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- explain the depth in the global bond markets, mention atleast 3 varieties of bonds from various countries and latest issuance's thereunder.Rand's remarkable resilience inflicts pain on its doubters The rand seems to no longer follow the rules of the emerging-markets playbook, according toan expert. While many investors expected the rand to buckle in the face of rising US Treasury yields andprospects of a more aggressive pace of Federal Reserve hikes, the currency has done theopposite. The rand is sometimes referred to in currency market circles as "the rattler", because of itshabit of snapping back hard in the opposite direction to a big move.There is a reason South Africa's currency is called "the rattler".While many an investor expected the rand to buckle in the face of rising US Treasury yields and prospects of amore aggressive pace of Federal Reserve hikes, the currency has done the opposite. It's just posted its fifthweekly gain, causing pain for those who have bet against it."In a risk-off and volatile environment, the rand used to be one of the weakest currencies," said Milan-basedinvestor Roberto Bagnato at…a)What is meant by market failure? b)Why does increased volatility in financial markets with respect to the price of financial assets,interest rates,and exchange rates foster financial innovation? c)Why is the holding of a claim on a financial intermediary by an investor considered an indirect investment in another entity? d)Explain how a financial intermediary reduces the cost of contracting and information processing.
- Bond A pays $8,000 in 20 years. Bond B pays $8,000in 40 years. (To keep things simple, assume that theseare zero-coupon bonds, meaning the $8,000 is theonly payment the bondholder receives.)a. If the interest rate is 3.5 percent, what is the valueof each bond today? Which bond is worth more?Why? (Hint: You can use a calculator, but the ruleof 70 should make the calculation easy.)b. If the interest rate increases to 7 percent, what isthe value of each bond? Which bond has a largerpercentage change in value?c. Based on the example above, complete the twoblanks in this sentence: “The value of a bond[rises/falls] when the interest rate increases,and bonds with a longer time to maturity are[more/less] sensitive to changes in the interestrate.”5. Economists continue to be puzzled by the appar- ent home bias of investors across countries. With mean-variance preferences, investors ought to allo- cate much more of their wealth to foreign equities and bonds. Three explanations for the phenomenon are given below, all of them based on empirical facts. For each one, discuss whether the statements are true or false and in what sense they help, or fail, to rationalize the home bias puzzle. In answering the questions, assume that investors have mean- variance preferences. a. Investors should not hold foreign equities be- cause they are more volatile and have been yielding lower returns than U.S. stocks in re- cent years. b. Home bias arises because investors face an ad- ditional risk when investing internationally— namely, currency risk. Because currency risk makes returns more volatile but does not lead to a higher expected return, investing more in domestic…Assume that you are interested in earning some returnon the idle balances you usually keep in your checkingaccount and decide to buy some money market mutualfunds shares by writing a check. Comment on the effectof your action (with everything else the same) on M1and M2
- 1.Would each of the following groups to be happy or unhappy if ringgit appreciated? Explain. A) Hong Kong pension funds holding Malaysian government bonds. B) Malaysian manifacturing industries.C) Australian tourists planning a trip to Malaysia. D) A Malaysian firm trying to purchase property overseas.(1) Why would a company’s financial managers wantto pay attention to the federal funds rate? (2) Ratherthan promising to support any too-big-to-fail banks,could the federal government instead simply warneveryone that doing business with one of these firmsis risky? Why or why not?please show steps on financail calculator if possible? The real risk-free rate is 3.25%. Inflation is expected to be 2.00% this year and 3.75% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2 year Treasury securities? Do not round Intermediate calculations. Round your answer to two decimal places. % What is the yield on 3-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places.
- You are an investor currently holding 1.5 million U.S. dollars, and you are contemplating the following strategies. 1)Investing in the U.S. 5-year treasury bonds.2)Investing in the 5-year government bonds of one of the countries listed below. Your strategy is to exchange your funds on the spot market into the foreign currency, buy the local government bond, and after the bond’s maturity, exercise a forward to change your funds back into USD. Spot and forward rates are listed below. There are no put and call rates (the spread is equal to zero). The forward, however, costs 2% of the exchanged value.Required:1.Find the most profitable strategy. Calculate the future and present values of all 11 strategies (U.S. treasury bonds and 10 foreign government bonds).2.Explore the concept of arbitrage on the currency exchange markets and critically evaluate how it relates to this situation.1. Suppose that a manufacturer can produce a part for $8.00 with a fixed cost of$3,000. Alternately, the manufacturer could contract with a supplier in Asia to purchase the part at a cost of $10.00,which includes transportation. a. If the anticipated production volume is 1, 400 units, compute the total cost of manufacturing and the total cost of outsourcing. b. What is the best decision? 2. A bank developed a model for predicting the average checking and savings account balance as balanceequals - 16,079+398 x age+1,322 x years education +0.125 xhousehold wealth. a. Explain how to interpret the numbers in this model. b. Suppose that a customer is 25 years old, is a college graduate (so that years education =16),and has a household wealth of $120,000. What is the predicted bank balance? A.The number -16,079 The number 398 The number 1,322 The number 0.125The demand D (in billions of £) for a bond with coupon rate 5% and face value FV = 1000, andtwo years to maturity as a function of its price P is D = 4000 − 2P. The supply in (billions of£) as a function of the price of the bond is S = 2P + 400. b) Suppose that the yield to maturity of the bond is i = 0.05. What is the quantitydemanded/supplied at this interest rate? What happens to the demand/supply of the bond asthe interest rate increases? Explain why. c) What is the equilibrium interest rate?