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Part

1

Intnoduction and Overview of Financial Markets

OUESTIONS
1. Classify the following transactionsas taking place in the primary or secondarymarkets:(LG 1-l) a. IBM issues$200 million of new common stock. b. The New Companyissues $50 million of common stock in an IPO. c. IBM sells $5 million of GM preferred stock out of its marketablesecuritiesportfolio. d. The Magellan Fund buys $100 million of previously issuedIBM bonds. e. PrudentialInsuranceCo. sells $10 million of GM common stock. Classify the foliowing financial instrumentsas money market securitiesor capital market securities:(LG I-2) a. Banker's acceptances b. Commercial paper c. Common stock d. Corporatebonds e. Mortgages f. Negotiable certificates of deposit g. Repurchaseagreements h. U.S. Treasury bills i. U.S. Tieasury notes j. Federal funds 8. What are the different types of financial institutions? Include a description of the main servicesoffered by each. (LG I-s) 9. How would economic transactionsbetweensuppliersof funds (e.g.,households) occur andusersof funds (e.g.,corporations) in a world without Fls? (LG I-6)

10. Why would a world limited to the direct transfer of funds
from suppliers of funds to users of funds likely result in quite low levels of fund flows? (LG I-6) with the flow 1 1 . How do FIs reducemonitoring costsassociated of funds from fund suppliersto fund investors?(LG l-6)

12. How do FIs alleviate the problem of tiquidity and price risk
faced by investorswishing to invest in securitiesof corporations?(LG 1-6)

13. How do financial institutions help individuals to diversify
their portfolio risks? Which financial institution is best able to achievethis goal? (LG 1-6) 14. What is meant by maturity intermediatron?(LG I-6) 15. What is meant by denomination intermediation?(LG I-6) 16. What other servicesdo Fls provide to the financial system? (LG 1-6) 17. Why are FIs regulated?(LG I-8) 18. What events resulted in banks' shift from the traditional banking model of "originate and hold" to a model of "originate and distribute?" (LG l-6, LG 1-7, LG 1-8) 1.9. How did the boom in the housing market in the early and mid-2000s exacerbateFIs transition away from their role as specialists in risk measurement and management? (LG I-6, LG I-7, LG 1-8) 20. What countries have the most intemational debt securities outstanding?(LG 1-8) 21. What countrieshavethe largestcommercialbanks?(LG l-8)

3. How does the location of the money market differ from that
of the capital market? (LG I-2)

4. Which of the money market instruments has grown the
fastestsince 1990?(LG I-2) What are the major instrumentstraded in capital markets? (LG 1-2)

6. Which of the capital market instruments has grown the
fastestsince 1990?$G I-2\ yen in its portfolio, what 7. If a U.S. bank is holding Japanese type of exchange rate movement would the bank be most concernedabout? (LG I-3)

', I Go,tg the New YonkStock ExchangeWeb site at www.nyse.com and find the latest figunesfor- top NYSEvolumedays. '''''Cfick on'flnvestorRelations." Clickon "Financials." Clickon "Data Clickon "Transaction,/Statistics." "NYSE "NYSE Clickon StatisticsArchive."Under DailyShaneVolumein NYSEListed lssues," Librany." " Click on "Market Activity."Clickon "NYSE click on the most recent date. Clickon "lnteractiveViewen data. GroupVolumeRecords-Top 1O Days."This bnings up a file that containsthe nelevant Buestionsi 1. What is the largestnumbenof dailyshanes On what day did this occun? traded on the NYSE? the pencentage changein dailytradingvolumesince the 2.4 billionshanestraded on 2. Calculate June 1 B, 2O1O.