Pomme, ae RH . & Economics a rs a aT ° (FaL2Ec0202107282ND4 2 a Overview Introduction of the course Study Session 1-2 Quantitative Methods 5 -10% Study Session 4-5 inancial Statement Analysis 10-15% Study Session 6-7 Corporate Issuers 5 -10% Study Session 8-10 Equity Investments 10-15% Study Session 11-12 Fixed Income 10-15% Study Session 13 Derivatives 5 -10% Study Session 14 Alternative Investments 5 -10% Study Session 15-16 Portfolio Management 10-15% Study Session 17 Ethics & Professional Standards | 10-15% -REAANES Sauna4 2 a Practice 1 Jane Smith is currently a senior manager at Universal Capital. During a group meeting, she asked her colleague Nill Watson to explain the factors that cause the size of the bid-offer spread quoted in the FX market to vary. Nill makes the following statements: Statement 1: Some rare currency pairs are less traded with much thinner market participation. Therefore, the bid-offer spread in the interbank market will be wider. AAS 34 2 a Practice 1 Statement 2: The greater the FX market volatility, the wider bid- offer spreads in the interbank market. Statement 3: Narrower bid-offer spreads from the dealer typically result from a larger size of transaction. Which statement is least accurate? A. Statement 3 B. Statement 1 C. Statement 2 sss []4 2 a Practice 1 Solution: A HFATRANE, SA SATAMORMA, BAUR SATE TBARS, ATRMTTRE SR ASE, BLUSE, Statement 34888, GGG, BORAATERATT. SSFIATB, WTRUTAYNODRLOSERIME, ZORMBRIWUERTER, HE ADHERE, SURMEWK, Statement HRI, BORA, WHR ve. ATIC, PAMELA, RUMEN, RIGA, PRSESATIER KPERAMAMAMS, RUSSEL, Statement 2HaRIERR, wale TARGA, PHBA. -REAANES4 2 a Practice 2 Bill Robinson is a client of M&A Investment Bank. The current FX market quotes are listed as follows: AUD/USD 1.3305-1.3352 GBP/USD 0.7220-0.7351 How much AUD would Bill have if he converts 1 million GBP into AUD, based on the quotes above? A. 1.85 million AUD B. 1.81 million AUD C. 1.84 million AUD -REAANES4 2 a Practice 2 Solution: B (ie) _ 4) x (i) = 13305 x GBP, bid USD bid GBP bid AUDY = (M2) x (BR) = 1.3352 x (4) = 1.0493 GBP) serer \USD) scree \GBP/ stron 0.7220) FRLAAUD/GBPBYRT 9 1.8100-1.8493, 41 millionfIGBPS4RAAUD: Amillion GBPx1.8100=1.81 million AUD, UIE RAIAB. -REAANESSA 2 a Practice 3 Michael is a professional FX trader, based in New York. He observed the current quotes of the interbank market are as following: Interbank Market Quotes Currency pair Bid/Ask MXN/USD 10.7005-10.7210 NZD/USD 1.4015-1.4227 Which of the following three dealers offers the quote most likely to make triangular arbitrage trade possible? -REAANESSA 2 a Practice 3 A. Dealer 1: 7.6048/7.6512 in MXN/NZD. B. Dealer 2: 7.5109/7.6601 in MXN/NZD. C. Dealer 3: 7.6500/7.6528 in MXN/NZD. -REAANES4 2 a Practice 3 Solution: C VERTTBAIRM, it BTID HAYZeLILAMXN/NZD 7.5213-7.6497, it@iwt#ee Fe Eff 10.7005 + 1.4227 = 7.5213 SRM}: 10.7210 + 1.4015 = 7.6497 RELA NP AWRISRMA FE Mb MBask pricelKFA—ME Spbid priceht, =HRAANSAHE. AULRACHMIARHt. Dealer Interbank Interbank Dealer ee bid ask bid ask bid ask bid ask -REAANES4 2 a Practice 4 Bern Arnault is a trader at Macauley Securities. He was told to enter into a 60-day NZD/USD forward contract. He longed 1 million USD against NZD at a forward rate of 1.0128 NZD/USD. 30 days after initiation, the quotes are listed below: Spot rate (NZD/USD) 1.0329/1.0335, Maturity Forward points 30-day 44.2/44.5 60-day +6,5/+6.9 90-day 4+14,5/+16.2 11 -REAANES4 2 a Practice 4 The