# International Financial Management

Exam Questions

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Kartei Details

Karten 20 English Finanzen Universität 23.01.2022 / 23.01.2022 Keine Angabe    (Leipzig University) https://card2brain.ch/box/20220123_international_financial_management

Money Markets vs. Capital Markets

Money Markets: the organized exchange on which participants can lend and borrow large sums of money for a period of one year or less

Capital Markets: long-term investing where issuing and trading stocks/bonds

Money markets + capital markets = financial market

Single Tier vs. Two Tier Corporate Structure

Single Tier: shareholders elect CEO; CEO reports to shareholders (more informal arrangement)

Two-Tier: institutionalized shareholder and supervisory body elect CEO; CEO reports to board of directors

A corporate bond entails which rights for an investor?

• a debt obligation (bond)
• semi-annual coupon payments; upon a coupon rate until bond expires
• upon expiration = face value is paid back
• paid back before shareholders: bonds are lower risk than equity

How can a corporate bond be valued?

1. calculate cash flows as per coupon rate per annum

2. calculate present value, using discount rate (PV = cash flow / 1 + discount rate)

3. add the new sum over time  to find bond price today

Explain the difference between a spot and a forward interest rate.

•  Spot is today's interest rate (T=0)
• Forward Interest Rate: is the future interest rate

Imagine you are a long-term stock investor. Should you care about the resale price of the stock when it comes to valuing the stock today? Explain.

• resale price will not reflect the real value of the stock
• daily stock prices can be volatile
• better to consider the sum of present values of the future dividents
• it is impossible to forecast future dividents but one can try using past/present information

Discuss and explain the main assumptions, the derivation and the results of the Markowitz Portfolio Theory verbaly and by the use of a graph.

• x axis: standard deviation %; y axis: expected returns
• Graph
• the efficient frontier shows the portfolios with the highest return for a given risk / or lowest risk for a given return
• efficient portfolios are on the line
• Result - diversify your stock portfolio to reduce systematic risk
• covariance suggests the correlation between stocks; which reduces with a diversified portfolio
• Assumptions
• everyone is an return risk optimizer (looking for highest return related to lowest risk)
• higher risks = higher returns

Explain the difference between primary and secondary equity markets

• primary markets for private placements, intial public offerings (IPOs and warrants
• secondary markets involve stock exchanges and are the primary venue for public investment in corporate equity