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The financial market is composed of products and services provided by financial institutions. Identify and describe the following financial institutions.
a). Identify and explain at least five financial instruments (for each) traded in money and capital markets. (20 Marks)
b). distinguish the two types of markets in (a) above
a). Outline and discuss the main risks faced by financial institutions and how they manifest giving practical examples. (10Marks)
b). Discuss how these risks can be mitigated and managed.
Josh intends to retire early and wants to understand how much he should save of his monthly salary of R25 000 to develop an asset that will pay him his salary monthly once he has retired. Assuming that he would need to develop an asset of R3 000 000, and that he can obtain an interest rate and return of 10% per annum, compounded monthly, for the next 20 years, what should he save monthly to achieve this?
(a) What are derivative instruments? (5 marks)
(b) Explain the types of derivative instruments. (10 marks)
(c) What are the advantages and disadvantages of using derivative instruments? (10 marks)
FREE CASH FLOW Bailey Corporation’s financial statements (dollars and shares are in
millions) are provided here.
76 Part 2 Fundamental Concepts in Financial Management
Balance Sheets as of December 31
2008 2007
Assets
Cash and equivalents $ 14,000 $ 13,000
Accounts receivable 30,000 25,000
Inventories 28,125 21,000
Total current assets $ 72,125 $ 59,000
Net plant and equipment 50,000 47,000
Total assets $122,125 $106,000
Liabilities and Equity
Accounts payable $ 10,800 $ 9,000
Notes payable 6,700 5,150
Accruals 7,600 6,000
Total current liabilities $ 25,100 $ 20,150
Long-term bonds 15,000 15,000
Total debt $ 40,100 $ 35,150
Common stock (5,000 shares) 50,000 50,000
Retained earnings 32,025 20,850
Common equity $ 82,025 $ 70,850
Total liabilities and equity $122,125 $106,000
Income Statement for Year Ending December 31, 2008
Sales $214,000
Operating costs excluding depreciation and amortization 170,000
EBITDA $ 44,000
Depreciation & amortization 5,000
EBIT $ 39,000
Interest 1,750
EBT $ 37,250
Taxes (40%) 14,900
Net income $ 22,350
Dividends paid $ 11,175
a. What was net working capital for 2007 and 2008?
b. What was Bailey’s 2008 free cash flow?
c. Construct Bailey’s 2008 statement of stockholders’ equity.
How are risks faced by financial institutions mitigated or managed?
You are buying your first car for $20,000 and are paying $2,000 as a down payment. You have negotiated a nominal interest rate of 12 percent and you plan to pay-off the car over five years. What is the monthly payments you must make on this loan?
How do higher interest rates affect stakeholders
Identify the following with a sentence or at most two and give an example in each case:
i. Money Multiplier
ii. Monetary aggregate
iii. Money illusion
IV. Dollarization
V. Devaluation