following information is showed for NZD interest rates (at t=30): 30-day 1.15% 60-day 1.21% 90-day 1.28% Based on the above information, the mark-to-market value of the forward contract is : A. 20,500 NZD. B. 20,520 NZD. C. -20,520 NZD. AAS 124 2 a Practice 4 Solution: A SATE 45: 1. BU—NRAHHWRAAL: HAIR AZ0ANISE1 million USDAIZBAH; 2. RERASMANBLH: Ft=1.0329+0.0001x4.2=1.03332 NZD/USD; 3. SAS BAM F=1 millionx(1.03332-1.0128)=20,520 NZD; 4. REBAR TIME: Contract size x (F;— Fy) _ 1 million x (1.03332 - 1.0128) 7 Vee ee ee Oe = 20,500 NZD mx 20 141.15% x 365 1+ Yprice currency * AICTE RAAA, -REAANES4 2 a Practice 5 Three scholars are discussing international parity conditions at a conference meeting at Oakland University. They make the following statements. Scholar 1: Covered interest rate parity derives the no-arbitrage forward rate. Scholar 2: Investors can earn a profit by conducting carry trade if the uncovered interest rate parity does not hold. Scholar 3: If the spot rate is equal to the forward rate, it is called forward rate parity. -REAANES 144 2 a Practice 5 Which of the above statements is least likely to be correct? A. Scholar 1 B. Scholar 2 C. Scholar 3 -REAANES4 2 a Practice 5 Solution: C WEEE NAMELESS TAUB, FEA) FUSSHAENOANAISESEERSBEAL. Scholar 38, BETRCITA DE, DEMAT XERETTA, HANS ENATLORSTEAALEREM, Scholar 1 MAEM, THAR, ADR, SIFHNB, BSCR (carry trade) IEAM ARAL, SE SA APIGARF, Scholar ZRII, ATARI, BULA. -REAANES4 2 a Practice 6 Since last year, excessive capital flowed into Country A, an emerging market in Southeast Asia. An unwarranted appreciation of domestic currency may cause an asset bubble, an overinvestment, and so on. To prevent the crisis, which of the following policies would be least likely adopted by Country A? A. Increase the tax rate on foreign exchange transactions B, Control capital outflow from Country A C. Sell foreign currency to ensure the value of the domestic currency -REAANES 174 2 a Practice 6 Solution: C AGE RET AURATABR, BUARMRAR, KERR RH Zee WATE EDINA, EER, But EET SA, —SAAASIE, B—NUBEINO MI bse ABR. ENOL, BSFRAAT, KRSMBIADTHEE D. AABRBEARSTTPRMASTE, BACAR, Alt, ve TACHERER. TABLE NRA MMALADAR SR, BES HCBEAARASIND RL, ALARILA THES ATES AREA. LIT AMATEMIAGE, AMAT. -REAANES 184 2 a Practice7 Josh Smith is a trainee at the foreign exchange department of McCain International Bank. Sam Lee, CFA, is the supervisor of Smith and asks Smith to prepare a report on the exchange rate determinations models. In the report, Smith makes the following 3 statements: Statement 1: According to the Mundell-Fleming Model, under the condition of high capital mobility, a country that adopts a restrictive monetary policy and an expansionary fiscal policy simultaneously, will see its currency go strong. -REAANES 194 2 a Practice7 Statement 2: The pure monetary approach is characterized by explaining the impact of inflation and price level on the exchange rate in the short run. Statement 3: In the portfolio balance models, investors are assumed to hold both domestic and foreign assets in their portfolios. This model supplements the Mundell-Fleming Model by considering the exchange rates change over the long run. -REAANES 204 2 a Practice7 Which of the above statements is least likely to be correct? A. Statement 3. B. Statement 2. C. Statement 1. -REAANES4 2 a Practice7 Solution: B BRR BRABRLESAATORET, RWADRRS SRA THE, TRNURAALASRATHHE, SAMAR RR AME 38, BltStatement 1#8281EH8, BSSGRLART