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Candidatesareadmittedtotheexaminationroomtenminutesbeforethestartoftheexamination.Onadmissiontotheexaminationroom,youarepermittedtoacquaintyourselfwiththeinstructionsbelowandtoreadthequestionpaper.Donotwriteanythinguntiltheinvigilatorinformsyouthatyoumaystarttheexamination.Youwillbegivenfiveminutesattheendoftheexaminationtocompletethefrontofanyanswerbooksused.May/June2010ECM822009/10A001Non-programmablecalculatorsarepermittedProgrammablecalculatorswithoutanalphakeypadarepermittedDictionariesarenotpermittedTHEUNIVERSITYOFREADINGFINANCIALSYSTEMS&INSTITUTIONS(ECM82)TwohoursAnswerALLquestionsinSectionA(worthatotalof75marks),answerONEquestionfromSectionB(worthatotalof25marks)Page2SECTIONAAnswerthefollowingthree(3)questions.Youranswersshouldincludebrief,concise,andto-the-pointexplanations.Allgraphsmustbeclearlylabelled.Makesureyoureadtheentirequestionbeforeansweringindividualparts.1.FinancialSystemBasics(25markstotal)(a)Listandexplainthecorefunctionsoffinancialmarkets.Providearealworldexampleofeach.(12marks)(b)Recently,manyfinancialmarketshaveexperiencedconsiderablevolatility.Brieflyexplainthefactorswhichinfluencethedemandandsupplyforfinancialassets.(6marks)(c)Anotherconcernlatelyhasbeentheanticipatedincreaseofinflation.Explainandgraphicallyillustratetheimpactofariseininflationonthebondmarket.(7marks)2.Banking(25markstotal)(a)Listandbrieflydifferentiatethefourmajortypesofbankswhichcomprisethebankingsector.Onekeyaspectofbankingisthecreationofcredit.Listthekeyfactorsonwhichcreditcreationdepends.(6marks)(b)Brieflydescribe,andillustrate,thetheorybehindhowacentralbankcancontractacountry’sGDP.Howisthisrelatedtothecreditcreationprocess?(10marks)(c)Listthesimilaritiesanddifferencesbetweeninvestmentandwholesalebanking.Listthemajoractivitiesundertakenbyinvestmentbanksanddescribeoneindetail.(9marks)ECM822009/10A001Page33.ForeignExchangeMarkets(25markstotal)(a)Defineexchangerates.Howareexchangeratesrel
