《financial markets》课后习题解答实用文档.docx

1、financial markets课后习题解答实用文档financial markets课后习题解答(文档可以直接使用，也可根据实际需要修改使用,可编辑 欢迎下载）ANSWERS TO QUESTIONS FOR CHAPTER 1(Questions are in bold print followed by answers.)1. What is the difference between a financial asset and a tangible asset?A tangible asset is one whose value depends upon certain phys

2、ical properties, e.g. land, capital equipment and machines. A financial asset, which is an intangible asset, represents a legal claim to some future benefits or cash flows. The value of a financial asset is not related to the physical form in which the claim is recorded.2. What is the difference bet

3、ween the claim of a debtholder of General Motors and an equityholder of General Motors?The claim of the debt holder is established by contract, which specifies the amount and timing of periodic payments in the form of interest as well as term to maturity of the principal. The debt holder stands as a

4、 creditor and in case of default, he has a prior claim on firm assets over the equity-holder.The equity holder has a residual claim to assets and income. He can receive funds only after other claimants are satisfied. Income is in terms of dividends, the amount and timing of which are not certain.3.

5、What is the basic principle in determining the price of a financial asset?The price of any financial asset is the present value of the expected cash flows or a stream of payments over time. Thus, the basic variables in determining the price are: expected cash flows, discount rate and the timing of t

6、hese cash flows.4. Why is it difficult to determine the cash flow of a financial asset?The estimation and determination of cash flows is difficult because of several reasons. These include accounting measures, possibility of default of the issuer, and embedded options in the security. Interest payme

7、nts can also change over time. There is uncertainty as to the amount and the timing of these payments.5. Why are the characteristics of an issuer important in determining the price of a financial asset?The characteristics of the issuer are important because these determine the riskiness or uncertain

8、ty of the expected cash flows. These characteristics, which determine the issuers creditworthiness or default risk, have an impact on the required rate of return for that particular financial asset.6. What are the two principal roles of financial assets?The first role of financial assets is to trans

9、fer funds from surplus spending units (i.e. persons or institutions with funds to invest) to deficit spending units (i.e. persons or firms needing funds to invest in tangible assets).The second role is to redistribute risk among persons or institutions seeking and providing funds. Funds providers sh

10、are the risks of expected cash flows generated by tangible assets.7. In September 1990, a study by the U.S. Congress, Office of Technology Assessment, entitled “Electronic Bulls & Bears: U.S. Securities Markets and Information Technology,” included this statement: Securities markets have five basic

11、functions in a capitalistic economy:a.They make it possible for corporations and governmental units to raise capital.b.They help to allocate capital toward productive uses.c.They provide an opportunity for people to increase their savings by investing in them.d.They reveal investors judgments about

12、the potential earning capacity of corporations, thus giving guidance to corporate managers.e.They generate employment and income. For each of the functions cited above, explain how financial markets (or securities markets, in the parlance of this Congressional study) perform each function.The five e

13、conomic functions of a financial market are: (1) transferring funds from those who have surplus funds to invest to those who need funds to invest in tangible assets, (2) transferring funds in such a way that redistributes the unavoidable risk associated with the cash flow generated by tangible asset

14、s, (3) determining the price of financial assets (price discovery), (4) providing a mechanism for an investor to sell a financial asset (to provide liquidity), and (5) reducing the cost of transactions.The five economic functions stated in the Congressional Study can be classified according to the a

15、bove five functions:1.“they make it possible for corporations and governmental units to raise capital” -functions 1 and 2;2.“they help to allocate capital toward productive uses” - function 3;3.“they provide an opportunity for people to increase their savings by investing in them” - functions 1 and

16、5;4.“they reveal investors judgments about the potential earning capacity of corporations, thus giving guidance to corporate managers” -function 3;5.“they generate employment and income” - follows from functions 1 and 2 allowing those who need funds to use these funds to create employment and income

