EXAM
QUESTIONS
FINANCIAL
MARKETS AND
INSTITUTIONS
Prof. dr. Geert Gielens, Rudy Vandorpe
Pauline Delphine Verhelst
VUB | 2020-2021
, Table of contents
Part 1: Exam of 2018-2019 questions ..............................................................................................................1
Part 2: Theoretical example exam questions ...................................................................................................4
Part 3: Other exercises .................................................................................................................................. 12
Exercise on revisement of the loan .............................................................................................................. 12
Exercises of chapter 1 .................................................................................................................................. 12
Exercise 3: chapter 2 .................................................................................................................................... 12
Exercises prudential regulation .................................................................................................................... 13
Exercises bond markets ............................................................................................................................... 13
Part 1: Exam of 2018-2019 questions
Question 1 True or wrong and motivate in maximum 5 lines
The interest rate on a bond whose capital is RIGHT
repaid in the interim is always lower than When there are interim payments, there is a lower total
the interest rate on a bond whose capital is amount on which the interest payments are calculated.
fully repaid at the end. The two bonds are When there are no interim payments you will have a
otherwise completely identical. higher risk. This should normally give you a higher return.
Capital markets will eventually make banks WRONG
disappear completely. Banks are a big part of the capital and financial markets.
They invest a lot in it and are big players. Banks also give
advice about how to invest in these markets.
The price of a zero-coupon bond at 6 WRONG
months is equal to the discount factor at 6 Zero coupon = bond that has no intermediate coupon
months. flows.
In financial modeling, a discount factor is a decimal
number multiplied by a cash flow value to discount it back
to its present value.
You do receive a compensation for holding the bond, but
this will not be equal to the discount factor.
The cash reserve behavior of banks is WRONG
entirely determined by the ECB. The ECB sets a minimum.
The reserve that is used is set by banks in function of their
expectations about maximum cash withdrawals by clients +
what the regulator imposes
The bail- in rules allow some bank bonds to WRONG
be treated as equivalent to shares. So you A bail-in provides relief to a financial institution on the
have no more protection than a brink of failure by requiring the cancellation of debts
shareholder should the financial company owned to creditors and depositors.
fall into bankruptcy. This is a way to manage a potential crisis. This can also
happen with monetization, orderly failure, deposit
guarantee scheme and the CB.
But this will not make bonds equal to shares. The bail-in
rules will not frequently be used.
1
QUESTIONS
FINANCIAL
MARKETS AND
INSTITUTIONS
Prof. dr. Geert Gielens, Rudy Vandorpe
Pauline Delphine Verhelst
VUB | 2020-2021
, Table of contents
Part 1: Exam of 2018-2019 questions ..............................................................................................................1
Part 2: Theoretical example exam questions ...................................................................................................4
Part 3: Other exercises .................................................................................................................................. 12
Exercise on revisement of the loan .............................................................................................................. 12
Exercises of chapter 1 .................................................................................................................................. 12
Exercise 3: chapter 2 .................................................................................................................................... 12
Exercises prudential regulation .................................................................................................................... 13
Exercises bond markets ............................................................................................................................... 13
Part 1: Exam of 2018-2019 questions
Question 1 True or wrong and motivate in maximum 5 lines
The interest rate on a bond whose capital is RIGHT
repaid in the interim is always lower than When there are interim payments, there is a lower total
the interest rate on a bond whose capital is amount on which the interest payments are calculated.
fully repaid at the end. The two bonds are When there are no interim payments you will have a
otherwise completely identical. higher risk. This should normally give you a higher return.
Capital markets will eventually make banks WRONG
disappear completely. Banks are a big part of the capital and financial markets.
They invest a lot in it and are big players. Banks also give
advice about how to invest in these markets.
The price of a zero-coupon bond at 6 WRONG
months is equal to the discount factor at 6 Zero coupon = bond that has no intermediate coupon
months. flows.
In financial modeling, a discount factor is a decimal
number multiplied by a cash flow value to discount it back
to its present value.
You do receive a compensation for holding the bond, but
this will not be equal to the discount factor.
The cash reserve behavior of banks is WRONG
entirely determined by the ECB. The ECB sets a minimum.
The reserve that is used is set by banks in function of their
expectations about maximum cash withdrawals by clients +
what the regulator imposes
The bail- in rules allow some bank bonds to WRONG
be treated as equivalent to shares. So you A bail-in provides relief to a financial institution on the
have no more protection than a brink of failure by requiring the cancellation of debts
shareholder should the financial company owned to creditors and depositors.
fall into bankruptcy. This is a way to manage a potential crisis. This can also
happen with monetization, orderly failure, deposit
guarantee scheme and the CB.
But this will not make bonds equal to shares. The bail-in
rules will not frequently be used.
1
