ECS2605 2018 TL 101 3 cv - Unisa Study Notes...You may contact the lecturers during weekdays between...

ECS2605/101/3/2018

Tutorial Letter 101/3/2018

The South African Financial System

ECS2605

Semesters 1 & 2

Department of Economics

IMPORTANT INFORMATION

Please register on myUnisa, activate your myLife e-mail addresses and make sure that you have regular access to the myUnisa module website, ECS2605-2018-S1/S2, as well as your group website.

Note: This is an online module and therefore it is available on myUnisa. However, in order to support you in your learning process, you will also receive some study material in printed format.

BARCODE

2

CONTENTS

Page

1 INTRODUCTION ............................................................................................................................ 4

1.1 Getting started … ............................................................................................................................ 4

2 OVERVIEW OF ECS2605 .............................................................................................................. 4

2.1 Purpose .......................................................................................................................................... 4

3 LECTURER AND CONTACT DETAILS ......................................................................................... 5

3.1 Lecturer ........................................................................................................................................... 5

3.2 Department ..................................................................................................................................... 6

3.3 University ........................................................................................................................................ 6

4 RESOURCES ................................................................................................................................. 6

4.1 Prescribed books ............................................................................................................................ 6

4.2 Joining myUnisa ............................................................................................................................. 7

4.3 Printed support material .................................................................................................................. 7

4.4 Library services and resource information ...................................................................................... 9

5 STUDENT SUPPORT SERVICES FOR THE MODULE .............................................................. 10

5.1 E-tutor groups ............................................................................................................................... 10

5.2 Study groups ................................................................................................................................. 10

5.3 myUnisa ........................................................................................................................................ 11

5.3.1 Announcements ........................................................................................................................... 11

5.3.2 Discussion forum ......................................................................................................................... 11

5.3.3 Official study material .................................................................................................................. 12

5.3.4 Additional resources .................................................................................................................... 12

5.3.5 Prescribed books ......................................................................................................................... 12

5.4 Face-to-face tutorial support programme...................................................................................... 12

6 MODULE SPECIFIC STUDY PLAN ............................................................................................. 13

6.1 Assignments and learning ............................................................................................................ 13

6.2 Feedback on assignments ............................................................................................................ 14

7 LEARNING STRATEGY AND PROPOSED STUDY PROGRAMME .......................................... 15

7.1 Proposed study programme - first semester ................................................................................. 18

7.2 Proposed study programme - Second semester .......................................................................... 19

8 ASSESSMENT ............................................................................................................................. 20

8.1 Assessment plan .......................................................................................................................... 20

8.2 Assessment of assignments ......................................................................................................... 20

ECS2605/101/1/2018

3

8.3 Assessment of examination .......................................................................................................... 20

8.4 Examination admission ................................................................................................................. 21

8.4.1 Semester mark ............................................................................................................................. 21

8.4.2 The examination mark .................................................................................................................. 22

8.4.3 Final mark ..................................................................................................................................... 22

8.5 Alternative assessment to assist students who qualify for Final Year (FI) Concessions .............. 22

9 INSTRUCTIONS FOR COMPLETING ASSIGNMENTS .............................................................. 23

9.1 General assignment numbers ....................................................................................................... 23

9.2 Unique assignment numbers ........................................................................................................ 23

9.3 Assignment due dates .................................................................................................................. 23

9.4 Submission of assignments .......................................................................................................... 24

9.5 Assignments ................................................................................................................................. 26

9.5.1 Assignment 01 (first semester) ..................................................................................................... 26




9.5.5 Assignment 01 (second semester) ............................................................................................... 45




9.5.9 Assignment 05 (both semesters) .................................................................................................. 64

9.5.10 Assignment 06 (both semesters) .................................................................................................. 84

10 EXAMINATIONS .......................................................................................................................... 92

10.1 Examination period ....................................................................................................................... 92

10.2 Examination paper ........................................................................................................................ 92

10.3 Previous examination papers ....................................................................................................... 93

11 EXAMPLES OF QUESTIONS FOR SECTION A OF THE EXAMINATION ................................ 93

12 FORMULAS FOR ECS2605......................................................................................................... 97

13 CONCLUSION .............................................................................................................................. 98

4

1 INTRODUCTION

Dear Student

We are pleased to welcome you to this module about The South African Financial System and

hope that you will find it both interesting and rewarding. We shall do our best to make your study

of this module successful. You will be well on your way to success if you start studying early in

the semester and resolve to do the ALL assignments (including the self-assessment assignments)

properly.

You will receive a number of tutorial letters during the semester. A tutorial letter is our way of

communicating with you about teaching, learning and assessment.

This module is presented as a mixed mode module – this means that you can choose to study it

using the hard copies of the study material that will be mailed to you or you can choose to study

it on the internet via myUnisa.

Visit the website for ECS2605 on myUnisa frequently. The website for your module is [the module

website code written out in full, e.g. ECS2605-18-S1/S2].

1.1 Getting started …

Owing to the nature of this module, you can read about the module and find your study material

online. Go to the website at https://my.unisa.ac.za and log in using your student number and

password. You will see [ECS2605-18-S1/S2] in the row of modules displayed in the orange blocks

at the top of the webpage. Select the More tab if you cannot find the module you require in the

orange blocks. Then click on the module you want to open.

You will receive this tutorial letter and a printed copy of the online study material for your module.

While the printed material may appear different from the online study material, it is the same, as

it has been copied from the myUnisa website.

We wish you much success in your studies!

2 OVERVIEW OF ECS2605

2.1 Purpose

After you have studied this module you should have a basic understanding of what the financial

markets are all about. You should be able to:

explain, using the correct terminology, how different institutions, markets and

ECS2605/101/1/2018

5

instruments fit into the financial system and how it is regulated

analyse a specific situation in the financial environment with the aim of explaining the

causes and consequences of such a situation

More detailed module outcomes can be found in the study guide for ECS2605 (TL105/3/2018).

3 LECTURER AND CONTACT DETAILS

3.1 Lecturer

Your provisonary module leader for this course is Mrs Storme Kennedy-Palmer. Note that the

lecturers may change. Communication will be sent out at the beginning of the semester with your

lecturers’ contact details.