EET, MEBCRAIA CRE, W FANG FCA BAD BS rh RAI BUSCAR SBR ARLE — th 78. AlltStatement 3}8RiE Rs. ABRDRLRERARADKREKRMM ILS NHI. Alt Statement 2HaiaiR. -REAANES4 2 a Practice 8 Jenna has just learned the Cobb-Douglas production function. She makes a comment that the total factor productivity reflects the level of technology in the economy, and it can be measured directly. Moreover, she believes that an increase in TFP will bring sustainable growth in potential GDP. Which of the following is correct? A. Jenna is correct about the measurement of TFP. B. Jenna is correct about the two comments. C. Jenna is correct about the sustainable growth of potential GDP. -REAANES 234 2 a Practice 8 Solution: C PE BANE SM, CEE AHA, UN ARROEE). BL, HAHER, Seep AN SSRTLUATEGDPHSISSUK, BEL, SEIICIERE. -REAANES4 2 a Practice 9 Sharon Lee, an analyst from a famous hedge fund, studies economic-driven factors in different countries. Country A is a developed economy with a higher capital-to-labor ratio, and Country B is a developing economy with a lower capital-to-labor ratio. Which of the following statement is most likely to be correct when an increase in business investment in both countries? -REAANES 254 2 a Practice 9 A. Country A will experience a higher growth rate of potential oP. B. Country B will experience a higher growth rate of potential GDP. C. Capital deepening exerts the same level of influence on both countries’ GDP growth. -REAANES4 2 a Practice 9 Solution: B RBAASANFSOKWRIN, BEOPRTIC. ATARI PURUITE, WEB ASAAIAIAR RANKIN, BSSHEA WAAWREPHRE, AUGATBIEN, SAM, ALENT. WTAMATCHRAER, AGAR, ART. -REAANES4 » a Sauna Practice 10 Jenna plans to estimate the growth rate of potential GDP for Country A using Solow’s growth accounting equation. She collects data as following: Data for Country A Growth rate of TFP 3% Population growth 5% Growth from capital deepening 2.50% Growth in capital 4.50% Growth in labor productivity 1.20% Share of income paid to labor 45% aS ATS 284 2 a Practice 10 Which factor contributes the most to the growth of potential GDP using Solow’s growth accounting equation? A. Growth from capital deepening B. Growth in capital C. Growth in TFP -REAANES4 2 a Practice 10 Solution: C AUBSolowAStT = 440% +a), BARRE ICASStASSORS, FA, WAMIARR. UES BNA PETE GDPIEKAREM, MURS RAAFIMA, RRS SKAFAALL. BAWRETEGDPAUTRAERE= (1-45%) x4.5%=2.475%, S500 SEHR IY TEGD PAYER RAFERE = 45% x5%=2.25%, TFPIENRISTEGDPAY HRWEE=3%, Blt, TRPASIMRTEEGDPAUIM CRRA, RLGIE TBAINAC. -REAANESSA 2 a Practice 11 Country A reaches a steady state of economic growth, which of the following statements is least likely correct under the Neoclassical model if the saving rate increased? A. An increase in capital-to-labor ratio under steady-state equilibrium. B. An increase in growth rates of output per worker. C. An increase in output per worker under steady-state equilibrium. -REAANES 31SA 2 a Practice 11 Solution: B MENACE UIDUAIC, (OREM TERAMEIGE, Stee FASTREAM, BURNT AORITECAOHARTE NS, SME, DHABI, BRASIL, DULTTBAIRIR, FFE BS, AEWA, -REAANESSA 2 a Practice 12 Which of the following types of convergence describes that poor countries would eventually catch up to developed countries in income level if they make appropriate institutional reform? A. Absolute convergence. B. Conditional convergence. C. Club convergence. sss 3]SA 2 a Practice 12 Solution: C ARBAGWMA, DRAMAS ASLAM Bi, ASA RESTART ARON, BULLETIC TER, -REAANES¢ Le THANKS ®,