Financial Markets and Risk Management Practice 1
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Questions and Answers

The boarders two sectors in the economy are?

  • Real sector and the financial sector (correct)
  • Foreign sector and the local sector
  • Local sector and the government sector
  • Services sector and the manufacturing sector

    • Which of the following is not considered as one of the broadest level markets in an economy?

  • Foreign market (correct)
  • Factor market
  • Financial market
  • Goods and services market

    • Main four elements of the overall financial sector are?

  • Capital markets, financial intermediaries, financial regulators and financial infrastructure
  • Equity markets, bond markets, financial intermediaries and financial regulators
  • Financial markets, money markets, financial regulators and financial infrastructure
  • Financial markets, financial intermediaries, financial infrastructure and financial regulators (correct)

    • Three main types of financial markets are?

    <p>Money market, equity market and bond markets</p> Signup and view all the answers

    Gross Domestic Product measures the value of?

    <p>Final goods and services produced within the economy</p> Signup and view all the answers

    Equity market and bond market are subcategories of?

    <p>Capital markets</p> Signup and view all the answers

    Which of the following is correct regarding the money market and the capital market?

    <p>Money market provides short term funds while capital market provides long term funds</p> Signup and view all the answers

    Your company plans to fund a short-term funds requirement only up to 9 months. Which of the following method will be suitable for your funding requirement?

    <p>Issue a commercial paper</p> Signup and view all the answers

    Your company is planning for a capacity expansion project of USD 15 mn. As the financial analyst, you are in the process of making the business plan. Funding mix for the project would most probably include?

    <p>A bank term loan and a corporate bond</p> Signup and view all the answers

    Which of the following will not be one of the main four stages of a business cycle?

    <p>Economic stability</p> Signup and view all the answers

    Four main stages of the business cycle are?

    <p>Peak, decline, trough and recovery</p> Signup and view all the answers

    Sequence of the stages in the economic cycle?

    <p>Trough, recovery, peak and decline</p> Signup and view all the answers

    Business cycle is recognized as?

    <p>Short term economic phenomenon of the economy within the long run trend</p> Signup and view all the answers

    Which of the following schools of economists did not agree on the existence of business cycles?

    <p>Austrian school of economists</p> Signup and view all the answers

    Which of the following is not a feature during the economic peak?

    <p>Low economic growth</p> Signup and view all the answers

    During the economic peak?

    <p>Consumers will continue to demand more and more goods and services</p> Signup and view all the answers

    During the economic peak?

    <p>Inflation is high and aggregate demand is high</p> Signup and view all the answers

    During the latter part of the economic boom?

    <p>GDP growth will decelerate and inflation will increase</p> Signup and view all the answers

    Economic boom is recognized?

    <p>During the latter part of the economic recovery</p> Signup and view all the answers

    During the economic decline?

    <p>GDP growth rate is negative and inflation is negative or low</p> Signup and view all the answers

    During the economic decline?

    <p>Aggregate demand will decline</p> Signup and view all the answers

    Increase in aggregate demand will make?

    <p>GDP to increase in the short run</p> Signup and view all the answers

    A sudden increase in aggregate demand can create?

    <p>Inflation in the economy</p> Signup and view all the answers

    The opinion of the Keynesian school of economists is?

    <p>Government should intervene in the economy to manage the business cycle effects through the fiscal policy</p> Signup and view all the answers

    Fiscal policy actions include?

    <p>Government expenditure and taxes</p> Signup and view all the answers

    If the government intervenes to the economy during a recessionary situation using the fiscal policy, we can expect the government to?

    <p>Increase its expenditure and reduce tax</p> Signup and view all the answers

    Government just announced that it would increase its expenditure in infrastructure to manage the impending economic adversity. This statement indicates that the economy is?

    <p>Leading to a recession</p> Signup and view all the answers

    A government may adopt an expansionary fiscal policy?

    <p>If the economy is in a recession</p> Signup and view all the answers

    Government announced that it will increase taxes and reduce its expenditure in infrastructure to manage the impending economic adversity. This statement indicates that the economy is experiencing?

    <p>High inflation</p> Signup and view all the answers

    Target inflation for Bank of England is?

    <p>2%</p> Signup and view all the answers

    What is the current inflation in the UK as published by June 2024?

    <p>3.2%</p> Signup and view all the answers

    What is the current BOE policy rate as published by April 2024?

    <p>5.25%</p> Signup and view all the answers

    Which of the following is not a type of debt security?

    <p>Futures</p> Signup and view all the answers

    Through a debt instrument?

    <p>The original issuer will borrow funds</p> Signup and view all the answers

    Which of the following is not a feature of a debt security?

    <p>Makes the investor to pay some defined cash flow</p> Signup and view all the answers

    Study Notes

    Financial Markets Overview

    • Financial markets include services, manufacturing, and financial sectors.
    • Key types: money market, capital market, and derivatives market.
    • Broadest market categories: goods and services market, factor market, and financial market.

    Financial Sector Elements

    • The financial sector comprises financial markets, financial intermediaries, financial infrastructure, and financial regulators.

    Economic Indicators and Concepts

    • Gross Domestic Product (GDP) indicates the value of all final goods and services produced within an economy.
    • Economic cycles consist of four stages: peak, recession, trough, and recovery.

    Business Cycle Dynamics

    • Peaks are characterized by high demand, inflation, and business confidence.
    • Declines result in negative GDP growth and reduced aggregate demand.
    • Leading economic indicators include stock market performance.

    Fiscal and Monetary Policies

    • Expansionary fiscal policy increases government spending and reduces taxes during recessions.
    • Monetary policy adjustments include changing interest rates to manage inflation and economic growth.

    Inflation and GDP Implications

    • Inflation affects real and nominal GDP, with changes influenced by overall economic activity.
    • The Bank of England targets a 2% inflation rate; deviations can trigger policy responses.

    Money Creation and Banking

    • Fractional reserve banking allows banks to lend a portion of deposits while keeping a fraction as reserves.
    • A simple money multiplier relates to the reserve ratio, indicating potential increases in money supply.

    Types of Securities and Debt Instruments

    • Debt securities include bills, bonds, and notes, representing liabilities for issuers.
    • Investors receive defined cash flows and the cost of debt is typically tax-deductible for issuers.
    • Economic growth can lead to increased aggregate demand and changes in price levels.
    • Financialization may present vulnerabilities or increase profits in financial sectors relative to the real economy.

    Practical Applications

    • In financial analysis, consider business opportunities based on return metrics rather than just net profits.
    • The process of creating money in banking involves careful adherence to reserve requirements and market activities.

    Examination Preparations

    • Familiarize with definitions, categories, and regulatory implications across financial markets and macroeconomic factors.
    • Understand how fiscal and monetary tools are applied in different economic phases for effective policy recommendations.

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    Related Documents

    Exam practice paper 1 - Financial Markets & Risk Management - July 2024 - Selected for circulation.docx

    Description

    Test your knowledge on financial markets and risk management concepts with our practice paper for the Assessment 1 of the 2024/25 course. Engage with questions that cover key sectors of the economy and market classifications to gauge your understanding.

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