Your lecturers are responsible for compiling the study material, setting up assessment tests

(assignments and examinations) and evaluating your performance in these tests. They are also

responsible for overseeing your e-tutors.

You may contact the lecturers during weekdays between 08:00 and 16:00 as follows:

o Mrs S Kennedy-Palmer [email protected] / 012 433 4666

If your lecturers are not available, contact the administrative manager: Ms M Mudau 012

433 4686

Personal visits: If you are in Pretoria, you are welcome to visit us at our offices. Please contact

us to make an appointment in advance.

Your lecturers will also communicate with you on myUnisa on the main ECS2605 website.

All queries that are about the contents of the study material should be directed to your e-tutor,

who will be assigned to you early in the semester. You will communicate with your e-tutor on the

ECS2605 E-tutor website. Complaints about e-tutors should be directed to the lecturers.

If you have administrative enquiries, you should please consult the relevant administrative

department. You will find their contact details in the publication my Studies @ Unisa which you

received with your study material. We also provide the e-mail address for some of these

administrative departments in section 4.3.

6

3.2 Department

The telephone number for the Economics department in Pretoria is 012 433 4661.

3.3 University

To contact the University, follow the instructions in the brochure Study @ Unisa. Remember to

have your student number available whenever you contact the University.

If you need to contact the university about matters not related to the content of this module, please

consult the publication: my Studies @ Unisa which you received with your study material. This

brochure contains information on how to contact the university (e.g. who to write to for different

queries, important telephone and fax numbers, addresses and details of the times certain facilities

are open).

We provide some important e-mail addresses for the departments that you might liaise within the

table below.

Department E-mail address

Despatch, study material [email protected]

Enquiries about prescribed books [email protected]

Assignments [email protected]

Finance [email protected]

Examinations [email protected]

Aegrotat exams [email protected]

Always have your student number at hand when you contact the university. If you have not

received an acceptable response after a week, please resend the communication. If, after another

week, you have still not received an acceptable response, please contact your lecturer. When

you contact your lecturer, you should please provide evidence of your previous communication.

4 RESOURCES

4.1 Prescribed books

Your prescribed textbook for this module for this year is:

ECS2605/101/1/2018

7

Wyk, K, Botha, Z & Goodspeed, I. 2015. Understanding South African financial markets.

Pretoria: Van Schaik.

Prescribed books can be obtained from the university's official booksellers. Please refer to the list

of official booksellers and their addresses, which are listed in the my Studies @ Unisa brochure.

If you have difficulty in locating your book at these booksellers, please contact the Prescribed

Book Section on: 012 429-4152 or e-mail [email protected]

The learning units are based on the 2015 edition of the textbook, which is the 5th edition. Please

note that you should NOT use an older edition of the textbook. The financial markets change all

the times and some information in older editions is therefore no longer relevant. The section

numbers and page references may also differ.

Unisa employees contributed to the prescribed textbook. In terms of the Unisa Code of Ethics and

Conduct, the ethical implications of prescribing this book were considered by the College Tuition

Committee and approved as such.

4.2 Joining myUnisa

If you have access to a computer that is linked to the internet, you can quickly access resources

and information at the University. The myUnisa learning management system is the University's

online campus that will help you communicate with your lecturers, with other students and with

the administrative departments at Unisa – all through the computer and the internet.

You can start at the main Unisa website at http://www.unisa.ac.za and then click on the myUnisa

orange block. This will take you to the myUnisa website. To go to the myUnisa website directly,

go to https://my.unisa.ac.za. Click on the Claim UNISA Login on the right-hand side of the screen

on the myUnisa website. You will then be prompted to give your student number in order to claim

your initial myUnisa details as well as your myLife e-mail login details.

For more information on myUnisa, consult the brochure Study @ Unisa, which you received with

your study material.

4.3 Printed support material

Because we want you to be successful in this blended module, we also provide you with some of

the study material in printed format. This will allow you to read the study material even if you are

8

not online.

The Department of Despatch should supply you with the following study material for this module

soon after registration:

● This tutorial letter (Tutorial Letter 101)

● Tutorial Letters 301 and 302

● A study guide for ECS2605 (TL501/3/2018) that contains the learning units

The printed study material will be sent to you at the beginning of the semester, but you do not

have to wait for it before you start studying – you can go online as soon as you have registered

and find all your study material there. The material we will send you is an offline copy of the

formal content for the online module. Having an offline copy will enable you to study for this

module WITHOUT having to use the internet or to go to an internet café. It will save you time and

money, and you will be able to read and re-read the material and start doing the activities.

It is very important that you log in to myUnisa regularly. We recommend that you log in at least

once a week or every 10 days to do the following:

Check for new announcements. You can also set your myLife e-mail account to receive the

announcement e-mails on your cellphone.

Visit your e-tutor’s Discussion Forum

Remember, the printed support material is back-up material for everything that is found online on

myUnisa. It does not contain any extra information. In other words, do NOT wait for the printed

support material to arrive before you start studying.

Please note that the 200 series tutorial letters (Tutorial Letter 201) contain the discussions of the

assignments and will therefore only be available after the closing date of the specific assignment.

As the closing dates of the assignments may be postponed by the university, it may happen that

the final closing date of the assignments is close to the exam and that you may not receive the

answers in time to study it for the exam. Note that we shall put the discussion of the assignments

on myUnisa as soon as the assignments have closed.

As you progress through the study material, feedback on the activities in the learning units will

become available on your e-tutor website for ECS2605. TL102, which will contain a summary of

this feedback, will be mailed to you (and posted on myUnisa) after the first 5 weeks of the study

programme, i.e. once you have worked through the study material once.

ECS2605/101/1/2018

9

This Tutorial Letter 101 contains important information about the method of work, resources and

assignments for this module. We urge you to read it carefully and to keep it at hand when working

through the study material, preparing the assignment(s), preparing for the examination and

addressing questions to your lecturers.

This tutorial letter also contains the assignments, assessment criteria, and instructions on the

preparation and submission of the assignments. This tutorial letter also provides all the

information you need about the prescribed study material and other resources and how to obtain

both. Please study this information carefully and make sure that you obtain the prescribed material

as soon as possible.

We have also included certain general and administrative information about this module. Please

study this section of the tutorial letter carefully.

Right from the start we would like to point out that you must read all the tutorial letters you receive

during the semester immediately and you must also read them carefully, because they always

contain important and, sometimes, urgent information.

