POLYTECHNIC UNIVERSITY OF THE PHILS

Financial Market
Final Examination

Name:________________________________________Course:___________________Date:_______________

Instruction: Write the ANSWERS ONLY in WORD or EXCEL. In one page

Part I. TRUE OR FALSE (Write TRUE if the statement is correct or FALSE if the statement is incorrect.
1. Finance is the application of economic principles to decision making that involves the allocation of money
under conditions of uncertainty.
2. The financial system economic function pertains to transfer of available funds of parties to parties the need
the funds.
3. In the financial market, direct financing by lenders to borrowers is coursed thru intermediaries such as banks,
brokers and other financial institutions.
4. Financial instruments are derivative financial instruments only.
5. Derivative financial instruments are traded in the money market.
6. Financial instruments have inherent risks such that it is being regulated when traded in the financial market.
7. Price discovery is the interaction between buyers and sellers in the financial market to come up with a price
of a traded financial instruments.
8. Liquidity of the borrower is the basis of the investor to hold to the financial instrument up until such time that
it can be traded for disposal.
9. Capital market serves as a conduit to efficiently transfer large amounts of money from fund providers to fund
demanders at a cheap cost from the parties involved.
10. Primary market is where companies undergo initial public offerings (IPO).
11. Private placement is also called auction.
12. One economic functions of the secondary market is the implantation of the fiscal policy by BSP.
13. For investors, secondary markets are beneficial to them as it gives them opportunity to sell securities quickly
at fair market value.
14. The benefit that issuers get when trading in the financial market is the perception of investors of how much is
the market value of their businesses.
15. Finance is the life-blood of the company.
16. Barter rings made from pure gold, were hand-fashioned by early Filipinos during the 11th and the 14th
centuries.
17. Financial instruments are tangible securities that take a claim in the form of cash which will be received in the
future.
18. In the money market, financial instruments are traded in money or currency.
19. Financial instruments are classified in the financial statements as long term investment.
20. During the Japanese occupation, the monetary system three notes were circulated in the country- war notes
in large denomination, guerrilla notes and resistance currencies.
21. Fiscal policy is used by the government to be able to control inflation and stabilize currency.
22. In a REPO, buying the security and agreeing to sell in the future is a reverse repurchase agreement.
23. A bankers acceptance is a security wherein Issuers maintain credit lines with banks to back-up payment of the
commercial papers when it falls due and no funds are available to pay for the lenders.
24. Credit risk is a business risk that a lender bears when a borrower fails to pay his obligations.
25. The Philippine RA No. 9510 was enacted in Oct. 31, 2009 establishing the credit information system.
26. A debt instrument is a legally enforceable evidence where issuer can raise funds and promises to repay the
lender at maturity date.
27. All debt instruments can be traded in the financial market.
28. Investors are invested more on bonds with an agreed maturity date and periodic interest rate payments on
its face value as assurance of timely payments.
29. When the bond is issued at a discount, it is because the market offers a loer return as compared to the
guaranteed return of the bond.
30. An investor can purchase a bond at par, below par or above par.
31. Government bonds are more attractive to conservative investors than a corporate bond.
32. Mortgage bonds can only be paid annually.
33. Zero coupon bond are sold at a deep discount to par when issued.
34. The practice on discounting the cash flow of a non-treasury security is to use the treasury spot rate plus a
constant credit spread.
35. The authorized capital shares can be increase by amending the articles of incorporation even without seeking
approval from the regulatory agency.
36. The treasury shares of a corporation are already included in the outstanding shares are subscribed shares.
37. A dividend can only be paid in cash.
 38. A corporation can issue a dividend even if incurs losses.
39. Dividends are at the discretion and approval by the shareholders.
40. Retained earnings of corporations can be maintained at over than its paid up capital without penalties.
41. Issuance of additional common shares dilutes ownership of shareholders in the corporation.
42. A callable preference share is share that can be converted into a stated number of ordinary shares after a
certain date.
43. Preferred shares have voting rights if it is explicitly stated by the corporation in its articles of incorporation.
44. In case of liquidation of assets of the corporation, the claim of the preference shareholders is the same with
the ordinary shareholder.
45. Stock market is also an auction market.
46. The overall performance of the stock market is measured through stock market indexes.
47. Investors invest in foreign market to achieve more favorable performance than in their home countries.
48. When supply of funds that are available for borrowers in foreign market have a large supply, interest is high.
49. Unstructured disclosures refer to updates of a listed company on material facts or events that occur in its
normal course of business and would affect investor’s decisions in trading the securities.
50. LIBOR is the rate commonly charged for loans between Eurobanks.
51. The existence of a perfect and consistently performing markets has precipitated the internalization of
financial markets.
52. A currency call option is used to hedge future payable.
53. The threshold for a foreign direct investment that establishes a controlling interest is a minimum of 10%
ownership stake in a foreign based company.
54. A conglomerate direct investment refers to an investor establishing the same type of business operation in a
foreign country.
55. Investors demand premium on overseas investments because these opportunities are accompanied by higher
returns.