17、 opportunities.8. Explain the difference between each of the following:a.money market and capital marketb.primary market and secondary marketc.domestic market and foreign marketd.national market and Euromarketa.The money market is a financial market of short-term instruments having a maturity of one

18、 year or less. The capital markets contain debt and equity instruments with more than one year to maturity;b.The primary market deals with newly issued financial claims, whereas the secondary market deals with the trading of season issues (ones previously issued in the primary market);c.The domestic

19、 market is the national market wherein domestic firms issue securities and where such issued securities are traded. Foreign markets are where securities of firms not domiciled in the country are issued and traded;d.In a national market securities are traded in only one country and are subject to the

20、 rules of that country. In the Euromarket, securities are issued outside of the jurisdiction of any single country. For example, Eurodollars are dollar-denominated financial instruments issued outside the United States.9. Indicate whether each of the following instruments trades in the money market

21、or the capital market:a.General Motors Acceptance Corporation issues a financial instrument with four months to maturity.b.The U.S. Treasury issues a security with 10 years to maturity.c.Microsoft Corporation issues common stock.d.The State of Alaska issues a financial instrument with eight months t

22、o maturity.a.GMAC issue trades in the money market.b.U.S. security trades in the capital market.c.Microsoft stock trades in the capital market.d.State of Alaska security trades in the money market.10. A U.S. investor who purchases the bonds issued by the government of France made the following comme

23、nt: “Assuming that the French government does not default, I know what the cash flow of the bond will be.” Explain why you agree or disagree with this statement.One would tend to disagree with this statement. Even though there is no default risk with French bonds issued by the government, some other

24、 risks include price risk and foreign exchange risk.11. A U.S. investor who purchases the bonds issued by the U.S. government made the following statement: “By buying this debt instrument I am not exposed to default risk or purchasing power risk.” Explain why you agree or disagree with this statemen

25、t.This is not true. There is no default (credit) risk of U.S. government securities. However, it is not free of purchasing power or inflation risk. There is also price risk, which is related to maturity of any bond.12. In January 1992, Atlantic Richfield Corporation, a U.S.-based corporation, issued

26、 $250 million of bonds in the United States. From the perspective of the U.S. financial market, indicate whether this issue is classified as being issued in the domestic market, the foreign market, or the offshore market. The corporate bonds issued by Atlantic Corporation are in the domestic market,

27、 but the investors can also be from foreign markets.13. In January 1992, the Korea Development Bank issued $500 million of bonds in the United States. From the perspective of the U.S. financial market, indicate whether this issue is classified as being issued in the domestic market, the foreign mark

28、et, or the offshore market.This issue can be classified as a domestic issue.14. 14. Give three reasons for the trend toward greater integration of financial markets throughout the world. There are several reasons. These include:a.Deregulation and/or liberalization of financial markets to permit grea

29、ter participants from other countries;b.Technological innovations to provide globally-available information and to speed transactions;c.Institutionalization - financial institutions are better able to diversify portfolio and exploit mis-pricings than are individuals.15. What is meant by the “institu

30、tionalization” of capital markets?The term “institutionalization” refers to the dominance of large institutional investors such as pension funds, investment companies, banks, insurance companies, etc. in the money and capital markets.16.a. What are the two basic types of derivative instruments?b. “D

31、erivative markets are nothing more than legalized gambling casinos and serve no economic function.” Comment on this statement.a.The two basic types of derivative instruments are futures and options contracts. They are called derivatives because their values are derived from the values of their under

32、lying stocks or bonds.b.The statement implies that derivative instruments can be used only for speculative purposes. Actually, derivatives serve an important economic function by permitting hedging, which involves shifting risks on those individuals and institutions (speculators) that are willing to bear them.17. What is the economic rationale for the widespread use of disclosure regulation?The economic rationale is that disclosure mitigates the potential for fraud by the issuer. Typically, there information asymmetry between th