Answer all the given problems. Section A to be answered in around 500 words each and Section B to be answered in around 300 words each.
Part A:
problem 1: Describe the concept of flow-of-funds in the financial markets. describe the nature of the financial system in a modern economy discussing the role of financial instruments, markets and institutions?
problem 2: Discuss the Markowitz’s theory of efficient portfolio selection. How the CAPM theory (Capital Asset Pricing Theory) is related to it?
Part B:
problem 3: Critically observe the main theories which have been put forward to describe the term structure of interest rates.
problem 4: Discuss derivative pricing and describe the Black-Scholes formula.
problem 5: Describe the concept of leverage for a firm. Discuss the significant financial and leverage ratios used. Discuss the Merton-Miller theorem.
problem 6: Describe the requirement for, and the role of depository systems in secondary markets. Describe the concept of custodial services.
problem 7: Compare the impact of monetary policy beneath flexible exchange rates with those beneath fixed exchange rates.