FM201 – FINANCIAL INSTITUTIONS AND MARKETS

TUTORIAL 10
1. Interest rate is the price of borrowing and a reward for saving. Discuss

2. How are interest rates determined?

3. Explain the difference between fiscal policy and monetary policy in terms of their time
lag

4. Discuss interest rate risk management techniques you have learnt this fare

5. Describe the role of the forward market

6. Explain foreign exchange regime

7. An existing Treasury bond has been issued with a face value of $1000. The bond pays
half-yearly coupons of 7% per annum, and matures on 15 November 2022. Assume that
the bond is sold on 15 July 2019. Current yields for similar Treasury bonds are 8% per
annum. Calculate the price of the bond in the secondary market.


 1 (1 i )
n  
P  C    A(1 i )
n  k
(1 i )
 
 i  

K values = 61/184

8. A bank is to bid at tender for $1 million of 182-day T-notes at a yield of 5.5% per annum.
What price will the bank pay if the tender is successful?( Use the formula below)

face value× days ∈ year

Price=
days ∈ year+ ( yield
100 )
× days ¿ maturity
9. Explain used by the Reserve Bank to control the nations money supply
10. Discuss treasury bonds and treasury notes