Financial Institutions & Markets BAF403

Date	25/ 01/ 2021		Time:	00:00 PM – 00:00 PM		Total Weighted Mark:
							40

Student’s Name
Student’s ID
Course Name/ Code	Financial Institutions & Markets BAF403
Instructor	Dr. Elias Abu AL-Haija, Dr. Anas AL Qudah
Semester	Fall, 2020-2021
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.

Questions	1	2	3	4	Total
Point	8	10	12	10	40
Student’s Mark

Note: This Project accounts for 40% of the Student Final Grade.

Question 1: Answer the following questions: (8 Marks)

1. 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)

Answer:

2. 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)

Answer:

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 357^th payment is $1,775.56, and the monthly payments is: $598.77)

Answer:

	Amortization Table: (6 Marks)
#			Payment	Interest		Principal		Balance
0														$	90,000.00
1			$	598.77		$				$				$
2			$			$				$				$
3			$			$				$				$
…
358			$			$				$				$
359			$			$				$				$
360			$			$				$				$	0.00

Question 3: Answer the following questions: (12 Marks)

1. 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)

Answer:

2. 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)

Answer:

3. Calculate the bank’s asset utilization ratio (AU). (2 Marks)

Bank A (Dollars in Millions)
Assets		Liability and Equity
Cash	$	850		Deposits	$	6,475
Securities		1,925		Other Borrowing		1,645
Loans		5,400		Equity		1,030
Others		975		Total	$	9,150
Total	$	9,150

Income Statement
Interest income on loans	$	450
Interest income on securities		95
Interest expenses		246
Noninterest income		78
Nonincome expenses		112
Provision for loan loss		35
Taxes		115
NI	$	115

Answer:

Question 4: Answer the following questions: (10 Marks)

1. How do Sales finance companies differ from Personal credit and Business credit institutions? List an example of each. (3 Marks)

Answer:

2. 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)

Answer:

3. 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)

Answer:

Instructions:

1. Project Assessment Criteria

The assessment of the project will be undertaken by the instructor.

Marks distribution will be as follows:

Report Body 40 marks

2. 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 18^th, 2021.

3. 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.

4. Format:

• 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.

Good Luck