Each question is worth 10 marks. 1. Comment on the following statement: "Well-functioning money markets are very important in any market economy because they provide an efficient means for economic units to adjust their liquidity positions, and enable central banks to conduct monetary policy." 2. In what ways stock indices are useful to investors? What are the reasons for the rise of index funds and exchange traded funds (ETFs)? 3. Coles, one of the two giant supermarkets in Australia, sells in-house baked bread, cakes and pastry. Thus, it has to purchase a reasonable amount of wheat every month. Amid recent rising wheat prices, it is looking for a way to protect itself. Suggest TWO possible derivatives contracts for Coles to hedge against price risk. Which one would be the best for Coles? 4. Comment on the following statement: "For any country, especially a newly established country, or a country which just went through a war or a revolution, bonds and the bond market play a critical role in its nation building." 5. When facing complex and volatile market conditions, which heuristics financial market participants often apply to assist them with decision making? 6. Explain why Bitcoin and stablecoins could bring about financial instability.
