Question
Transcribed Text
1) What are the three types of risk facing parties any financial transaction? Explain using
examples
2) Look at the table below. Explain carefully what each of the columns means. As an
investor, give one reason you may prefer to purchase the Comcast Corp bond (last
from bottom) over the Shell Intl Finance issue and one reason why you may prefer the
latter over the former.
3) Using two graphs, one each for the market for bonds and the market for loanable
funds, explain carefully the effect of the following changes on the price of bonds and
the interest rate:
a) The U.S government bans Moody and Standard and Poor ratings agencies
from rating bonds
b) The Government in 2012 plans to fund Green Energy through increased
borrowing.
c) A hurricane increases expected inflation by destroying oil refineries.
4) A hurricane increases expected inflation by destroying oil refineries. Using the link to
the dynamic yield curve provided in the class website, explain what is meant by a
yield curve and what an inverted yield curve implies.
5) Explain, using examples, what is meant by the following terms and how they are used
in the money market:
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1) What are the three types of risk facing parties any financial transaction? Explain using examples1. Market Risk: The risk that the price of the financial security will move adversely because of overall market movements.
2. Idiosyncratic Risk: The risk that the price of the financial security will move adversely because of risks specific to the security or issuer.
3. Counter-Party/transaction/liquidity Risk: The risk that the counter-party or intermediary will not honor his/her obligations (e.g., buy back a short sale at a price close to market) expected or agreed upon....
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