Distinguish between Direct Finance and Indirect Finance: Financial Instruments and Markets Assignment, OU, Australia

Subject Financial Instruments and Markets

Assignment Questions:

Question 1

Distinguish between direct finance and indirect finance. When is financial intermediation needed? Using real-world examples to illustrate your answers. Make sure to reference your sources using the APA reference style.

Your answer should be a maximum of 500 words.

Question 2

Find the website for the ‘AMP Capital Multi-Asset Fund’.  Using the information on the website (and ensuring that you reference it correctly), answer the following questions:

  1. Provide a brief outline of the activities of the fund
  2. Using the descriptions in Hunt and Terry (2018) to classify AMP Capital Multi-Asset Fund by type of fund and explain the features and performance of this type of fund.

Your answer should be a maximum of 500 words.

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Question 3

NAB issue a 90-day commercial paper in the US market at 2.5% with a face value of USD10 million. They hedge their FX exposure with an FX swap. (Use a 360-day year for the US, but assume simple interest calculations.)

  1. If the spot rate is AUD/USD0.9800, and interest rates in Australia are 6%, calculate the forward rate component of the FX swap. Show your workings.
  2. Calculate the AUD proceeds from the paper issue and the AUD amount required at maturity. Show your workings.
  3. Demonstrate that the effective interest rate is the local AUD rate.

Question 4

You are considering the purchase one CBA (Commonwealth Bank of Australia) share on 3 July 2019.  You will purchase the share on the ASX.

  1. Use the Yahoo! Finance Australia website to find the beta for CBA.  Include a screenshot showing the beta in its original source.  Include a date and time for the screenshot and remember to reference your data sources.
  2. You will need a proxy for return on the market.  To get this, calculate the return on the ASX 200 index for the year ended 30 June 2019.  Use the Yahoo! Finance Australia website to collect the ASX 200 data.  Show your workings.
  3. You will need a proxy for the risk-free rate.  Use the RBA website to find the return on a two year Government Bond on 30 June 2019.  Show your workings.
  4. Calculate the discount rate for your CBA share.  Show your workings.
  5. Use the ASX website to identify the payment date and amounts of the most recent two dividends. Include a screenshot showing the dividends in their original source.  Include a date and time for the screenshot and remember to reference your data sources.
  6. You expect that dividends during your holding period will be the same as those you have received since you purchased the share.  You would sell the share one year after you purchase it and expect to receive $2.25 (ignore transaction costs).  Using the discount rate you calculated earlier, what price would you have been willing to pay for your share?  Show all workings for your calculations.
  7. Use the Yahoo! Finance Australia website to find the market price for your CBA share at the close of trading on 3 June 2019.  Compare this with your calculated price for a share and decide if you would purchase the share on 3 July 2019 or not.  Based on your calculations, explain why you would (or would not) purchase.
  8. Using a P/E multiple of 14 and the most recent annual earnings per share for CBA, calculate the price of your CBA share.  Use the most recent annual report for CBA to identify earnings per share.  You can obtain the CBA annual report from the ‘announcements’ section of the ASX website.  Show all workings for your calculations and reference your data.  Based on this calculated price, would you purchase a CBA share on 12 August 2020?  Explain how you made this decision.                                                                                                                                                 

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