Tuesday 20 May - 2008 2.30 5.

30 pm

DEGREES of MAcc, MFin, MSc

DIPLOMA IN FINANCIAL STUDIES

INTERNATIONAL BANKING AND FINANCIAL MARKETS

Answer any THREE questions

All questions are of equal value

Examination Instructions No candidate shall leave until an Invigilator has collected, and recorded receipt of, the candidate's scripts. Invigilators will require candidates to remain during the last half-hour of an examination to avoid disturbing others. Students are allowed to use calculators that have standard arithmetic, scientific, graphical or algebraic functions provided that they are NOT programmable and can NOT store text (other than algebraic notation). Students are NOT allowed to use multifunction devices, for example electronic organisers, PDAs or mobile phones, which include calculator functions.

ANSWER 3 QUESTIONS ALL QUESTIONS CARRY EQUAL MARKS Please use a SEPARATE script book for each question

1.

Discuss the information intermediation role of the investment bank in major corporate transaction such as the issue of new securities or a merger and acquisition transaction role. Explain how investment bank reputation, track record and tier status are central to this information intermediation role. In the past twenty years major international banks such as Barclays, USB, Bank of America, or HSBC have combined wholesale, commercial and investment banking principles in one universal bank for their large corporate customers. Explain why they have sought to combine financial intermediation and information intermediation in new ways and what major problems they have encountered in this strategy. International fund managers face major informational search and estimation problems when using finance theory (such as valuation theory and Modern Portfolio Theory). Discuss how they seek an adaptive response to these problems of economic and financial uncertainty by employing structured investment decision processes, by seeking special information edges over the market, and by seeking special behavioural advantages over other investors. Discuss the role of BASEL II in bank regulation. In your answer explain the practical and theoretical reasons for international bank regulation and illustrate your answer with problems arising in international bank balance sheets and in bank governance mechanisms. Discuss how financial intermediation occurs in retail financial institutions such as retail banks or insurance companies. Explain how customer relations, risk analysis skills, brands, reputation, marketing skills, play an active role in the financial intermediation process.

2.

5.

6.

Discuss how a basic wholesale bank as a financial intermediary employs interbank market mechanisms to transform capital maturity, risk, and size in markets for deposits and loans. Briefly outline how these principles of wholesale financial intermediation have now been adapted to products such as derivatives in a modern advanced form of wholesale banking.