Finance Answers

What is the role of the financial intelligence center? How Is it effective? Are they in conflict with the drug Enforcement commission?

Explain the role of asymmetric information in financial markets.

A stockbroker gathers the following data. Stock FB splits two-for-one during the

period.

Beginning of Period  End of period

Stock  Price ($) Shares  Price ($) Shares

TA  31  6,000  29  6,000 

FB  92  300  54  600 

ZM  42  2,200  43  2,200

a. Calculate the returns on both the price-weighted index and the market value-

weighted index of three stocks over the period.

b. Explain the difference in returns between the two indexes.

The following table shows a partial listing of T-bills from the Wall Street Journal

Outline. Rather than providing prices of each bill, the financial press reports yields using the bank-discount method. The face value of T-bill is $10,000.

Treasury Bills

August 6, 2021

 Maturity  Bid (%)  Asked (%)

9/2/2021  0.040  0.030

9/9/2021  0.045  0.035

9/16/2021  0.043  0.033

9/23/2021  0.048  0.038

Consider the bill maturing on September 23.

a. What is the price at which the dealer is willing to buy assuming days to

maturity are 48 days?

b. What is the bond equivalent yield if you purchase the bill?

 You are bearish on TSM and decide to sell short 2,000 shares at the current market price of $68 per share. TSM pays no dividends.

a. How much in cash or securities must you put into your brokerage account if the initial margin requirement is 60%?

b. If you earn no interest on the funds in your margin account, what will be your rate of return after a week if TSM is selling at $56 per share? c. How high can the price of the stock go before you get a margin call if the maintenance margin is 40%? 

You are bullish on RVH stock. The current market price is $50 per share, and you have $600,000 of your own to invest. You borrow an additional $400,000 from your broker at an interest rate of 3% per week and invest $1,000,000 in the stock. RVH pays no dividends.

a. Suppose the price of RVH stock falls immediately after your purchase. The maintenance margin is 30%. How low can the price of RVH stock fall before you receive a margin call?

b. Suppose a week has passed. What is your rate of return if the price of RVH stock has gone up by 20%? 

With the continuous advancements taking place in the information technology (IT) sector, could 

these advancements cause financial intermediation to become extinct? Discuss.

Using the knowledge acquired 

in the course (Money and Banking), explain how the Government through the central Bank (Fed) can reduce the inflation rate. (Explain the tools and the transmission mechanisms)

 Explain the role of asymmetric information in financial markets. How does the existence of asymmetric information explain the importance of banks in financial markets?

Give two reasons why a central bank (Fed) does not have complete control over the level of bank deposits and loans. Explain how a change in either factor affects the deposit expansion 

process.