Topic: Financial markets

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  • 20 Marks

FM – MAY 2017 – L2 – Q1 – Financial markets

Discuss value for money concepts and compare them with corporate value maximization, and explain various financial markets.

a) Bhim is a not-for-profit non-governmental organization aimed at supporting alleged witches to have an empowered livelihood. The organization is developing a proposal to the Ministry of Gender and Social Protection to secure funding to improve basic healthcare and sanitation at three alleged witches’ camps. They have consulted you to help them develop the section on value for money (VfM) in their proposal.

Required: i) Briefly explain the following value for money concepts:

  • Economy
  • Efficiency
  • Effectiveness
    (6 marks)

ii) Compare and contrast value for money and corporate value maximization.
(4 marks)

b) One of the important sustainability requisites for the accelerated development of an economy is the existence of a dynamic financial market. Financial markets can be found in nearly every nation in the world. Some are very small, with only a few participants, while others, like the New York Stock Exchange (NYSE) and the forex markets, trade trillions of dollars daily.

Required:
What is a financial market?
(1 mark)

c) Explain the difference between the following financial markets:
i) Debt market and Equity market.
(3 marks)
ii) Money market and Capital market
(3 marks)
iii) Forex market and Interbank market
(3 marks)

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  • 15 Marks

FM – March 2023 – L2 – Q3c – Financial markets

Identify and distinguish between bear and bull markets, and recommend investment strategies for a bull market.

Recently, the major stock indexes like the S&P 500 and DJIA declined in value continuously during the first quarter of 2021 when most economies were battling the devastating effects of the COVID-19 pandemic. A similar situation happened between 2007 and 2009 when the global credit crunch occurred.

Required:
i) State the type of market condition (i.e., a bear or a bull) described in the above preamble. (1 mark)
ii) Distinguish between a bear market and a bull market. (5 marks)
iii) Recommend to a portfolio investor TWO (2) investment strategies that can be employed to take advantage of a bull market. (4 marks)

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  • 20 Marks

FM – NOV 2021 – L2 – Q4 – Financial markets

Explanation of capital investment decisions, NPV calculation for a new project, and differentiation between money and capital markets.

a) Companies spend money in various ways through their annual budgets, which are usually planned. These spending cover both operational and investment-related decisions.

Required:
i) What are Capital Investment decisions? (2 marks)
ii) State THREE (3) areas that will be considered as capital investment spending or decision. (3 marks)

b) Mamaga Ltd manufactures household utensils in Ghana and is considering investing in a new aluminium smelting and moulding plant. This plant will have a useful life of 5 years but will cost GH¢400,000 to acquire and install, with a residual value of GH¢20,000. The plant will produce 100,000 units per year. Other estimates are given below:

  • Selling price: GH¢30 per unit
  • Direct cost: GH¢20 per unit
  • Fixed cost (including depreciation): GH¢160,000 per annum
  • Marketing and promotion cost: GH¢20,000 (Year 1) and GH¢32,000 (Year 2)
  • Investment in debtors and stocks will increase in Year 1 by GH¢30,000 and GH¢40,000, respectively
  • Creditors will also increase by GH¢20,000 in Year 1
  • Debt, stocks, and creditors will be recouped at the end of the machine’s life
  • The cost of capital is 18%
  • Corporate tax is 25% and is paid in the year in which profits are made
  • Depreciation is tax-deductible

Required:
Compute the Net Present Value of this project and advise Mamaga Ltd whether the plant should be acquired. (10 marks)

c) Financial markets provide platforms or mediums through which holders of surplus funds invest their funds. Those with financial deficits could raise funds or capital, enabling both parties to achieve their objectives.

Required:
Distinguish between money markets and capital markets giving an example of financial instruments traded in each type of market. (5 marks)

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  • 8 Marks

FM – MAY 2019 – L2 – Q1b – Financial markets

Explain the different short-term money market instruments such as Bankers’ acceptance, Commercial Paper, Repurchase Agreement, and Term deposit.

Question:
The money market is the arena in which financial institutions make available to a broad range of borrowers and investors the opportunity to buy and sell various forms of short-term securities. The short-term debts and securities sold on the money markets, known as money market instruments, have maturities ranging from one day to one year and are extremely liquid.

Required: Explain the following short-term market instruments:

  1. Bankers’ acceptance (2 marks)
  2. Commercial Paper (2 marks)
  3. Repurchase Agreement (Repo) (2 marks)
  4. Term deposit (2 marks)

(Total: 8 marks)

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  • 3 Marks

FM – NOV 2015 – L2 – Q4c – Financial markets

State key assumptions of the Random Walk Theory in financial markets.

State TWO (2) key assumptions of the Random Walk Theory. (3 marks)

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  • 4 Marks

FM – NOV 2015 – L2 – Q1d – Financial markets

Explain the concepts of financial intermediation and financial disintermediation.

Explain the following terms:
i. Financial intermediation (2 marks)
ii. Financial disintermediation (2 marks)

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  • 6 Marks

FM – NOV 2015 – L2 – Q1c – Financial markets

Discuss government revenue mobilization policies and explain financial intermediation and disintermediation.

The quarterly report of the treasury unit of Buruwa Limited contains a paragraph on government policy targets and progress towards achievement of the targets. The Technical Director has expressed disagreement about the time spent discussing these policies as wasteful because the policies have no relevance to the business activities of the confectionery company.

