Financial Institutions & Markets ECN 324

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Presentation transcript:

Financial Institutions & Markets ECN 324 Phase 2 Exam Review All Rights Reserved Dr. David P. Echevarria

Mortgage Markets: Chapter 9 Why are federally insured mortgages important to a lender? What is a conforming loan? A jumbo loan? What are the desirable features for a mortgage from the perspective of the lender? What important function do Fannie Mae and Freddie Mac provide to the housing market? What are Mortgage Backed Securities (MBS) and why would investors buy them? What are PIPs? When are they used? All Rights Reserved Dr. David P. Echevarria

Equity Markets: Chapter 10 What economic functions do venture capitalists provide? What is an IPO? How does a shelf registration work? How are prices affected by supply and demand? All Rights Reserved Dr. David P. Echevarria

Stock Valuation Models: Chapter 11 What does it mean to be; Weak form efficient? Semi-strong form efficient? Strong form efficient? What major factors affect stock prices? How does MPT characterize risk? How does CAPM characterize risk? All Rights Reserved Dr. David P. Echevarria

Market Microstructure: Chapter 12 How does a market order differ from a limit order in terms of execution? What does it mean to sell short? What are the short-seller’s expectations? What risk do short sellers face? How does a trader earn profits in a short sale? In a long position? Which government agency regulates the securities markets? What are the expectations of investors with long positions? All Rights Reserved Dr. David P. Echevarria

Futures Markets: Chapter 13 What is the important difference between a forward contract and a futures contract? How does a hedger differ from a speculator? A day trader? How does the short futures position make money? The long position? If a speculator expects interest rates to rise in the next few months, what position would she/he open? (Long or Short?) A person with a long spot position would use which type of hedge? (Long or Short?) All Rights Reserved Dr. David P. Echevarria

Options Markets: Chapter 14 What is a call option? a put option? What bet is a call buyer making? A put buyer? When are options in-the-money? Out-of-the-money? (call vs. put) What is a naked writer? To what extra risk is the naked writer exposed? Which options is used to hedge a long stock position? A short stock position? All Rights Reserved Dr. David P. Echevarria

Interest Rate Futures: Chapter 15 What is the purpose of a swap? What type of financial institutions are most likely to use them? What is a “plain vanilla” swap? How does a putable swap differ from callable swap? If interest rates are expected to decline, do you want to be a borrower or a lender? How do caps and floors work? Collars? All Rights Reserved Dr. David P. Echevarria

Foreign Exchange Markets: Chapter 16 How does supply or demand affect exchange rates? What role do the following differentials have on the rate of exchange? Inflation Interest Rates What are the types of exchange rate mechanisms? How do forward currency contracts differ from futures currency contracts? All Rights Reserved Dr. David P. Echevarria

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