THE OPEN UNIVERSITY OF TANZANIA

UNIVERSITY EXAMINATIONS – 2010

FINANCIAL MARKETS AND INSTITUTITONS OAF 323

This paper contains three questions

Attempt all questions

Closed Book Examination- Dar centre

Time 2 hours

Question 1

1.1 Define a financial system and identify its components

1.2 Briefly explain the types of financial markets

1.3 Why are financial markets important to firms and investors?

Question 2

2.1 Financial intermediaries acts like a hub in any economy. Explain

2.2 Why are secondary markets important?

2.3 What are (a) initial public offerings and (b) secondary offerings?

Question 3

3.1 What are financial instruments?

3.2 Money market securities, in general, provide lower returns than capital market securities. In
the presence of the secondary market where capital securities are easily tradable, why
would anyone invest in money market securities instead of capital market securities?
 THE OPEN UNIVERSITY OF TANZANIA

UNIVERSITY EXAMINATIONS – 2010

FINANCIAL MARKETS AND INSTITUTITONS OAF 323

This paper contains three questions

Attempt all questions

Closed Book Examination- Dar centre

Time 2 hours

Question 1

1.1 define the term financial market

1.2 briefly explain the types of financial markets

1.3 Why are financial markets important to firms and investors?

Question 2

2.1 Contrast between money market and capital markets

2.2 Describe the following money market securities: (a) Treasury bills, (b) commercial
paper, and (c) negotiable certificates of deposit.

Question 3

3.1 What are financial instruments?

3.2 How does stock differ from bonds in terms of ownership privileges?

3.3 Explain why firms that issue a corporate bond must promise investors a higher return than
that available on a Treasury security that has the same maturity.

THE OPEN UNIVERSITY OF TANZANIA

 UNIVERSITY EXAMINATIONS – 2010

FINANCIAL MARKETS AND INSTITUTITONS OAF 323

This paper contains three questions

Attempt all questions

Closed Book Examination- Dar centre

Time 2 hours

Question 1

1.1 Define the term financial system

1.2 Describe derivative securities and explain why firms and investors use them.

1.3 Why are financial markets important to firms and investors?

Question 2

2.1 What is a bond?

2.2 You purchase a new 182-day Treasury bill with an annualized yield of 5%. When it matures
it will be worth $10,000. How much did you pay for the bond?

Question 3

3.1 Explain the nature and characteristics of the foreign exchange market
3.2 Distinguish between spot and forward markets

3.3 What is an investment banker, and what major functions does he or she perform?

THE OPEN UNIVERSITY OF TANZANIA

UNIVERSITY EXAMINATIONS – 2010

 FINANCIAL MARKETS AND INSTITUTITONS OAF 323

This paper contains three questions

Attempt all questions

Closed Book Examination- Dar centre

Time 2 hours

Question 1

1.1 Define the term financial system

1.2 Describe derivative securities and explain why firms and investors use them.

Question 2

2.1 Define each of the following terms: a) Money market; capital market
b) Primary market; secondary market; initial public offering (IPO) market
c) Private markets; public markets and. Spot market; futures market

2.2 Consider a 30-year, fixed-rate mortgage for Tsh 100,000 at a nominal rate of 9%. If the
borrower wants to pay off the remaining balance on the mortgage after making the 12th
payment, what is the remaining balance on the mortgage?

Question 3

3.1 What are the types of domestic financial markets?

3.2 With reference to mutual funds explain the following terms: asset mix, NAV discount, rate
of return, Ex- mark, gross yield, portfolio turnover ratio, and expense ratio.

3.3 Identify and describe different types of stock market securities

THE OPEN UNIVERSITY OF TANZANIA

UNIVERSITY EXAMINATIONS – 2010

 FINANCIAL MARKETS AND INSTITUTITONS OAF 323

This paper contains three questions

Attempt all questions

Closed Book Examination- Dar centre

Time 2 hours

Question 1

1.1 Describe a mortgage market

1.2 Identify the different instruments of money markets

1.3 Explain the role of the Financial System in the Economy

Question 2

2.1 a) what is a mutual fund?

b) Identify the objectives and functions of a central bank

2.2 Discuss briefly the following (a) value stocks vs. growth stocks (b) principles of insurance
(c) factors that determine exchange rates.

Question 3

3.1 A share of TANESCO energy stock pays a dividend of $3 (per year), expected to grow at a
rate of 6% per year. The discount rate is 11% calculate the current fair price of TANESCO
energy stock according to the Gordon model.

3.2 What major benefits do corporations and investors enjoy because of the existence of
organized security exchanges?

3.3 Describe a banker’s acceptance in three or four sentences.