ACADEMIC INTEGRITY
PART 1: ACADEMIC INTEGRITY MOUDLE (5 marks)
Complete the Academic integrity micro credential: https://www.rmit.edu.au/studywith-us/levels-of-study/short-courses/academic-integrity-awareness
You will receive a certificate when you complete the micro credential and Submit
the certificate under the submission point 2.
PART 2: SCENARIO ANALYSIS (45 marks)
Please submit your final assessment under submission point 3
You are a financial advisor who regularly educates new clients about how market
and economic systems work to take the mystery and fear out of investing. You have
found that when clients understand how things work behind the scenes, they feel
more confident in continuing to invest throughout their lives, regardless of doom
and gloom that they may see or hear in the news. In this report, you are asked to
address questions that your new client Jaleel has and help him to have a better
understanding of financial markets.
BAFI 1005 Financial Markets, Semester 1, 2022 Page 2 of 5
1. Understanding Different Asset Classes
(TOTAL 15 MARKS)
a) There are many ways to invest money. Jaleel wonders what are the investment
options he can choose from. Choose three asset classes from the list below and
help Jaleel to have a closer look at each of them. You are expected to explain the
unique characteristics of the asset class, their associated risks and potential
returns. For each asset class, you should use one or two examples to support your
explanation.
(6 marks)
Asset Class Characteristics Risk Potential Returns Example
Cash Products
Fixed Income
Equities
Currencies
Derivatives
b) The development bank of Singapore Limited (DBS) offers a bill facility to corporate
clients. The bank website explains the terms and conditions of Bills of Exchange.
https://www.dbs.com.sg/corporate/terms/application-for-outward-bill-collectionda/dp-terms-and-conditions
Describe the structure of a bank accepted bill/ bank endorsed bill/bill of exchange
to Jaleel. In your explanation, clearly distinguish the roles of the parties associated
with the bill issue.
(5 marks)
c) In June 2020, Singapore Airlines Limited undertook a renounceable rights issue of
new ordinary shares in the capital of the company and mandatory convertible bonds
to entitled shareholders.
• Explain renounceable rights issue of ordinary shares and discuss the
advantages and disadvantages. (2 marks)
• Explain to Jaleel what is convertible bonds and why would Singapore
Airlines undertake mandatory convertible bonds to entitled shareholders?
(2 marks)
BAFI 1005 Financial Markets, Semester 1, 2022 Page 3 of 5
2. Central Banks, Monetary Policy and Interest Rates
(TOTAL 10 MARKS)
a) Market participants, including financial institutions, fund managers and corporations,
must understand monetary policy setting impacts on economic activity and business
cycle. A central bank will typically implement monetary policy settings in order to
achieve certain economic outcomes over a business cycle. Briefly describe the
intermediate target for monetary policy in Singapore and give examples of different
economic indicators that may give an insight into the future stages of a business cycle.
(5 marks)
b) Once Jaleel understand the monetary policy framework in Singapore, he also would
like to explore the monetary policy in Australia. Explain to Jaleel how the reserve bank
of Australia implements the monetary policy. Use the data provided to plot the interest
rates on 2-year commonwealth government bond and 10 year commonwealth
government bond from January 2020. Determine the shape of the yield curve by using
one of the theories you know and share your opinion on whether the Australian
economy is heading for a boom or for a recession. Explain your choice.
(5 marks)
BAFI 1005 Financial Markets, Semester 1, 2022 Page 4 of 5
3. Derivative Securities
(TOTAL 10 MARKS)
a) Jaleel knows that the primary purpose of a futures contract is the management of a
risk exposure. Use Singapore Airline as an example to further explain how a futures
contract achieves this risk management function.
(4 marks)
b) Jaleel is holding some Tesla shares (NASDAQ: TSLA) and The TSLA stocks are
currently trading at $985 on the Nasdaq. Given TSLA stocks are very volatile, Jaleel
wishes to protect the value of his investments. He seeks your advice on using option
contracts and presents a list of options for you to choose from. Assume the number of
underlying shares per contract is 100 shares.
Strike Call premium Moneyness Put premium Moneyness
$975 $10.01 $0.01
$980 $4.45 $0.04
$985 $0.63 $0.99
$1005 $0.05 $20.48
(i) Please specify the moneyness of the above options. Are they in the money, at
the money or out of the money?
(3 marks)
(ii) Identify what kind of risk that Jaleel is facing and to hedge this risk, which
option would you suggest that Jaleel should purchase? Why?
(3 marks)
BAFI 1005 Financial Markets, Semester 1, 2022 Page 5 of 5
4. Fund Management
(TOTAL 10 MARKS)
a) Managed funds are often categorised by the type of investments purchased by the
fund. These include capital stable funds, balanced growth funds and managed capital
growth funds. For each of these funds, discuss the types of investments the fund
might accumulate and explain the purpose of the investment strategies. If Jaleel is
identified as a risk averse investor, which type of fund would you recommend Jaleel
to consider investing?
(4 marks)
b) The following information on the performance of three funds A, B and C in Australia.
Calculate the Coefficient of variation, Sharpe and Jensen Indices of performance for
these funds and interpret the results.
(4 marks)
Fund
Average
return
(%)
Standard
deviation (%)
Beta
Market
Risk-free rate Fund
A
Fund B Fund
C
34.95
1.641
19.50
28.65
25.70
–
–
10.75
14.82
12.33
–
–
0.873
1.251
1.005
c) Obtain information on the following two funds:
• Colonial First State Developing Companies Fund
• Vanguard Australian Shares High Yield Fund
Compare the risks to investors presented by each of these fund and identify the types of
investors that would favour these funds.
(2 marks)
(TOTAL 15+10+10+10 = 45 MARKS)