FIN3001

Topic 1 Introduction

Discussion Questions

1. Why are financial markets important to the health of the economy?

2. What effect might a rise in stock prices have on consumers’ decisions to spend?
3. How does a decline in the value of Japanese yen affect Hong Kong people?
4. Some economists suspect that one of the reasons that economies in developing
countries grow so slowly is that they do not have well-developed financial
markets. Does this argument make sense?
5. How can the adverse selection problem explain why you are more likely to make
a loan to a family member than to a stranger?
6. If you are an employer, what kind of moral hazard problems might you worry
about with your employees?
7. “In a world without information and transaction costs, financial intermediaries
would not exist.” Is this statement true, false, or uncertain? Explain.

CFA-styled Questions

6. A hedge fund holds its excess cash in 90-day commercial paper and negotiable
certificates of deposit. The cash management policy of the hedge fund is best
described as using:

A. capital market instruments.

B. money market instruments.
C. intermediate-term debt instruments.

7. An oil and gas exploration and production company announces that it is offering
30 million shares to the public at $45.50 each. This transaction is most likely a sale in
the:

A. futures market.
B. primary market.
C. secondary market.