AFF 5050 past exam paper (1)

as mentioned before, the teacher of AFF 5050 posted the past exam paper on the blackboard, but did not give the answers to them. in the following post, i will attach the answers of mine, but i am not sure the answers right or not, just for reference

Semester Two Examination 2009
QUESTION 1
Excessive competition in the deregulated financial markets may have been the reason for recent global financial market turmoil. Do you agree with this statement? Discuss with examples from the Sub-prime mortgage issue in the United States.
5 marks
this is an open question, but this question must be shown on the exam.
my answer:
Yes. High competition motivate banks to take higher risk, and deregulation makes it possible for banks to do so. (then talk about subprime mortgage crisis, discribe how and why it happened. in the lecture, the teacher shows a video about this staff, just discribe the video in your own words)
financial market is also need regulation and prudential supervision, because:
1. there is a need to protect the consumer
2. to chck the abuse of oligopolistic and monopoly power
3. to protect the public from crimal activities
4. to deal with the effects of externalition.

QUESTION 2
What are the major functions of international investment banks? Discuss.
5 marks
investment bank is a bank whose function is provision of long term equity and loan finance for industrial and other companies, particularly new securities. four functions form the role of investment banking activities:
1. underwriting and selling of shares and bonds to investors
2. making markets in these securities
3. advisory services: M &A, IPO's, corporate restructures,
4. Supplememtary business streams- investment managementFX trading, securitisation, project financing, venture capital, leasing and financial engineering

QUESTION 3
In international trades, importers use a number of payments methods to pay for their imports. Identify different payments methods and provide examples.
5 marks
1. Prepayments
the goods will not be shipped until the buyer has paid the seller
2. letter of credit
there are issued by a bank on behalf of the importor promissing to pay the exporter upon presentation of the shipping documents
3.drafts (bills of exchange)
a written order instructing the importer or his agent, the importer's bank, to pay the amount specified on its face on a certain date. there are two kinds of drafts
a: sight drafts, when the shipment has been made, the draft is presentaed to the buyer for payment
b: time drafts: when the shipment has been made, the buyer accepts the presented draft. and the panyment is made on the maturity of the draft.
3. consignment
in a consignment sale, the exporter retains title to the merchndise that is shipped. the importer only pays the exporter once he sells the merchandise. if the importer cannot sell the merchandise, he returns it to the exporter.
4. Open account. (do not know how to write about this one)

QUESTION 4
Describe typical role of international commercial banks with examples.
5 marks
1. credit services
accept deposit and lend money
in local currency- compete with domestic banks
cross-border lending- loan made to borrow in a country other than the lender's residence and denominated in currency other than borrower's currency
2. syndicated loan facilities
-credit extend by group of banks to single customer
-high risk or very large loans
-permits the risk to be shared by a number of banks
-lead bank market it to other banks and judge creditworthiness and organize loan
3. commercial paper
- short term promissory notes issued by strong corportate borowers to sophisticated investors
-issuing corporation is expected to provide a commercial bank loan backup facility to support its paper in the unlikely event of market distubnace that might disrupt rollovers
-substitate for bank loan
also there are other 3 role, but i am not sure whether should put them here
4. non-credit service. 5. retail banking activities . 6. international private banking

QUESTION 5
Outline the main features of Offshore Financial Centers?
5 marks
1. low level of tax/ no tax
2. service for foreigners
3. few controls
4. reasonalbe logistic
5. favorable legal system
6. political stability

QUESTION 6
Suggest possible shortcomings to the international bank regulation that became evident from events exposed via the 2008-2009 Global Financial Crisis (GFC).
5 marks
really can not find the answers to this one. i asked the teacher, but i could not remember what he told me...

QUESTION 7
(a) Explain the difference between transaction exposure, economic exposure and translation exposure.
transaction exposure- it can be defined as the sensitivity of realized domestic currency values of the firm's contracutual cash flows denominated in foreign currencies to unexpected exchange rate changes.
transaction exposure arises from fixed price contracting in a world where exchnge rates are changing randomly
economic exposure- it can be difined as the extent to which the value of the firm would be affected by unanticipated changes in exchange rates
translation exposure refers to the potential that the firm's consolidated finacial statements can be affected by changed in exchnge rates

(b) Outline the advantages for a firm holding a financial hedge as opposed to an operational hedge. Explain each concept.
2.5+2.5 = 5 marks
financial hedging refers to hedging exchange risk exposure using financial contracts such as currency forward and options contracts
operacing hedging refers to long term operational approaches to hedging exchange expurse that include diversification of the market and flexible sourcing.
financial heding can be used to stabilize the firm's cash flows. for example, the firm can lend or borrow foreign currencies on a long-term basis. or the firm can use currency forward or options countracts and roll them over if necessary. it is noted that existing financial contracts are desined to hedge against normal rather than real changes in exchanged rates. since the firm's competitive position is affected by real changeds in exchanges rates, financial contracts can at best provide an approximate hedge against the firm's operating exposure. howere, if operational hedges which involve redeployment of resoureces are costly or impractical, financial contracts can provide the firm with a flexible and economical way of dealing with exchange exposure.

QUESTION 8
Describe main features of a generic money laundering model and identify main sources of money laundering. Provide examples.
5 marks
PLACEMENT
illegal funds or assets brought in financial system e.g. bulk movement, smurfing, gambling
LAYERING
illegal funds or assets moved around financial system to disguise origins and create illusion of legitimacy e.g. EFT, intermediaries, shell companies
INTEGRATION
successfully legitimised by mixing with legitimate funds in financial system e.g. asset sales and purchase, import/ export transations, credit cards, corporate financiing

main sources are : drug dealing, fraud, people smuggling, black market , tax evasion

QUESTION 9
(a) Explain the difference between country risk and political risk.
country risk
a potential loss in cross border banking activities such as lending/investment
it casused by a country specific economic, political and social events
it includes sovereign risk, political risk and transfer risk
political risk ranges from unexpected changes in tax rules to outright expropriation of assets held by foreigners. political risk arises from the fact that a soverign country can change the rules of the game and the affected pparties may not have effective resourse

(b) Why do some countries regulate against transfer of funds, thus imposing restrictions on banks?
2.5+2.5 = 5 marks
make it up by yourself...

QUESTION 10
Outline the recent trends in Global Banking and suggest what may happen to global
banking in the future.
5 marks
customers redefine the rules of the game
universal banks and ultra-focused niche plyer thrive
changing workforce composition dictates new approached
regulatory burders intensify
technology improves inexorably