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FEO810S- FINANCIAL ECONOMICS- 1ST OPP- JUNE 2023 |
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nAm I BIA u n IVERSITY
OF SCIEnCEAno TECHnOLOGY
FACULTYOF COMMERCEH, UMANSCIENCES AND
EDUCATION
DEPARTMENTOF ACCOUNTING, ECONOMICSA_ ND FINANCE
QUALIFICATION: BACHELOR OF ECONOMICS HONOURS
QUALIFICATION CODE:
08BECH
LEVEL: 8
COURSECODE: FEO810S
COURSENAME:FINANCIAL ECONOMICS
SESSION: JUNE 2023
PAPER:THEORY AND CALCULATIONS
DURATION: 3 HOURS
MARKS: 100
FIRST OPPORTUNITYEXAMINATIONQUESTION PAPER
EXAMINER Dr. G. Kavari
MODERATOR: Dr. R. Kamati
INSTRUCTIONS
1. Answer ALL the questions in blue or black ink. STRICTLYNO PENCIL
2. Start each question on a new page, number the answers correctly and show all your
working/ assumptions.
3. Write clearly and neatly. Roundoff only final answers to two (2) decimal places
4. Questions relating to this examination may be raised in the initial 30 minutes after
the start of the paper. Thereafter, candidates must use their initiative to deal with
any perceived error or ambiguities and any assumptions made by the candidate should
be clearly stated.
PERMISSIBLEMATERIALS
1. Silent, non-programmable calculators
THIS QUESTION PAPERCONSISTS OF _5_ PAGES(Including this front
page)
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QUESTION 1
[25 MARKS]
Supposethe Bank of Namibia has issued N$15 million in the Namibian bond market
in order to raise sufficient funds from potential investors. Study the following
bond market information available to all potential investors.
The bond issued XYZ, with a nominal value of N$15 million and carrying a 25% p.a.
coupon which matures on 30 June 2024 and with coupon dates 30 June and 31
December, is traded (and settled) on 15 July 2022 at a yield of 14. 5%. Register
closes one month before interest dates. Bond trades cum interest - there are
169 days left before the next coupon date.
REQUIRED:
MARKS
i) Determine the number of full six-month coupon payments due
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before and at maturity.
ii) Determine the number of days from last interest date to
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next interest date.
iii) Determine the number of days from settlement date to next
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interest date.
iv) Determine the number of days between last interest date and 2
settlement date (= accrued days for a cum interest bond).
v) Write down the relevant formula applicable for cum interest
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bond.
Using above information about trading conditions in the bond market,
calculate the following.
vi) All-in price (AIP)
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vii) Accrued interest (AI)
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viii) Clean price (CP)
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ix) All-in consideration (AIC)
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QUESTION 2
[25 MARKS]
The U.S. financial system is generally considered to be the well-developed, well-
regulated in the world, coupled with sophisticated financial products. The U.S
Monetary Aggregate is divided into 16 components, categorised into 4 groups,
representing Ml, M2, M3 and L, respectively.
REQUIRED:
MARKS
i) List the 16 components of the Monetary Aggregate in the
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United States. Briefly, examine each component.
ii) What is meant by the financial system?
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iii) Appraise the five (5) core functions performed by the
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financial system.
iv) Mention four (4) money market funds in the Namibian
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contexts.
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v) Define monetary aggregate in the Namibian context.
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QUESTION 3
[25 MARKS]
Available evidence suggests that financial development including stock market
development is correlated with current and future economic growth, capital
accumulation, and productivity improvements. The development of the bond and
stock markets plays a significant role in the development of all economies.
REQUIRED:
i) Mention three (3) indicators of financial development.
ii) Specify a simple econometric model to demonstrate the
relationship between the dependent variable and
independent variables when modelling the relationship
between financial development and economic growth.
MARKS
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iii) Indicate the expected signs of the coefficients to be
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estimated in the model specified above.
iv) What is meant by corporate bonds?
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v)
Debate the three (3) signs that it's time to sell your bonds.
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vi) Mention any two (2) most popular stock indices for trading
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around the world.
QUESTION 4
[25 MARKS]
The London Inter-Bank Offered Rate (LIBOR) is an interest rate average
calculated from estimates submitted by the leading banks in London. Each bank
estimates what it would be charged were it to borrow from other banks. It is the
primary benchmark for short-term interest rates around the world.
I REQUIRED:
I MARKSI
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Examine the importance of each of the following Libor related
interest rates:
i) US Dollar LIBOR interest rate
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ii) British pound sterling LIBOR interest rate
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iii) Japanese yen LIBOR interest rate
iv) Tokyo Overnight Average Rate (TONAR)
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v) If you borrow N$1000 from a bank for 120 days and the
interest rate is 6 %, what is the effective interest rate?
vi) Mention the four (4) types of interest rate risk facing
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Namibian banks.
vii) In many countries, treasury bills are sold by single price
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auctions held weekly. Treasury bills are quoted for purchase
and sale in the secondary market on an annualized discount
percentage, or basis.
State the general calculation for yield on a discount basis
for treasury bills.
viii) Suppose a client bought a 91-day Certificate of Deposit
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(CD) with a coupon of 12 per cent, which has 45 days to
maturity. The CD has an identical yield of 12 per cent at
both purchase and sale. If the CD is sold 25 days later,
calculate the holding period return.
ix) Describe any four (4) money market instruments prevalent
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in the Namibian financial system.
x) What is meant by structural liquidity risk?
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xi) What is meant by contingent liquidity risk?
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