Financial Institutions & Markets BAF403
|Date||25/ 01/ 2021||Time:||00:00 PM – 00:00 PM||Total Weighted Mark:|
Course Name/ Code
Financial Institutions & Markets BAF403
|Instructor||Dr. Elias Abu AL-Haija, Dr. Anas AL Qudah|
CLOs as per the Syllabus
CLO6: Evaluate the advantages and disadvantages of long-term capital market for rising corporate finance.
|CLO7: Compare the different types of financial markets securities.|
|CLO8: Select appropriate hedging strategies using future markets for reducing financial risk and evaluate the performance of different types of derivatives.|
|CLO9: Evaluate the performance of financial institutions currently working in the market.|
Note: This Project accounts for 40% of the Student Final Grade.
Question 1: Answer the following questions: (8 Marks)
- Suppose you believe that Johnson Company’s stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For $310.25 you can buy a 5-month call option giving you the right to buy 100 shares at a price of $25 per share. If you buy this option for $310.25 and Johnson’s stock price actually rises to $45, what would your pre-tax net profit be (4 Marks)
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- Suppose you believe that Delva Corporation’s stock price is going to decline from its current level of $82.50 sometime during the next 5 months. For $510.25 you could buy a 5-month put option giving you the right to sell 100 shares at a price of $85 per share. If you bought this option for $510.25 and Delva’s stock price actually dropped to $60, what would your pre-tax net profit be? (4 Marks)
Question 2: Answer the following question: (10 Marks)
- Construct an amortization schedule for the first three months and the final three months of payments for a 30-year, 7 percent mortgage in the amount of $90,000. What percentage of the third payment is principal? What percentage of the final payment is principal? What do these differences imply? (Hint: The balance after the 357th payment is $1,775.56, and the monthly payments is: $598.77)
|Amortization Table: (6 Marks)|
Question 3: Answer the following questions: (12 Marks)
- Why are loans such a high percentage of total assets at the typical bank? What four broad classes of loans do banks engage in? (6 Marks)
- Most nonfinancial firms would never hold as much of their assets in safe liquid securities as banks do. Why do banks maintain such a high percentage of investment in securities? (4 Marks)
- Calculate the bank’s asset utilization ratio (AU). (2 Marks)
|Bank A (Dollars in Millions)|
|Assets||Liability and Equity|
|Interest income on loans||$||450|
|Interest income on securities||95|
|Provision for loan loss||35|
Question 4: Answer the following questions: (10 Marks)
- How do Sales finance companies differ from Personal credit and Business credit institutions? List an example of each. (3 Marks)
- An FI’s position in FX markets generally reflects four trading activities. What are they, and which one(s) cause the FI to bear FX risk? (1×5 = 5 Marks)
- Today, Stock A is worth $20 and has 1,000 shares outstanding. Stock B costs $30 and has 500 shares outstanding. Stock C is priced at $50 per share and has 1,200 shares outstanding. If, tomorrow, Stock A is priced at $22, Stock B at $35, and Stock C is worth $48, what would the value-weighted index amount equal? (The index has a base period value of 100.) (2 Marks)
- Project Assessment Criteria
The assessment of the project will be undertaken by the instructor.
Marks distribution will be as follows:
Report Body 40 marks
- Project Submission Date:
This project is due on week 16; and it is an Individual project. The report should be uploaded using the (Moodle) ONLY before the due date.
- Project due date is January 18th, 2021.
- Late Submission Instructions:
All students must comply with the submission deadlines.
Students are required to submit the report in soft copy also through the Turnitin system which is available online at https://lms.ectmoodle.ae.
High “Similarity Index” will result in low marks for the project.
- The cover page is important, please keep it in your submission.
- High similarity in the answers will affects your marks negatively.
- Follow the instructions that will be explained to you in the class by the instructors.