We hope that you will enjoy this module and we wish you every success in your studies.

4.4 Library services and resource information

For brief information, go to www.unisa.ac.za/brochures/studies

For detailed information, go to http://www.unisa.ac.za/library. For research support and services

of personal librarians, click on "Research support".

The Library has compiled numerous library guides:

finding recommended reading in the print collection and e-reserves –

http://libguides.unisa.ac.za/request/undergrad

requesting material – http://libguides.unisa.ac.za/request/request

postgraduate information services – http://libguides.unisa.ac.za/request/postgrad

finding, obtaining and using library resources and tools to assist in research –

http://libguides.unisa.ac.za/Research_Skills

10

contacting the Library/finding us on social media/frequently asked questions –

http://libguides.unisa.ac.za/ask

5 STUDENT SUPPORT SERVICES FOR THE MODULE

For information on the various student support systems and services available at Unisa (e.g.

student counselling, tutorial support programme and classes, language support), please consult

the publication my Studies @ Unisa that you received with your study material.

5.1 E-tutor groups

Registered students for ESC2605 will be linked to an e-tutor at the beginning of a semester. You

will be informed by the Information and Communication Technology Department of Unisa if and

when you have been allocated to an e-tutor group.

Follow the directions on myUnisa to your specific e-tutor website. Your e-tutor will be your first

contact should you experience any problems with the content of the module. Your e-tutor will

assist you in the understanding of sections which you experience problems with. You will receive

a weekly e-mail from your e-tutor on your mylife e-mail address with study instructions for that

week and information on what is available on the e-tutor website and on the main ECS2605

website. Your e-tutor will also provide feedback if you experience problems with the activities in

the learning units. In the second round of the work programme he/she will also provide additional

questions with feedback which you may find helpful to use when you prepare for the exam.

If your e-tutor does not provide the service you expect from them, please contact your lecturers

or the Department of Economics (see contact details above).

For further information on e-tutors, please consult the my Studies @ Unisa brochure. Also, please

contact the relevant administration department (as per my Studies @ Unisa) for administrative

related queries, and NOT your e-tutor or lecturer.

5.2 Study groups

We advise you to have contact with your fellow students. One way to do this is to form study

groups. You can use the Discussion forum on the ECS2605 web page in myUnisa to invite other

ECS2605/101/1/2018

11

students in your area to form a study group. If you are allocated to an e-tutor group (see below),

you should also use that group as an online study group on myUnisa. For further information,

please consult the myStudies @ Unisa brochure.

5.3 myUnisa

If you have access to a computer that is linked to the internet, you can quickly access resources

and information at the university. The myUnisa learning management system is Unisa’ s online

campus that will help you to communicate with your lecturers, with other students and with the

administrative departments of Unisa.

To go to the myUnisa website, start at the main Unisa website, http://www.unisa.ac.za, and then

click on the “Login to myUnisa” link on the right-hand side of the screen. This should take you to

the myUnisa website. You can also go there directly by typing in http://my.unisa.ac.za.

On the myUnisa site, we may use the resources listed below to ensure effective communication

between us and to ensure that you receive information on time, that is, information that will help

you to keep to your study programme and that will create an environment for effective learning.

The resources that we use on the ECS2605 website are as follows:

5.3.1 Announcements

Here we may communicate general information about the module, such as a change in the

assignment due date, release of assignment and examination results, posting of tutorial letters,

study guidelines and other important information.

5.3.2 Discussion forum

Until our students have been allocated to an e-tutor group, we shall monitor the discussion forum

on the ECS2605 web page. However, once you have been linked to an e-tutor you should please

make use of the discussion forum on the e-tutor webpage. Please note that the purpose of the

discussion forum is to discuss academic issues. If you experience any administrative problem,

such as study material that has not been received, you should please contact the relevant

administrative department (see contact details above).

12

5.3.3 Official study material

This resource is extremely helpful and you should visit this link often to ensure that your studies

proceed smoothly. Unisa publishes the following documents under this link:

All the tutorial letters

The complete study guide for ECS2605 (TL501/3/2018)

Previous years’ examination papers

5.3.4 Additional resources

Until your e-tutor website is activated you will receive Discussions of the activities in the learning

units on the main ECS2605 site. Once the e-tutor sites have been activated these will become

available on the main site. Afrikaans versions of these discussions will continue to be provided

on the main site.

We also supply all the video clips on this site. If you are using the hard copy of the TL501/3/2018

this is a convenient place to find the video clips.

You will find more helpful resources under the Additional Resources tab on your e-tutor website.

5.3.5 Prescribed books

All the information regarding the required prescribed textbook for ECS2505 is listed under this

link.

Please consult the booklet my Studies @ Unisa for more information on myUnisa.

5.4 Face-to-face tutorial support programme

Unisa offers ‘face-to-face’ tutor services for students as additional academic support at the various

Unisa regional learning centres throughout the country.

A tutorial is an organised session where students and tutor(s) meet regularly at a common venue

and at scheduled times to discuss course material. The main purpose of the tutorial services is to

ECS2605/101/1/2018

13

facilitate student learning by developing the student’s independent learning skills and helping

students to become motivated and independent learners. Tutorials help the students to develop

and improve their learning experience and academic performance through interaction with the

tutor and fellow students. Interested students are advised to consult a learning centre closest to

them to enrol for tutorials. For further information on learning centres and tutorials, consult the

brochure my Studies @ Unisa.

NB: To enrol for ‘face-to-face’ tutorials, you must contact the Unisa regional learning centre

nearest to you directly. The Department of Economics cannot assist you in this respect.

Note that tutors are not necessarily available for all modules and/or at all learning centres. There

has to be an appropriate person available to appoint as a face-to-face tutor and there should be

an adequate number of students to form a tutor group.

6 MODULE SPECIFIC STUDY PLAN

6.1 Assignments and learning

Assignments are regarded as part of the learning material for this module. As you do the

assignment, study the texts, consult other resources, discuss the work with fellow students or

tutors or do research, you are actively engaged in learning. Looking at the assessment criteria

given for this module, the assignments will help you to understand what is required of you more

clearly.

If you have access to the internet, you can view and download the learning units and tutorial

letters for the modules for which you are registered on the university’s online campus, myUnisa,

(under Official study material folder) at http://my.unisa.ac.za.

