FIN/366 (Financial Institution)
FIN 366 Week 4
DISCUSSION QUESTION 1
Please answer one of the following questions.
1. What are the characteristics of money market instruments? Why must a financial claim possess these characteristics to function as a money market instrument?
2. What types of firms issue commercial paper? What are the characteristics critical to being able to issue commercial paper?
3. If a bond dealer bought a $100,000 municipal bond at 90% of par and sold it at 93% of par, how much money did the dealer make on the bid-ask spread?
4. Explain how securities are brought to market under (a) a competitive sale and (b) a negotiated sale. How do the two methods of sale differ?
5. Define the following terms as they relate to secondary markets: depth, breadth, and resiliency.
6. Briefly describe the role of the NYSE specialists. How does this role differ from that of a dealer?
7. Lance Garrison and Jennifer Stock have both decided to buy 100 shares of WWW.COM, a hot Internet stock. The market price is $240 per share when Lance places a market order and Jennifer places a limit order at $230 per share. One week later, the price of WWW.com is $305 per share after having increased steadily since Lance and Jennifer placed their orders. How much profit has Lance made? How much profit has Jennifer made?
FIN 366 Week 4 DQ 2
Please answer one of the following questions.
1. Explain how repurchase agreement transactions provide short-term investments to businesses. In what sense is a repo a collateralized loan?
2. If a trust is established to securitize $100 million in auto loans that paid 13% interest and the average rate paid on the tranches issued was 10%, whereas financial guarantees to protect against default on the loans cost 1.5%, how much money would the creator of the trust have available to pay for loan servicing and profits if the financial guarantee was purchased?
3. What features make municipal bonds attractive to certain groups of investors? Why do other investors not want to hold municipal securities?
4. Describe the different forms of financial guarantees seen in the bond market.
5. Describe the major differences between common stock and preferred stock.
6. List and explain the factors affecting underwriter spreads.
7. Explain the difference between systematic and unsystematic risk. Explain how beta captures systematic risk.
Week 4 Assignment:
FIN 366 Week 4 Individual Assignment Financial Transaction Risks
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