Required:
As Head of Finance, you have been tasked to discuss SIX (6) points on government revenue mobilization policies to agree or disagree with the Technical Director’s position. (6 marks)

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  • 20 Marks

FM – MAY 2017 – L2 – Q1 – Financial markets

Discuss value for money concepts and compare them with corporate value maximization, and explain various financial markets.

a) Bhim is a not-for-profit non-governmental organization aimed at supporting alleged witches to have an empowered livelihood. The organization is developing a proposal to the Ministry of Gender and Social Protection to secure funding to improve basic healthcare and sanitation at three alleged witches’ camps. They have consulted you to help them develop the section on value for money (VfM) in their proposal.

Required: i) Briefly explain the following value for money concepts:

  • Economy
  • Efficiency
  • Effectiveness
    (6 marks)

ii) Compare and contrast value for money and corporate value maximization.
(4 marks)

b) One of the important sustainability requisites for the accelerated development of an economy is the existence of a dynamic financial market. Financial markets can be found in nearly every nation in the world. Some are very small, with only a few participants, while others, like the New York Stock Exchange (NYSE) and the forex markets, trade trillions of dollars daily.

Required:
What is a financial market?
(1 mark)

c) Explain the difference between the following financial markets:
i) Debt market and Equity market.
(3 marks)
ii) Money market and Capital market
(3 marks)
iii) Forex market and Interbank market
(3 marks)

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  • 15 Marks

FM – March 2023 – L2 – Q3c – Financial markets

Identify and distinguish between bear and bull markets, and recommend investment strategies for a bull market.

Recently, the major stock indexes like the S&P 500 and DJIA declined in value continuously during the first quarter of 2021 when most economies were battling the devastating effects of the COVID-19 pandemic. A similar situation happened between 2007 and 2009 when the global credit crunch occurred.

Required:
i) State the type of market condition (i.e., a bear or a bull) described in the above preamble. (1 mark)
ii) Distinguish between a bear market and a bull market. (5 marks)
iii) Recommend to a portfolio investor TWO (2) investment strategies that can be employed to take advantage of a bull market. (4 marks)

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  • 20 Marks

FM – NOV 2021 – L2 – Q4 – Financial markets

Explanation of capital investment decisions, NPV calculation for a new project, and differentiation between money and capital markets.

a) Companies spend money in various ways through their annual budgets, which are usually planned. These spending cover both operational and investment-related decisions.

Required:
i) What are Capital Investment decisions? (2 marks)
ii) State THREE (3) areas that will be considered as capital investment spending or decision. (3 marks)

b) Mamaga Ltd manufactures household utensils in Ghana and is considering investing in a new aluminium smelting and moulding plant. This plant will have a useful life of 5 years but will cost GH¢400,000 to acquire and install, with a residual value of GH¢20,000. The plant will produce 100,000 units per year. Other estimates are given below:

  • Selling price: GH¢30 per unit
  • Direct cost: GH¢20 per unit
  • Fixed cost (including depreciation): GH¢160,000 per annum
  • Marketing and promotion cost: GH¢20,000 (Year 1) and GH¢32,000 (Year 2)
  • Investment in debtors and stocks will increase in Year 1 by GH¢30,000 and GH¢40,000, respectively
  • Creditors will also increase by GH¢20,000 in Year 1
  • Debt, stocks, and creditors will be recouped at the end of the machine’s life
  • The cost of capital is 18%
  • Corporate tax is 25% and is paid in the year in which profits are made
  • Depreciation is tax-deductible

Required:
Compute the Net Present Value of this project and advise Mamaga Ltd whether the plant should be acquired. (10 marks)

c) Financial markets provide platforms or mediums through which holders of surplus funds invest their funds. Those with financial deficits could raise funds or capital, enabling both parties to achieve their objectives.

Required:
Distinguish between money markets and capital markets giving an example of financial instruments traded in each type of market. (5 marks)

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  • 8 Marks

FM – MAY 2019 – L2 – Q1b – Financial markets

Explain the different short-term money market instruments such as Bankers’ acceptance, Commercial Paper, Repurchase Agreement, and Term deposit.

Question:
The money market is the arena in which financial institutions make available to a broad range of borrowers and investors the opportunity to buy and sell various forms of short-term securities. The short-term debts and securities sold on the money markets, known as money market instruments, have maturities ranging from one day to one year and are extremely liquid.

Required: Explain the following short-term market instruments:

  1. Bankers’ acceptance (2 marks)
  2. Commercial Paper (2 marks)
  3. Repurchase Agreement (Repo) (2 marks)
  4. Term deposit (2 marks)

(Total: 8 marks)

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  • 3 Marks

FM – NOV 2015 – L2 – Q4c – Financial markets

State key assumptions of the Random Walk Theory in financial markets.

State TWO (2) key assumptions of the Random Walk Theory. (3 marks)

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  • 4 Marks

FM – NOV 2015 – L2 – Q1d – Financial markets

Explain the concepts of financial intermediation and financial disintermediation.

Explain the following terms:
i. Financial intermediation (2 marks)
ii. Financial disintermediation (2 marks)

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  • 6 Marks

FM – NOV 2015 – L2 – Q1c – Financial markets

Discuss government revenue mobilization policies and explain financial intermediation and disintermediation.

The quarterly report of the treasury unit of Buruwa Limited contains a paragraph on government policy targets and progress towards achievement of the targets. The Technical Director has expressed disagreement about the time spent discussing these policies as wasteful because the policies have no relevance to the business activities of the confectionery company.

Required:
As Head of Finance, you have been tasked to discuss SIX (6) points on government revenue mobilization policies to agree or disagree with the Technical Director’s position. (6 marks)

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