Enquiries about assignments (eg whether or not the university has received your assignment or

the date on which an assignment was returned to you) must be directed to the Unisa assignment

department on 012 429-3812/2873/2587/8613. You might also find information on myUnisa.

You may submit your assignments, which you complete on mark-reading sheets, by post or

electronically via myUnisa or on your cellular phone. Please keep a copy of your completed

assignments, especially Assignments 01, which are compulsory for examination admission. If the

14

assignment is lost before it can be assessed, a copy will be your proof that you did complete the

assignment.

For detailed information and requirements as far as assignments are concerned, see the brochure

my Studies @ Unisa, which you received with your study material.

To submit an assignment via myUnisa:

● Go to myUnisa.

● Log in with your student number and password.

● Select the module from the orange bar.

● Click on assignments in the left menu.

● Click on the assignment number you want to submit.

● Follow the instructions.

If you experience any problems when submitting your assignment electronically or problems

regarding cancellation, resubmitting, etc., please contact the myUnisa helpdesk at

[email protected].

Use your my Studies @ Unisa brochure for guidelines on general time management and planning

skills.

6.2 Feedback on assignments

You will receive the correct answers automatically for multiple-choice questions. Feedback on

assignments that you have to hand in will be sent to ALL students registered for this module in a

tutorial letter, and not only to those students who submitted the assignments. The tutorial letter

series that starts with a 2, for example 201, provides feedback on activities and assignments.

As soon as you have received the feedback, please check your answers. The assignments and

the feedback on these assignments constitute an important part of your learning and should help

you to be better prepared for the examination.

Assignments 05 and 06 are self-assessment assignments and the answers will be provided to

you in TL201.

You should receive the following computer printout mark-sheet from the Assignment Section,

ECS2605/101/1/2018

15

which will show your marks for a specific assignment.

The L ANS indicates the lecturer's correct options.

The S ANS indicates the student's options.

Where the student's options are the same as the correct options, a 1 will appear in the MARK

row.

In this example, the student's marks add up to 12; 12/20 x 100/1 = 60%.

AMPLE EX MISS (XXXX-XXX-X) THESE ARE YOUR RESULTS FOR:

843 BIG STR STUDY UNIT: ECS2605

CENTRAL PLACE ASSIGNMENT NR: 01

1809 UNIQUE NUMBER: 103526

QUESTION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

L ANS 4 2 3 2 3 3 3 3 1 3 3 4 3 2 4 3 2 1 4 3

S ANS 4 2 2 1 3 4 3 3 1 3 3 1 3 3 5 3 2 2 4 2

MARK 1 1 1 1 1 1 1 1 1 1 1 1

TOTAL SCORE: 12 = 60%

As soon as you have received the commentaries, please check your answers. The assignments

and the commentaries on these assignments constitute an important part of your learning and

should help you to be better prepared for the next assignment and the examination.

Additional work set by tutors will be discussed in class or on e-tutor group Discussion forums.

7 LEARNING STRATEGY AND PROPOSED STUDY PROGRAMME

To study this module, you will need the following material:

● Your study guide containing the learning units (TL501/3/2018). This can be accessed in print

or on myUnisa. A pdf-document similar to the printed version will be available under Official

Resources while a more interactive version of the study instructions is available under

Learning Units on myUnisa. The printed version and the pdf document will refer you to video

clips that explain some concepts. These can be found by clicking on Additional Resources

16

and finding Video Clips. When you use the Learning Units, the video clips will be available

there.

● Tutorial Letter 101, which contains your assignments

● Your prescribed textbook

● Other tutorial matter that will become available on the main ECS2605 website on myUnisa

and on your E-tutor website and that will also be mailed to you during the semester

In this module, the emphasis is very much on the development of your understanding of the

elements of the financial system. Therefore, you will be exposed to a number of different

concepts, such as financial markets, financial institutions and financial instruments. You will also

learn to use certain tools to evaluate investment in financial instruments.

It is important that you have a thorough understanding of the individual elements of the financial

system so as to gain a comprehensive picture of how the financial system operates and affects

the rest of the economy. Towards the end of the module, this picture will become clearer and

logical.

Approach each learning unit as follows: Work through each section of the learning unit together

with the relevant chapter in the textbook. Make sure you understand the study outcomes as

explained at the beginning of the learning unit and use the textbook to find the information to

reach these outcomes. Remember that the study instructions serve to assist you to work through

the contents of the textbook. Make notes or summaries as you go along. At the end of every

section or at end of a study unit, work through the activities provided in the learning unit.

You will see that the activities test your understanding of the content and cover a range of the

different type of questions that will be examined. If you are unsure about the correct answers to

the activities, please discuss this with fellow students on the e-tutor website. Your e-tutor will also

provide guidance to ensure that you are on the right track. If you are not clear on certain concepts

or theories, revise them before proceeding to the next study unit.

To help you to work on this module regularly and systematically, we provide a proposed study

programme below and six assignments, four of which count towards your year mark with the other

two being self-assessment assignment (see sec 9 of this tutorial letter). The proposed study

programme is based on the assumption that first-semester students will commence their studies

before or during the last week of January and second-semester students before or during the

ECS2605/101/1/2018

17

third week of July. In each semester the period from the last day of registration to the start of the

examination consists of only 15 weeks. Hence, it is critical that you should start working as soon

as possible and continue to work regularly and systematically throughout the semester.

18

7.1 Proposed study programme - first semester


programme below and four assignments. Try to keep to this study programme as far as possible.

WEEK DATE ACTIVITY NOTIONAL HOURS1

1 22 January Learning unit 1 8

2

29 January

Learning unit 2

8 2 February

Complete and post compulsory Assignment 01 (closing date

23 February 2018)

3

5 February Learning unit 3

8 9 February

Complete and post compulsory Assignment 02 (closing date 2

March 2018)

4 12 February Learning unit 4 8 5 19 February Learning unit 5 8

6 26 February

Complete and post Assignment 03 (closing date 16 March

2018)

Complete Assignment 04and post on e-tutor page for feedback 8

7 5 March Revision Learning unit 1 8

8 12 March

Revision Learning unit 2

Complete and post Assignment 04 (closing date 29 March

2018) 8

9 19 March Revision Learning unit 3 8 10 26 March Revision Learning unit 4 8 11 2 April Revision Learning unit 5 8

12 9 April

Do example questions for Section A of exam (see section 11.13 of

this tutorial letter)

Revision - self-evaluation Assignment 05 (Find answers in TL201).

