Tutorial Questions Week 2

1. There is a document available on Blackboard that is titled Understanding How Your FX Profit Is Calculated. You can access this under the CM Game & Assign tab on the LHS of the Blackboard home screen. This document may help you in answering the questions that follow.

For the group shown in the screen copy above: (a) Show how a Revaluation (i.e., profit) of $8,608 was calculated as at 09/08/2011. Show how a Revaluation (i.e., loss) of -$41,066 was calculated as at 22/08/2011.

(b)

2.

Do you have any questions relating to the CM Game and your FX trading over the past week?

3.

For the purposes of identifying a flow of funds, the economy can be split into five sectors. What are those five sectors? Which would typically be surplus sectors?

4.

In Section 1.4.3, Viney covers some of the differences between direct finance and intermediated finance. The following questions relate to that coverage. (a) What is the difference between the operations of a financial intermediary and a broker? Aussie Home Loans are a reasonably high profile non-bank operating in the Australian home loan market. Have a look at their website (www.aussie.com.au/) and, in particular, their home loans. Are they operating as a financial intermediary or a broker, or both? Give a full explanation of your reasoning. You need to write about a half a page of notes. What is the economic rationale for brokers to exist? Why dont borrowers deal directly with a bank?

(b)

ECF 5221, Tutorial Question, Semester 1, 2012

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(c)

What is the economic rationale for intermediaries to exist? Or putting this question another way, what are the special functions that financial intermediaries perform? Why dont surplus and deficit units deal directly with one another? In the Week 1 lecture, two ways for moving funds from surplus to deficit units were identified: direct finance and intermediated finance. Outline the differences between direct finance and intermediated finance. Have you ever borrowed money via direct finance? Have you ever borrowed money via intermediated finance? Viney (p.18) states that direct finance is generally only available to corporations and government authorities. What would be an example of direct finance used by a corporation? What are the features of corporations and government authorities that allow them to access direct finance? Why is it that most small businesses and individuals do not use direct finance as a way of borrowing or lending? In structuring your responses to these questions you should draw from Vineys list of advantages and disadvantages of direct finance. Are these bonds that Telstra has issued a type of intermediated finance or a type of direct finance? Explain your reasoning.

(d)

(e)

(f)

Telstra announces successful 1 billion benchmark bond issue

16 March 2010 - Telstra today announced the completion overnight of a 10year benchmark 1 billion Eurobond issue, with a 4.25 per cent annual coupon and a maturity of 23 March 2020. Telstra Chief Financial Officer Mr John Stanhope said the borrowing, conducted under Telstras Global Debt Program, reinforces Telstras long-standing presence in the Eurobond market in which it has been a regular issuer.

ECF 5221, Tutorial Question, Semester 1, 2012

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