Part II. MULTIPLE CHOICE (Write the letter of the correct answer, solutions not needed)
1. The work finance is defined as, except:
a. The money management and the process of acquiring needed funds
b. Allocating investors funds amongst financial assets to accomplish their objectives
c. Maximization of profits to accumulate funds and serve short-term goals of owners
d. The framework for making decisions n how funds are obtained and then invested

2. The players in the financial market are the following, except:

a. Government b. foreigners c. households d. financial intermediaries

3. The elements of the financial system are:

a. Financial instruments b. money creation c. financial market d. all of the above

4. Financial market is defined as:

a. Channels where funds and financial instruments are exchanged
b. A party that facilitates the lending and borrowing of funds
c. Network of interrelated system of the market, intermediaries and services
d. All of the above

5. The best definition to money market is:

a. Where financial instruments mature and will be redeemed in one year or less
b. Where fund demanders seek immediate cash requirements that don’t normally coincide on the timing of
their cash receipts.
c. Serves as a conduit to efficiently transfer large amount of money from fund providers to fund demanders
at a cheap cost.
d. All o the above

6. These are the economic functions of a secondary market, except:

a. Provides information about prices of the securities traded which can influence economic decisions
b. Implementation of the BSP’s monetary policy
c. Offers initial subscription of securities to the general public
d. All of the above

7. A measure to address certain risks and social factors:

a. Social objectives b. efficiency enhancement c. systemic risks d. all of the above
 8. The following are market drivers, except:
a. Consumer protection b. market behavior c. competitiveness d. stability

9. The SEC is the national regulatory that:

a. Acts as the provider of discounts, advances and financial support to financial institutions for them to
maintain their liquidity
b. Provides information for the knowledge-based research
c. Reviews and approves all pre-need and HMO plans before selling these to the public
d. None of the above

10. This was the former name of Bank of the Philippine Islands:
a. El Banco Espanol Filipino c. El Banco Filipino Espanol
b. Banco Filipino Espanol d. none of the above

11. Monetary policy is undertaken by the Bangko Sentral to:

a. monitor and control of money supply c. controls the cost of money, and the rate of
interest.
b. influence the economy d. all of the above

12. Financial instrument is defined as, except:

a. Short term and highly liquid c. low default risk
b. Sold in small denominations d. matures within one year or less

13. The following defines the negotiable certificates of deposits:

a. Have zero default risk c. Interest is not stated but sold at a discount
b. Can be traded easily in the secondary market d. none of the above

14. A commercial paper is defined as, except:

a. Unsecured promissory notes that are only issued by large and credit worthy enterprises
b. Directly issued to the buyer, no secondary market
c. May have stated interest rate or sold at discounted basis.
d. None of the above

15. This is a driver of the interest rate or risk consideration that affects the confidence level of the investors:
a. Credit risk b. credit rating c. credit information system d. inflation rate

16. Chase Ventures took loan from Union Bank for P500,000 at the rate of annual interest of 6%. Based on the
loan amount and rate of interest, interest expense will be P30,000 per annum and the tax rate is 30%. The
cost of debt is:
a. The 6% interest rate b. P30,000 c. P21,000 d. all of the above

Equate Inc would like to borrow funds from Banco de Oro. The bank finds a relevant margin of 5%. Equate Inc is
considering the offer of Banco de Oro considering the risk-free rate of 7% and inflation rate of 3%. The inflation rate
will subsequently increase by 2% on the following year.
17. The nominal rate is stated at:
a. 7% b. 4% c. 6% d. 12%

18. The risk free-rate on the following year will now be:
a. 6% b. 11% c. 7% d. none of the above

19. The applicable rate that Banco de Oro will offer to Equate Inc will be:
a. 12% b. 11% c. 7% d. none of the above

20. This rate represents the interest an investor would expect from an absolutely zero risk investment over a
specified period of time.
a. Default risk b. liquidity risk c. credit risk d. risk-free rate

21. In finance, Basis Points (BPS) is defined as, except:

a. a unit of measurement equal to 1/100th of 1 percent
b. used for measuring interest rates, the yield of a fixed-income security, and other percentages or rates
used in finance.
 c. commonly used for loans and bonds to signify percentage changes or yield spreads in financial
instruments, especially when the difference in material interest rates is more than one percent per year.
d. None of the above

In the valuation of money market securities, consider the following example:

The face value of a treasury bill of P1,000 has a tenor of 91-day and an investor is willing to purchase this at P990.
22. How much is the annualized discount rate is:
a. 3.96% b. 4.05% c. 4% d. none of the above

23. How much is the annualized investment rate?

a. 4% b. 3.96% c. 4.05% d. none of the above

24. Most common collateral valuation used by financial institutions in extending large loans to borrowers:
a. The value of an asset can be determined by the cost to replace or reproduce it
b. An asset is worth as much as other assets with similar utility in the marketplace
c. Investors pay for the expected cash they’ll receive every year from an asset and when the asset is
eventually sold (or salvaged) in the future
d. All of the above

25. This risk arises on the ability of the borrower to consistently make payments of a debt and make sure that
funds are available to pay for the principal amortization including interests.
a. Liquidity risk b. default risk c. market risk d. legal risk

