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FIN104 Tutorial Questions - Week 2
1. Financial Markets and Institutions. True or false? (CH2.Q3)
a. Financing for public corporations must flow through financial markets.
b. Financing for private corporations must flow through financial intermediaries.
c. Almost all foreign exchange trading occurs on the floors of
the FOREX exchanges in New York and London.
d. Derivative markets are a major source of finance for many corporations.
e. The opportunity cost of capital is the capital outlay required to undertake a real investment opportunity.
f. The cost of capital is the interest rate paid on borrowing from a bank or other financial institution.
2. Financial Institutions. Summarize the differences between a commercial bank and an investment bank. (CH2.Q12)
3. The Financial Crisis. True or false? (CH2.Q19)
a. The financial crisis was largely caused by banks taking large positions in the options and futures markets.
b. The prime cause of the financial crisis was an expansion in bank lending for the overheated commercial real estate market.
c. Many subprime mortgages were packaged together by banks for resale as mortgage-backed securities (MBSs).
d. The crisis could have been much more serious if the government had not stepped in to rescue Merrill Lynch and Lehman Brothers.
e. The crisis in the eurozone finally ended when other eurozone countries and the IMF provided a massive bailout package to stop Greece from defaulting on its debts.