Financial Institutions & Markets BAF403

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


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)


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  1. 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)
#     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)


  1. 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)


  1. 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  


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)


  1. 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)


  1. 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)



  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

  1. 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.
  1. 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

High “Similarity Index” will result in low marks for the project.

  1. 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