QUESTION 1

(a) Distinguish, using financial assets as examples, between securities quoted at par and securities quoted on a discount

(b) Calculate the value of a £50,000 Treasury bill due in 40 days' time with a rate of interest on comparable securities equal to 4% p.a.

(c) The bank of England agrees to buy a £100,000 bill with an outstanding maturity of 60 days for £99,346.76 and resell the bill to the purchaser in 10 days's time for £ 99,455.04. Calculate the Repo rate

QUESTION 2

(a) Show that the pricing of Eurocurrency deposits and loans leads to lower profit margin by Eurobanks compared to onshore banks

(b) What are the factors that explain why the cost of collecting deposits and servicing loans in the Euro market is less that in the onshore market?

QUESTION 3

a. Explain the determination of foreign exchange rate in a flexible exchange regime

b. What are the factors that may cause a shift in

i. The demand for Pounds vis-à-vis the Dollar

ii. The supply of Pounds Vis-à-vis the Dollar

QUESTION 4

(a) What are the differences and similarities between futures and forwards?

(a) Distinguish between exchange traded instruments and over the counter instruments

(b) The following are details of a naked short put. You are requested to draw the pay-off diagram