Assignment 06 (Find answers in TL201)

Complete previous exam paper supplied in Tutorial Letter 201

8

13 16 April Revision 8 14 23 April Revision 8 15 30 April Revision 8

Total number of notional hours 120

1. Notional hours refer to the minimum number of hours an average students should spend on each task.

ECS2605/101/1/2018

19

7.2 Proposed study programme - Second semester


programme below and four assignments. Try to keep to this study programme as far as possible.

WEEK DATE ACTIVITY NOTIONAL HOURS2

1 9 July Learning unit 1 8

2

18 July Learning unit 2

8 20 July


August 2018)

3

23 July Learning unit 3

8 27 July


August 2018)

4 30 July Learning unit 4 8 5 6 August Learning unit 5 8

6 13 August

Complete and post Assignment 03 (closing date 31 August

2018)

Complete Assignment 04 and post on e-tutor page for feedback 8

7 20 August Revision Learning unit 1 8

8 27 August

Revision Learning unit 2

Complete and post Assignment 04 (closing date 14 September

2018) 8

9 3 September Revision Learning unit 3 8 10 10 September Revision Learning unit 4 8 11 17 September Revision Learning unit 5 8

12 24 September

Do example questions for Section A of exam (see section 11 of this

tutorial letter)

Revision - self-evaluation Assignment 05 (Find answers in TL201).

Assignment 06 (Find answers in TL201)

Complete previous exam paper supplied in Tutorial Letter 201

8

13 1 October Revision 8 14 8 October Revision 8 15 15 October Revision 8

Total number of notional hours 120

2. Notional hours refer to the minimum number of hours an average students should spend on each task.

20

8 ASSESSMENT

8.1 Assessment plan

Assessment will be done by the module leader and, where applicable, the module team and/or

the examiner(s). The name(s) of examiner(s) will also be indicated on the examination question

papers.

8.2 Assessment of assignments

Assessment criteria used for the assignments will done as follows: the multiple-choice questions

in Assignments 01, 02 and 03 will be marked electronically in accordance with mark-reading

‘masters’ provided to the Assignment section by the module leader. One mark will be awarded for

each correct answer. No marks will be deducted for incorrect answers.

Assignment 04 will be marked by contracted markers using a memorandum that will also be

supplied to you in Tutorial letter 202. You can submit the questions for Assignment 04 to your e-

tutor to provide feedback on your answers prior to final submission.

Note that assignment 01, 02, 03 and 04 are all compulsory. The assignments will contribute as

follows to your semester mark:

Assignment 01: 20%

Assignment 02: 20%

Assignment 03: 40%

Assignment 04: 20%

Please note: Although students may work together when preparing assignments, each student

must submit his or her own individual assignment. In other words, you must submit your own

ideas. It is unacceptable for students to submit identical assignments on the basis that they

worked together. This is copying (a form of plagiarism). Furthermore, you may be penalised or

subjected to disciplinary proceedings by the university.

8.3 Assessment of examination

For general information and requirements as far as examinations are concerned, see the brochure


Please note that the applications for and the administration of re-marks of examination scripts are

handled solely by the Examinations Section and not academic departments.

ECS2605/101/1/2018

21

8.4 Examination admission

Please note that submission of Assignment 01 is compulsory to gain admission to the

examination. Assignments 01, 02, 03 and 04 are all compulsory and will all contribute towards

the semester and final marks. Assignments 05 and 06 are self-assessments.

How will this work in practice?

8.4.1 Semester mark

Your semester mark is based on your assignment marks. The four assignments that you submit

during the semester will contribute towards your semester mark. Different weights are allocated

to the assignments as set out above.

Let’s look at an example:

Assignment Marks obtained Percentage % x weight

01 710

70 x 0,2 14,0%

02 810

80 x 0,2 16,0%

03 1420

70 x 0,4 28,0%

04 1520

85 x 0,2 17,0%

Semester mark 77,0%

If an assignment is not submitted or submitted late (for whatever reason), zero marks are awarded

for such assignment, for example:

Assignment Marks obtained Percentage % x weight

01 1420

70 x 0,2 14,0%

02 Not submitted 0 x 0,2 0%

03 1420

70 x 0,4 28,0%

04 1520

85 x 0,2 17,0%

Semester mark 59,0%

22

8.4.2 The examination mark

The percentage achieved in the examination is used in the calculation of your final mark.

8.4.3 Final mark

The weight of the semester mark will be 20%, while the examination's weight is 80%.

Your final mark is calculated as follows:

Semester mark (out 100) x 20% + Examination mark (out 100) x 80%

For example:

Suppose your semester mark is 47% and you get 60% in the examination. Your final mark will

be:

(47 x 20%) + (60 x 80%)

= (47 x 0,2) + (60 x 0,8)

= 9,4 + 48

= 57,4%

☛ If your final mark (as calculated by the method above) is 50%, you pass ECS2605.

☛ If your final mark (as calculated in the method above) is less than 50%, but between 40% and

49%, you do not pass ECS2605, but qualify for a supplementary examination.

☛ If your final mark (as calculated in the method above) is less than 40%, you fail ECS2605 and

you have to reregister for the module. When your examination mark is below 40%, your

semester mark is not included in the final mark calculations.

8.5 Alternative assessment to assist students who qualify for Final Year (FI)

Concessions

The myStudies@Unisa brochure contains important information on the final year concession

procedure to assist students with one or two modules outstanding. The Department of

Examination Administration (DEA) will inform all students who qualify for a final year (FI)

concession by sms/email. Please note that the Economics Department does not identify the FI

students. If you are of the opinion that you qualify for this concession, you should contact the

examinations department to confirm this ([email protected]).

Alternative methods of assessment are subject to stringent academic rules and processes and

should not be considered an easier option. Failure to meet the learning outcomes of the module,

through the alternative method of assessment, will result in a fail and you will need to re-register

for the outstanding module.

