individual assignment

• Do this assignment individually.

• Address each question directly. You don’t need to present answers in
essay or report form.
• The word limit is 1000-2000 words. Make sure you answer/address the
question directly.
• Reference your answers if you are using information from another source
using Harvard referencing (a guide is available on the portal under
“Assessments”).
• Do not plagiarise your answers or you will get 0. Please see p.4 of Student
Misconduct Policy for a definition of plagiarism and the consequences:
http://kbs.edu.au/CurrentStudents/SchoolPolicies/InformationforallStudent
s/StudentMisconductPolicy/tabid/445/Default.aspx
• The assignment needs to be submitted on the portal through Turnitin.
Instructions on how to do this are available on the course page under
“Assessments” and also on the portal welcome page. Please read it
carefully as before the due date you can submit a draft and get a similarity
report. If your assignment is directly copied from another source or
student this will be identified by Turnitin and you will receive 0
marks.
• Please submit a word document
Useful sources
• You may wish to look at the sources listed below to get started. However,
you will also have to do some of your own research.
Online Links
• Newspaper websites: ABC, The guardian newspaper, The Australian, The
Financial Review, Bloomberg
• Google news search /Other Finance textbooks
• Yahoo finance: You can look up the share price and market data related to any
publicly listed company – http://au.finance.yahoo.com/q?s=bhp&ql=1
Sources on the portal
• Chapter 12 Viney, Case Studies in Financial Crises, “Financial Market
Essentials”(2011) McGraw and Hill (this is available on the portal under
assessments)

