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MECE-004

MASTER OF ARTS (ECONOMICS) Term-End Examination 01046 June, 2015 MECE-004 : FINANCIAL INSTITUTIONS AND MARKETS Maximum Marks : 100 Time : 3 hours Note : Attempt questions from each section as per

instructions given. SECTION A (Long Answer Questions) Answer any two questions from this section.

2x20=40

1.

What are the main components of a financial system ? What are the functions of a financial system in the process of economic development ?

2.

Explain the Capital Asset Pricing Model (CAPM). How does Arbitrage Pricing Theory build upon the CAPM ?

3.

What do you understand by an option in a financial market ? What are the major insights offered by Black-Scholes model on options pricing ? Discuss the assumptions made while deriving the Black-Scholes equations for pricing Options.

4.

Explain how expected utility is used in decision-making under uncertainty. What do you understand by risk-aversion ?

MECE-004

P.T.O.

SECTION B (Medium-Length Answer Questions) Answer any five questions from this section. 5.

5x12p601

Explain the Macaulay Duration Model of risk management. How can a bond trader use the Macaulay Duration Model in trading ?

. Examine the Keynesian theory of the determination of interest rates. 7.

Distinguish between a futures contract and a forward contract. Briefly explain the binomial options pricing model.

8.

What are the main functions of a Merchant Bank ?

9.

Explain how do banks create money by giving loans. Is there any limitation on banks to create credit ?

10. Discuss the role and functions of Securities and Exchange Board of India (SEBI). 11. Examine the need for and the role of depository system in secondary financial markets. 12. What is a Customs Union ? How does it work ? In what way is it different from an Optimum Currency Area ?

MECE-004

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