ECS2605/101/1/2018

23

9 INSTRUCTIONS FOR COMPLETING ASSIGNMENTS

9.1 General assignment numbers

Assignments are numbered consecutively per module, starting from 01. In this module there are

four assignments per semester that should be submitted: 01, 02, 03 and 04.

9.2 Unique assignment numbers

In addition to the general assignment number (e.g. 01 or 02), each multiple-choice assignment

must have its own unique assignment number (e.g. 102717). In this module both assignments

are multiple-choice questions assignments and therefore must be completed on a marking-

reading sheet or on myUnisa with their own unique assignment numbers. Please fill in this unique

assignment number on the cover page of the assignment in the space provided for it.

9.3 Assignment due dates

Please note that the due dates for the submission of assignments to Unisa are also given in the

study programme above.

SEMESTER 1: ASSIGNMENT SUBMISSION DATES

ASSIGNMENTS THAT SHOULD BE SUBMITTED TO THE UNIVERSITY

Assignment

Number

Unique

Number

Closing

Date 2018

Content of

Assignment

Page of this TL where

assignment starts

01 819451 23 February Learning units 1 and 2 26

02 800969 2 March Learning unit 3 32

03 733757 16 March Learning units 4 and 5 35

04 866683 29 March Learning units 1 to 5 43

SELF-ASSESSMENT ASSIGNMENTS

Assignment

number No unique

number – do

not submit

Complete

by

Content of

Assignment


assignment starts

05 15 April Learning units 1 to 5 64

06 15 April Learning units 4 and 5 84

24

SEMESTER 2: ASSIGNMENTS SUBMISSION DATES

ASSIGNMENTS THAT SHOULD BE SUBMITTED TO THE UNIVERSITY

Assignment

Number

Unique

Number

Closing

Date 2018

Content of

Assignment


assignment starts

01 714516 10 August Learning units 1 and

2 45

02 899457 17 August Learning unit 3 51

03 682984 31 August Learning units 4 and

5 54

04 687868 14

September Learning units 1 to 5 61

SELF-ASSESSMENT ASSIGNMENTS

Assignment

number No unique

number –

do not

submit

Complete

by

Contents of

assignments


assignment starts

05 30

September Learning units 1 to 5 64

06 30

September Learning units 4 and 5 84

9.4 Submission of assignments

You may submit your assignments, which you complete on mark-reading sheets, either by post

or electronically via myUnisa. Please keep a copy of your completed assignments, especially

Assignment 01, which is compulsory for examination admission. As mentioned above, if this

assignment is lost before it can be assessed, a copy will prove to the Examination department

that you completed the assignment.

For detailed information and requirements as far as assignments are concerned, see the brochure


To submit an assignment via myUnisa:

● Go to myUnisa.

● Log in with your student number and password.

● Select the module from the orange bar.

● Click on assignments in the left menu.

ECS2605/101/1/2018

25

● Click on the assignment number you want to submit.

● Follow the instructions.

To repeat: if you experience any problems when submitting your assignment electronically or

problems regarding cancellation, resubmitting, etc., please contact the myUnisa helpdesk at

[email protected].

Unfortunately, it is not possible for the university or any ECS2605 lecturer to receive and process

assignments that are submitted by means of fax or e-mail. No assignments submitted by fax or

e-mail will be marked.

ASSIGNMENT BOXES: Note that the date of receipt appearing on the system (myUnisa) may

differ from the date you deposited your assignment at a Unisa

assignment box (e.g. Pretoria, Johannesburg, Nelspruit, etc). The date

when your assignment eventually reached the Unisa main campus will

appear on the system. The assignment boxes are emptied regularly and

the date on which it is received in the box will be stamped on the

assignment envelope. This means that, if your assignment is submitted

at any Unisa box before/on the closing date, it will still be marked and

contribute to your semester mark even if the actual capturing date on

the system is after the closing date.

26

9.5 Assignments

9.5.1 Assignment 01 (first semester)

ASSIGNMENT 01 (FIRST SEMESTER)

UNIQUE NUMBER: 819451

CLOSING DATE:

LEARNING UNITS:

PRESCRIBED BOOK:

WEIGHT FOR SEMESTER MARK:

23 February 2018

1 and 2

Chapters 1, 2, 3 and 5

20%

The first 10 questions of this assignment are about you and not about the study material. The last two

questions are about your experience concerning the completion of this assignment. We want to know a

little bit more about our students to make sure that our study material is on the correct level and we also

want to find out about the level of service provided by Unisa. These questions do not have correct or

incorrect answers.

Please answer this assignment on the prescribed answer sheet.

1. Which ONE of the following is true of your registration for ECS2605?

[1] This is the first time I have registered.

[2] This is the second time I have registered.

[3] This is the third time I have registered.

[4] This is the fourth time I have registered.

[5] I have registered for ECS2605 more than four times.

2. Which ONE of the following applies to you?

[1] This is my first registration for ECS2605

[2] I have been registered for this module before, but have never written the examination.

[3] I have written the examination for this module once.

[4] I have written the examination for this module twice.

[5] I have written the examination for this module three or more times.


[1] My home language is English.

[2] My home language is Afrikaans but I prefer to study ECS2605 in English.

[3] My home language is Afrikaans and I would prefer to study ECS2605 in Afrikaans.

[4] My home language is not English or Afrikaans but I prefer to study ECS2605 in English.

[5] My home language is not English of Afrikaans and I would prefer to study ECS2605 in my

home language.

ECS2605/101/1/2018

27

4. In my matric results*

[1] I passed Mathematics with a C symbol or higher.

[2] I passed Mathematics with a D symbol or lower.

[3] I passed Mathematical Literacy with a C symbol or higher.

[4] I passed Mathematical Literacy with a D symbol or lower.

[5] I did not pass Mathematics or Mathematical Literacy.

* Students who do not have a South African matric should choose the option they think is most

relevant to them.


[1] I passed English with a C symbol or higher.

[2] I passed English with a D symbol.

[3] I passed English with a E symbol.

[4] I had an F-symbol or lower for English.

[5] I did not do take English for matric.


relevant to them.

6. Which ONE of the following describes your situation best?

[1] I am a full-time student who is not in any form of employment.

[2] I am a full-time student who works part-time for extra pocket money (not to pay for my studies).

[3] I am a full-time student who works part-time to pay for my studies.

