”--followsfromfunctions1and2allowingthosewhoneedfundstousethesefundstocreateemploymentandincomeopportunities.

8.Explainthedifferencebetweeneachofthefollowing:

a.moneymarketandcapitalmarket

b.primarymarketandsecondarymarket

c.domesticmarketandforeignmarket

d.nationalmarketandEuromarket

a.Themoneymarketisafinancialmarketofshort-terminstrumentshavingamaturityofoneyearorless.Thecapitalmarketscontaindebtandequityinstrumentswithmorethanoneyeartomaturity;

b.Theprimarymarketdealswithnewlyissuedfinancialclaims,whereasthesecondarymarketdealswiththetradingofseasonissues（onespreviouslyissuedintheprimarymarket）;

c.Thedomesticmarketisthenationalmarketwhereindomesticfirmsissuesecuritiesandwheresuchissuedsecuritiesaretraded.Foreignmarketsarewheresecuritiesoffirmsnotdomiciledinthecountryareissuedandtraded;

d.Inanationalmarketsecuritiesaretradedinonlyonecountryandaresubjecttotherulesofthatcountry.IntheEuromarket,securitiesareissuedoutsideofthejurisdictionofanysinglecountry.Forexample,Eurodollarsaredollar-denominatedfinancialinstrumentsissuedoutsidetheUnitedStates.

9.Indicatewhethereachofthefollowinginstrumentstradesinthemoneymarketorthecapitalmarket:

a.GeneralMotorsAcceptanceCorporationissuesafinancialinstrumentwithfourmonthstomaturity.

b.TheU.S.Treasuryissuesasecuritywith10yearstomaturity.

c.MicrosoftCorporationissuescommonstock.

d.TheStateofAlaskaissuesafinancialinstrumentwitheightmonthstomaturity.

a.GMACissuetradesinthemoneymarket.

b.U.S.securitytradesinthecapitalmarket.

c.Microsoftstocktradesinthecapitalmarket.

d.StateofAlaskasecuritytradesinthemoneymarket.

10.AU.S.investorwhopurchasesthebondsissuedbythegovernmentofFrancemadethefollowingcomment:

“AssumingthattheFrenchgovernmentdoesnotdefault,Iknowwhatthecashflowofthebondwillbe.”Explainwhyyouagreeordisagreewiththisstatement.

Onewouldtendtodisagreewiththisstatement.EventhoughthereisnodefaultriskwithFrenchbondsissuedbythegovernment,someotherrisksincludepriceriskandforeignexchangerisk.

11.AU.S.investorwhopurchasesthebondsissuedbytheU.S.governmentmadethefollowingstatement:

“BybuyingthisdebtinstrumentIamnotexposedtodefaultriskorpurchasingpowerrisk.”Explainwhyyouagreeordisagreewiththisstatement.

Thisisnottrue.Thereisnodefault（credit）riskofU.S.governmentsecurities.However,itisnotfreeofpurchasingpowerorinflationrisk.Thereisalsopricerisk,whichisrelatedtomaturityofanybond.

12.InJanuary1992,AtlanticRichfieldCorporation,aU.S.-basedcorporation,issued$250millionofbondsintheUnitedStates.FromtheperspectiveoftheU.S.financialmarket,indicatewhetherthisissueisclassifiedasbeingissuedinthedomesticmarket,theforeignmarket,ortheoffshoremarket.

ThecorporatebondsissuedbyAtlanticCorporationareinthedomesticmarket,buttheinvestorscanalsobefromforeignmarkets.

13.InJanuary1992,theKoreaDevelopmentBankissued$500millionofbondsintheUnitedStates.FromtheperspectiveoftheU.S.financialmarket,indicatewhetherthisissueisclassifiedasbeingissuedinthedomesticmarket,theforeignmarket,ortheoffshoremarket.

Thisissuecanbeclassifiedasadomesticissue.

14.14.Givethreereasonsforthetrendtowardgreaterintegrationoffinancialmarketsthroughouttheworld.

Thereareseveralreasons.Theseinclude:

a.Deregulationand/orliberalizationoffinancialmarketstopermitgreaterparticipantsfromothercountries;

b.Technologicalinnovationstoprovideglobally-availableinformationandtospeedtransactions;

c.Institutionalization--financialinstitutionsarebetterabletodiversifyportfolioandexploitmis-pricingsthanareindividuals.

15.Whatismeantbythe“institutionalization”ofcapitalmarkets?

Theterm“institutionalization”referstothedominanceoflargeinstitutionalinvestorssuchaspensionfunds,investmentcompanies,banks,insurancecompanies,etc.inthemoneyandcapitalmarkets.

16.a.Whatarethetwobasictypesofderivativeinstruments?

b.“Derivativemarketsarenothingmorethanlegalizedgamblingcasinosandservenoeconomicfunction.”Commentonthisstatement.

a.Thetwobasictypesofderivativeinstrumentsarefuturesandoptionscontracts.Theyarecalledderivativesbecausetheirvaluesarederivedfromthevaluesoftheirunderlyingstocksorbonds.

b.Thestatementimpliesthatderivativeinstrumentscanbeusedonlyforspeculativepurposes.Actually,derivativesserveanimportanteconomicfunctionbypermittinghedging,whichinvolvesshiftingrisksonthoseindividualsandinstitutions（speculators）thatarewillingtobearthem.

17.Whatistheeconomicrationaleforthewidespreaduseofdisclosureregulation?

Theeconomicrationaleisthatdisclosuremitigatesthepotentialforfraudbytheissuer.Typically,thereinformationasymmetrybetweenth