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RMIT Classification: Trusted

CLOs assessed:

CLO 1 Identify the nature and key components of financial systems domestically and globally to apply in diverse contexts.

CLO 2. Analyse the characteristics and functions of the main financial intermediaries operating in financial systems in a global context.

CLO 3. Demonstrate the basic financial mathematics applied to the pricing of money and capital market instruments

Questions:

Q1: Financial System (5 marks)

a)    Describe the responsibilities of Reserve Bank of Australia (RBA). Summarise the controversial issue for a piece of recent news that is relevant to one (or more) of the responsibilities of

RBA. You should choose the piece of news with your own research.

Q2: Debt market (5 marks)

a)    Describe the different instruments that are used in short-term debt markets vs long-term debt markets. Provide 2 illustrative examples from each category, preferably from 2

different market jurisdictions. For each example, you should ensure that there is sufficient information for pricing (e.g. the time to maturity, rates, …etc).

b)   Consider a 1-year instrument paying a yield of 4% p.a. and a 10-year debt instrument paying ayield of 6%. How do you account for the yield difference in general? Construct a zero-cost  (i.e. you don’t pay out of your pocket) trading strategy for 10 years to capture a profit from   the two instruments with a reference size of $1000. What is your profit over the period?

Please explain and elaborate if this profit is risk-free.

Q3: Equity market (5 marks)

a)   What are the major stock market indices in Australia, The U.S, Japan and the UK. Produce line charts using the timeframe between 1 June 2021 to 30 June 2023 and discuss your     findings. (You may use Yahoo Finance or other sources.)

b)   What are the top 50 public listed companies in Australia as at 28 April 2023 based on the

market capitalization? What does it tell you regarding the sectors make-up of the Australian economy?

Q4: Derivatives (5 marks)

a)   What are the differences and similarities between Forward Rate Agreements (FRAs) and    Interest Rate Swaps (IRSs)? What are the major futures contracts in the Australian futures markets? Are they with physical or cash settlements? Why do some industries prefer

physical settlements of future contracts?

b)   What’s the difference between option buyers and option writers? Draw and explain the payoffs for call and put option writers.

Note: Supporting evidence from reputable sources are desirable. Sources such as

Wikipedia/Tradingeconomics/Investopedia are not encouraged. Any information included from

other sources must be appropriately referenced using Harvard referencing style. You are expected to include at lease 8 references (at least 2 references for each question).