[4] I work full-time and only study after work, and the work that I do is not related to my degree at

all.

[5] I work full-time and only study after work, and the work that I do is related to my degree.

7. How long after you registered did you receive your study material?

[1] immediately (when I registered)

[2] in less than a week after registration

[3] between one and two weeks after registration

[4] between two and three weeks after registration

[5] more than three weeks after registration

28

8. Regarding the service provided by the Economics department:

[1] I have never tried to contact the Economics department.

[2] I contacted the department on one occasion, but found them unhelpful.

[3] I tried to contact the department by telephone, but could not get through to them.

[4] I sent the department an e-mail, but never received a reply.

[5] I contacted the department and found them friendly and helpful.

9. Which ONE of the following best describes your access to SMS messages?

[1] I can receive SMS messages on my own cell phone.

[2] I can receive SMS messages on the cell phone of someone who lives with me.

[3] I can receive SMS messages on the cell phone of someone I know, but who does not live with

me.

[4] I cannot receive SMS messages at all.


[1] I have access to the internet.

[2] I have access to e-mail.

[3] I have access to both the internet and e-mail.

[4] I do not have access to either the internet or e-mail.

The following 10 questions (11 – 20) are about the study material, and are the assignment questions.

Feedback on answering these questions will be provided in TL202.

Question 11 is based on section 1.1 of the learning units.

11. Which one of the following alternatives is correct?

[1] A bond is issued that will expire in 5 years’ time. This is an example of indirect financing.

[2] Company A buys shares in Company B from Company C. This is an example of a primary

market transaction.

[3] Company B issues shares to obtain capital. This is an example of direct financing.

[4] The SARB issues Reserve Bank debentures that will expire in 6 months’ time. This is an

example of a capital market transaction.

[5] Bank X buys bonds from Company Y which will mature in 5 years. This is an example of a

money market transaction.


12. Which of the following statements with regard to the financial system are correct?

The financial system…

a. channels savings into investment through time and across industries.

b. assists investment decisions by providing information to the public.

c. allows households to participate in investments that require large sums of money.

ECS2605/101/1/2018

29

d. ensures that funds are allocated to borrowers that will utilise the funds prudently.

[1] a, b, and c

[2] a, c and d

[3] a, b, c and d

[4] only c

[5] only d


13. A high degree of confidence that the financial intermediaries and markets are able to meet their

obligations without disruption indicates …

[1] that individual financial institutions cannot be allowed to fail.

[2] that measures and facilities put in place which are in conflict with the central bank’s core

functions.

[3] that there is stability in the financial system.

[4] systematic failure of the financial system.

[5] a decrease in gross domestic product.


14. Which of the following statements with regard to regulation is correct?

a. Regulation comes at a cost.

b. Regulation is free.

c. Regulation increases system risk.

d. Regulation decreases systemic risk.

[1] a and c

[2] a and d

[3] b and c

[4] b and d


15. Which ONE of the following statements is correct?

[1] Money consists only of cash, i.e. notes and coins.

[2] The amount of deposits created in the economy depends only on the actions of the central

bank.

[3] The amount of cash reserves that banks have to hold is a percentage of the loans that they

have supplied to borrowers.

[4] The amount of loans created depends mainly on the available cash reserves held by banks.

[5] The direction of the change in the amount of loans that are created by banks is negatively

related to the direction of the change in the level of the repo rate.

30


16. Which of the following statements are correct?

a. Banks generally borrow long and lend short.

b. Risks faced by banks include the risk of default and the possibility that those who have deposits

at the bank will, from time to time, want to liquidate them.

c. The bank uses a portion of the assets it accumulates to extend loans.

d. From an accounting point of view, the total assets of a bank must be equal to or less than its

total liabilities.

[1] a, b and c

[2] b, c and d

[3] a, c and d

[4] b and c

[5] a and d



[1] A run on a bank means that there is a bigger demand for bank loans than before.

[2] A run on a bank means that the interest rate charged by a bank increases.

[3] A run on a bank means that a lot of depositors wish to deposit money with a particular bank.

[4] A run on a bank means that there is a perception that a bank will not be able to fulfil the liquidity

requirements of their clients that arise under normal circumstances.

[5] A run on a bank means that a bank’s assets exceeds it liabilities.



[1] According to the Banks Act 94 of 1990, banks are supervised by the Financial Services Board.

[2] According to the South African Reserve Bank (SARB) Act 90 of 1989 the SARB determines

the amount of credit that individual banks are allowed to provide to customers.

[3] According to the National Credit Act 34 of 2005 only banks are allowed to provide credit to the

public.

[4] According to the Financial Intelligence Centre Act 38 of 2001 it is the duty of a bank’s clients

to ensure that their bank has all the necessary information about that client and the clients can

be prosecuted by law if this is not the case.

[5] In terms of the Financial Advisory and Intermediary Services Act 37 of 2002 consumers are

protected against exploitation by financial firms, including banks.

ECS2605/101/1/2018

31

Questions 19 and 20 are based on section 2.6 of the learning units.

19. Which one of the following transactions does NOT represent a way in which the liquidity deficit of

Bank A may be financed?

[1] Bank A borrows from Bank B at the interbank lending rate.

[2] Bank A keeps less cash reserves with the SARB in accordance with the averaging principle.

[3] Bank A enters into a repurchase agreement with the SARB and borrows from the SARB at the

repo rate.

[4] Bank A makes use of its standing facility with the SARB to finance the deficit.

[5] Bank A enters into an open market operation with the SARB where SARB Debentures are

purchased by Bank A.

20. The SARB enters into a repurchase agreement with Bank B. Bank B sells government bonds to the

SARB in the first leg, and buys it back in the second leg. Which of the following will be correct?

a. In the first leg rand flows to the SARB

b. In the first leg the liquidity deficit of the banking sector increases.

c. In the second leg rand flows to the SARB

d. In the second leg the liquidity deficit of the banking sector increases.

[1] a and b

[2] a and d

[3] b and c

[4] c and d

The last two questions (21 and 22) are about your experience of this assignment.

21. The learning units that I had to study to complete this assignment…….

[1] helped me to work through the textbook systematically.

[2] did not help me to better understand the study material in the textbook.

[3] were totally irrelevant to the assignment questions.

[4] I did not use the learning units at all, although I had access to it.