26. These are types of debt instruments except

a. Bonds b. credit card bills c. mortgages d. none of the above

27. A firm has an issue price of P1,000 par value bonds with a 15% stated interest rate outstanding. The issue
pays interest annually and has 13 years remaining to its maturity date. If bonds of similar risk are currently
earning 11%, how much will each bond sell today?
a. P1,265.20 b. P1,369.99 c. P1,234.20 d. P1,270.00

28. Referring to question no. 27, how much is the value of the bond if it sells today with zero coupon rate?
b. P1,000 b. P1,012.50 c. P257.51 d. P162.53

29. Referring to question no. 27, how much is the present value of the cashflow if it sells today?
a. P1,012.50 b. P614.13 c. P837.45 d. none of the above

30. This is also known as fixed-income securities which are traded over the counter
a. Government bond b. preferred stock c. certificate of deposits d. all of the above
66. Andromeda Inc. purchased a 5-year Php1,000 par value bond with a nominal rate of 15% per year payable
semi-annually. The required return per annum on this type of bond is 10%, how much is the net present value
of the cashflow?
a. P579.15 b. P1,158.30 c. P649.35 d. P460.87

67. Referring to question no. 30, how much is the present value of the bond if it sells today?
a. P1,000 b. 485.19 c. P613.91 d. P696.55

68. Referring to question no. 30, how much is the total value of the bond?
a. P1,772.21 b. P1,263.26 c. P1,074.78 d. P1,193.06

69. A bond with two years maturity and par value of P1,000 has annual coupon rate of 20% which is paid semi-
annually. It yields to maturity at 5% semi-annually. What the value of the bond today?
a. P905.95 b. P822.70 c. P683.01 d. none of the above

70. Referring to question no. 33, how much is the present value of the cash flow?
a. P354.60 b. P 709.20 c. P317.00 d. P634.00
71. This is a type of bond market which is a structured financial product that pools together cashflow generating
assets and repackages this into discrete tranches.
a. Collateralized debt obligation b. mortgage bond c. asset backed bond d. none of the above

72. This is a type of financial instrument that promises the investor payment based on future earnings
a. Debt security b. corporate bond c. equity instrument d. government bond

73. Investor X bought 5,000 shares from Company Z at P10.00 per share. Three months after, the share price in
the market has increased and the shares of Mr. X is now valued at P75,000. The effect is a, except
a. Capital depreciation b. capital appreciation c. capital increase d. capital gain

74. These are can be distributed to shareholders on quarter or annual basis

a. Cash dividend b. stock dividend c. property dividend d. all of the above

75. These are shares of stock that are issued by the corporation, except
a. Ordinary/common stock b. preferred stock c. treasury stock d. none of the above

76. Ordinary shares can be, except

a. Widely owned b. closely owned c. publicly traded d. all of the above

77. Preference shares can be

a. Cumulative b. convertible c. callable d. all of the above

78. This can be a characteristic of a preferred shares, except.

a. Entitled to a dividend b. a quasi-debt c.has voting rights if provided for by the corporation
d. none of the above

79. This is where the shares of stocks are issued and publicly traded.
a. Stock market b. secondary market c. primary market d. all of the above

80. It permits ordinary shareholders to retain their proportionate ownership in the corporation in case if issuance
of new shares
a. Be issued with a stock dividend c. has a pre-emptive right
b. Purchase shares at a premium d. has the right of properties

81. The use o the Electronic Communication Network by major brokerage firms is
a. For faster execution of stock trading
b. Trading can continue anytime ever if its after the trading hours.
c. Cost reduction and transparency
d. All of the above

82. These barriers, except one, prevent financial assets from becoming completely integrated
a. Cultural differences b. tax differentials c. tarrifs and quotas d. none of the above

83. These are motives for investing in foreign countries, except

a. Exchange rate expectations b. low interest rates c. economic conditions d. international
diversification
84. This is a network which directly link major brokerage firms and traders and removes the need of a middle
man
a. Electronic Communication Network (ECN)
b. Online Trading Platform
c. Market Network Capitalization
d. None of the above

85. These are the methods used in determining the CRP except
a. Capital asset Pricing Model Method c. Equity Risk Method
b. Sovereign Debt Method d. none of the above

86. It is a digital or virtual currency that uses cryptography or security. CRYPTOCURRENCY

a. Bitcoin b. Eurocredit c. cryptocurrency d. Eurobond
87. These are sectors of the Word Bank Group, except
a. International Finance Corp c. Multilateral Investment Guarantee Agency
b. International Development Association d. none of the above

88. Bitcoin which was the first cryptocurrency to capture the public imagination was launched in
a. Year 2010 b. Year 2008 c. Year 2009 d. Year 2007

89. These define a Eurobond, except

a. An international bond
b. Very popular in the last decade as a means to attract long term funds
c. Sometimes referred to as parallel bond
d. All of the above

90. Country risk encompasses factors excluding

a. Currency fluctuations c. sovereign debt burden and default probability
b. Political stability d. none of the above

*** End of Test ***