FIN2000
Financial Institutions
and Markets
Individual Assignment
Trimester 2 2014
FIN2000, Financial Institutions &Markets, Trimester
2, 2014 Page 2 of 5
Individual Assignment
This assignment counts for 30% of your total marks
It is due Friday 26
th
September, Week 10 by 5pm (AEST)
Instructions
•
Do this assignment individually.
•
Address each question directly. You don’t need to
present answers in
essay or report form.
•
The word limit is 1000-2000 words. Make sure you a
nswer/address the
question directly.
•
Reference your answers if you are using informatio
n from another source
using Harvard referencing (a guide is available on
the portal under
“Assessments”).
•
Do not plagiarise your answers or you will get 0.
Please see p.4 of Student
Misconduct Policy for a definition of plagiarism an
d the consequences:
http://kbs.edu.au/CurrentStudents/SchoolPolicies/In
formationforallStudent
s/StudentMisconductPolicy/tabid/445/Default.aspx
•
The assignment needs to be submitted on the portal
through Turnitin.
Instructions on how to do this are available on the
course page under
“Assessments” and also on the portal welcome page.
Please read it
carefully as before the due date you can submit a d
raft and get a similarity
report.
If your assignment is directly copied from another
source or
student this will be identified by Turnitin and you
will receive 0
marks.
•
Please submit a word document
Useful sources
•
You may wish to look at the sources listed below t
o get started. However,
you will also have to do some of your own research.
Online Links
•
Newspaper websites: ABC, The guardian newspaper, T
he Australian, The
Financial Review, Bloomberg
•
Google news search /Other Finance textbooks
•
Yahoo finance: You can look up the share price and
market data related to any
publicly listed company –
http://au.finance.yahoo.com/q?s=bhp&ql=1
Sources on the portal
•
Chapter 12 Viney,
Case Studies in Financial Crises,
“Financial Market
Essentials”(2011) McGraw and Hill (this is availabl
e on the portal under
assessments)
FIN2000, Financial Institutions &Markets, Trimester
2, 2014 Page 3 of 5
1. What factors caused the Global Financial Crisis?
Describe
three
factors in
detail. (You need to reference at least
2 sources
in your discussion and
use your own words)
(15 marks)
2. Read the source below and answer the following q
uestions:
The Role of Finance
Glenn Stevens
*
Governor of RBA
The Shann Memorial Lecture, University of Western A
ustralia
Perth – 17 August 2010
…What is it that we need the financial system to do
? I think we can outline five key functions. We
want it to provide:
i. a reliable way of making payments (that is, exch
anging value);
ii. a means for pricing and pooling certain types o
f risks;
iii. a way of transferring resources from savers to
borrowers;
iv. a way of transferring the returns back again, w
hich requires that the savers’ money is not
lost and which, in turn, requires monitoring of bor
rowers and managers; and
v. liquidity.
These are very valuable things for a community to h
ave. The modern economy could not have
developed without these capabilities arising in the
financial system.
The Problems of Finance
…There are at least two potential problems in a wor
ld where the finance sector becomes ‘too big’.
If it is accepted that finance has its own cycle –
of risk appetite, leverage, crisis and then de-
leveraging – then a bigger financial system compare
d with the economy, unless accompanied by
much more capital (and it wasn’t in the case of the
big international banks – the reverse was
true), risks de-stabilisation of the whole economy.
Because crises can be costly, moreover, calls
are inevitably placed on the public purse for suppo
rt. These are very difficult to resist. In the
FIN2000, Financial Institutions &Markets, Trimester
2, 2014 Page 4 of 5
current episode [the GFC], the direct costs to the
public purse of restoring financial stability in
some of the North Atlantic countries are non-trivia
l. But the cost of lost revenue in the lengthy
periods of economic weakness that seem invariably t
o follow financial crises is an order of
magnitude larger. It is this factor really that has
unleashed the recent round of concerns about
public finances in the affected countries.
Secondly, as well as making incomes and activity le
ss stable, an overly large financial sector, if
characterised by perverse incentives that can drive
extraordinary remuneration for individuals,
may draw in too many resources that could otherwise
be employed at a higher social return. To
put it in practical language, too many PhD physicis
ts, mathematicians and engineers working on
options pricing and designing structured products c
ould lower, rather than increase, the
productive capacity of the economy.
For finance is not, for the community, an end in it
self. It is a means to an end. Ultimately it is
about mobilising and allocating resources and manag
ing risk and so on – providing the five
outputs I listed earlier. Yet people have become su
spicious of the way much of the activity in the
financial system amounts to the production of ‘inte
rmediate’ financial services, delivered to others
within the same sector: the ‘slicing and dicing’ of
risk, re-allocating it around the system to those
who are most willing and best able to bear it (or,
sometimes perhaps, and much more troublingly,
to those who least understand it).
…The sort of financial system we should want is wha
t was once described as ‘the hand-maid of
industry’:
23
reliably facilitating transactions, fostering trad
e, bringing savers and investors
together, pooling risk and so on. We don’t actually
want too many of the financiers to be ‘masters
of the universe’. There will always be a risky frin
ge, but it should stay at the fringe, not be at the
core….
Source:
http://www.rba.gov.au/speeches/2010/sp-gov-170810.h
tml
a) Outline two important functions that the financi
al system performs in the
economy. Why is the smooth functioning of the finan
cial system important
to the economy?
(10 marks)
b) What are some of the dangers and incentive probl
ems of the financial
sector getting “too big”?
(6 marks)
3. The Commonwealth Bank issues bonds on the capita
l market to raise
financing for its loans.
a) How much financing will the Commonwealth Bank ra
ise if it issues 500 5-
year bonds today that pay an annual coupon of 6% an
d have a face value
of $1000 if yields on bonds of similar risk and mat
urity are 4%?
(6 marks)
b) What will happen to the price of the bonds in a)
if 1 year from now the
credit rating of the Commonwealth Bank is increased
from AA to AAA?
Why?
(4 marks)
c) How much would an investor pay for the the bond
from a) 1 year after it
was issued if yields on bonds of similar risk and m
aturity had gone down
to 3% by that time?
(8 marks)
FIN2000, Financial Institutions &Markets, Trimester
2, 2014 Page 5 of 5
4. Apple Inc. (APPL share code) issues bank bills o
n the money market to
raise short-term financing for its operations. How
much financing would
Apple raise if it issued a bank bill that has a mat
urity of 180 days, a face
value of $50 million and was issued at a rate of 5%
? The acceptance fee
is 50 basis points.
(8 marks)
5. The ANZ Bank (Share code: ANZ.AX) expects to pay
a dividend of $0.91
today and dividends are expected to grow at 6% fore
ver. The required
return on ANZ shares is 9%. Based on this informati
on would you buy the
share today? (Base your answer on current market da
ta for ANZ shares)
(8 marks)
Do not forget to include a reference list for any s
ources apart from lectures or
tutorials. You also need to include in text referen
ces. See referencing guide on the
portal for more information. Both of these will cou
nt for
5 marks
Total marks= 70