1. Equity markets involve:a. A permanent transfer of fundsb. A temporary transfer of fundsc. A predetermined return to investorsd. Both B and D2. Which of the following statements is incorrect?a. Arbitrageurs are motivated to earn a profitb. Arbitrageurs are motivated to reduce the risk of an existing exposurec. Arbitrageurs aim for a risk-free positiond. Arbitrageurs profit from inconsistent pricing3. The maintenance margin for a futures contract refers to:a. The level to which a margin deposit must be returned after a margin call has been madeb. The level to which a margin deposit is set when an investor enters a long futures positionc. The difference between the futures market price and the contract priced. The level of the margin deposit that would trigger a margin call4. Which of the following statements is the most accurate?a. Stock markets facilitate the flow of funds from saving-deficit units to savings-surplus unitsb. Stock markets facilitate the trading of shares of all companiesc. An equally weighted portfolio consisting of all shares traded on the Australian Stock Exchange would represent the market portfoliod. Stock markets provide liquidity for share trading.5. Which of the following statements is the most accurate?a. Stock markets facilitate the flow of funds from saving-deficit units to savings-surplus unitsb. Stock markets facilitate the trading of shares of all companiesc. An equally weighted portfolio consisting of all shares traded on the Australian Stock Exchange would represent the market portfoliod. Stock markets provide liquidity for share trading.6. An over-the-counter forward contract:a. Is marked-to-market dailyb. Will be closed-out by the clearing house if a margin call is ignoredc. Is not subject to daily settlementd. Rarely involves physical delivery7. Relative to the maturity of a bond, the duration is:a. longer when interest rates exceed the coupon rateb. longer when interest rates are less than the coupon ratec. shorter when the bond does not pay coupon interestd. shorter when the bond does pay coupon interest8. Australian stock brokers differ from dealers in that:a. dealers buy and sell from their own portfolio whereas brokers only act on behalf of clientsb. brokers buy and sell from their own portfolio whereas dealers only act on behalf of clientsc. dealers only execute market orders while brokers only execute limit ordersd. brokers only execute market orders while only execute limit orders9. One or more of the financial instruments in the table below are misprices. Complete columns 5, 6, and 7 of the table, indicating which instruments would be bought and which would be sold to exploit the arbitrage opportunity. Assuming a 360-day year, with no transaction costs associated with buying or issuing bills and bonds, calculate the single round-trip profit based on 1 bond.Column1234567InstrumentMaturity (day)Coupon (% p.a.)Coupon frequencyYield(% p.a.)Price ($)Face valueBuy or sell?Bill180“6.50Bill360“7.00Bond3608.0Semi-annual7.781,002.081000
