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17IIEE-004 I

MASTER OF ARTS (Economics) t'r)

Term-End Examination December, 2011 MECE-004: FINANCIAL INSTITUTIONS AND MARKETS

Time : 3 hours Note :

Maximum Marks : 100

Answer any two questions from section - A and five questions from section - B.

SECTION - A Answer any two questions from this section in about 2x20=40 500 words each. 1.

Discuss Markowitz's theory of portfolio selection. Explain how the Capital Asset Pricing Theory builds upon Markowitz's theory ?

2.

Discuss Milton Friedman's Modern Quantity Theory of Money and compare it with Keynes's Theory of Demand for Money.

3.

Discuss the relationship among money supply, inflation and interest rates using Fisher's hypothesis.

4.

What do you understand by an Option in a financial market ? What is the major insight offered by Black-Scholes's model on option pricing ? Discuss the assumptions made while deriving the Black Scholes equation for pricing options.

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SECTION - B Answer any five questions from this section in about 250 words each. 5x12=60 5.

Discuss the main functions performed by investment banks.

6.

Explain the nature and significance of money supply by using the money multipler process.

7.

Explain the nature of futures as an important derivative. How does it help in risk management ?

8.

Describe the main role and function of the International Monetary Fund. How does it differ in its role and functioning from the World Bank ?

9.

Discuss the Efficient Markets Hypothesis.

10.

Write short notes on the following : (a) Value-at-risk (b) Demat of securities

11.

What do you understand by the flow-of-funds matrix of a country ? What are the uses of flowof-funds accounting ?

12.

Explain the Modigliani-Miller Hypothesis.

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