[5] I did not have access to the learning units.

22. Which ONE of the following best describes your situation?

[1] I worked through all the prescribed study material before attempting this assignment.

[2] I quickly glanced through the prescribed study material before attempting this assignment.

[3] I did not study the prescribed study material before attempting the assignment, but looked for

the answers in the study material.

[4] I could answer the questions without referring to the study material.

[5] I just chose my answers randomly.

32




CLOSING DATE:

LEARNING UNITS:

PRESCRIBED BOOK:


2 March 2018

3

Prescribed sections of chapters 4 to 8

20%


1. Which of the following statement(s) is/are correct regarding prudential supervision and regulation?

a. A macroprudential supervisory approach is one where policy measures are aimed at

countering the collective behavior of financial institutions in order to reduce the impact of

systematic risk emanating from each behavior.

b. Microprudential supervision consists of the promotion of the soundness of individual financial

institutions through the effective and efficient application of international regulatory and

supervisory standards.

c. The SARB, through its Bank Supervision Department is responsible only for the

macroprudential supervision.

[1] a b

[2] a c

[3] b c

[4] a

[5] b

2. Which of the following does NOT describe an activity of the relevant department of the Financial

Services Board (FSB) correctly?

[1] The JSE is supervised by the Capital Markets Department.

[2] Allegations of insider trading are investigated by the Directorate of Market Abuse.

[3] The Collective Investment Schemes Department ensures that all CISs are listed on an

exchange.

[4] The Credit Rating Services Department regulates credit rating agencies that provide credit

ratings in the capital markets in South Africa.


3. Which one of the following is NOT an example of a long-term insurance policy?

[1] Assistance policy

[2] Life policy

ECS2605/101/1/2018

33

[3] Home insurance

[4] Disability insurance

[5] Sinking fund policy

4. If Mr A takes out an insurance policy to cover his house against damage, it can be classified as:

a. Short-term insurance

b. Indemnity insurance

c. Long-term insurance

d. Third-party insurance

[1] a and b only

[2] c and d only

[3] a, b and d only

[4] b, c and d only


5. Which one of the following represents a benefit for a member of a defined benefit fund?

[1] Members share in good investment returns.

[2] The contributions by members are fixed.

[3] Compared to a defined contribution fund, it is easier to understand the benefits.

[4] There is no cross-subsidy between different members of the scheme.

[5] The member has no choice in selecting the investment portfolio.

6. Which one of the following statements regarding the investment strategy of retirement funds is NOT

correct?

[1] The assets and liabilities of a retirement fund should be matched with regards to maturity.

[2] If the liabilities of a retirement fund consist mainly of nominal amounts that have to be paid, it

is advisable for that fund to invest in assets that provide fixed income at predetermined dates

in the future that is matched to the liabilities that have to be paid.

[3] If the liabilities of a retirement fund are mainly linked to some real variable, e.g. salaries, it is

advisable that the fund invest in assets that provide income streams that appreciate in line with

inflation.

[4] A contracting fund should invest in assets with high yield and stable market values.

[5] A contracting fund can invest in structured products which provide a higher yield to investors

who hold the asset until maturity.

34

Questions 7 and 8 are based on section 3.4 of the learning units. 7. Which one of the following does NOT represent an advantage of investing in a collective investment

scheme?

[1] Diversification

[2] Cost-efficiency

[3] Professional management

[4] Freedom to invest in any amount in any asset class

8. Which of the following applies to a hedge fund?

[1] Investment managers of hedge funds may not invest their own money in the fund.

[2] The general partner’s compensation is not linked to the performance of the fund.

[3] Hedge funds are very liquid and it is always easy to sell your share in such a fund.

[4] Pension funds and long-term insurers may invest in hedge funds.

[5] Hedge funds strive to achieve a return equal to the average market return.


9. Which ONE of the following definitions of terms related to micro-lending is correct?

[1] Microcredit refers to small loans provided at very low interest rates.

[2] Group lending refers to a group repayment pledge, where no member can receive a new loan

unless all members are up to date on loan repayments.

[3] In the case of micro-finance no collateral is required.

[4] Micro-insurance is usually provided by banks and provides unlimited protection against

potential loss.

[5] Remittances refer to transfer of amounts between individuals and financial intermediaries, e.g.

to repay a loan.

10. Mutual banks differ from commercial banks in the following way(s):

a. Mutual banks accept deposits from the general public.

b. Mutual banks provide payment services such as cheques and electronic transfers.

c. Mutual banks make credit available to clients.

d. Mutual banks are owned by their members and are not public companies.

e. The minimum capital requirement for a mutual bank is R10 million.

f. Mutual banks are regulated and supervised under Basel I.

[1] a, b, c, d, e and f

[2] a, b, c, d and e

[3] a, d, e and f

[4] a, c, d and e

[5] d, e and f

ECS2605/101/1/2018

35



UNIQUE NUMBER: 733757 CLOSING DATE:

LEARNING UNITS:

PRESCRIBED BOOK:


16 March 2018

4 and 5


40%

Complete the assignment and provide your final answers on the prescribed answer sheet. The

answers will be supplied in Tutorial Letter 202. Note that the formula sheet, which will be supplied

to you in the examination and which you should use to complete this assignment, can be found

in section 12 of this tutorial letter.

Note: When doing calculations, round off all calculated amounts to two digits after the decimal.

Round off the final answer to the closest full rand.

Questions 1 to 4 (which cover sections 4.4 and 5.1.2 of the learning units) are based on the

following scenario:

The South African Reserve Bank (SARB) issues Reserve Bank debentures (RBDs) worth R2 000

000 at an annual interest rate of 5,500%. These debentures have a 56-day term. Then, 35 days

later (i.e. 21 days before expiry), the RBDs are traded at a market interest rate of 5,760%.

1. On issue, the SARB will receive ……… for each RBD traded.

[1] R2 000 000 [2] R2 110 000 [3] R2 010 548 [4] R1 989 452 [5] R1 983 123

2. The consideration in the secondary market is ……… .

[1] R2 000 000 [2] R2 005 799 [3] R2 010 215 [4] R2 023 259 [5] R2 028 017

36

3. The seller in the secondary market realised a capital ……… .

[1] loss of R333 [2] loss of R10 215 [3] profit of R333 [4] profit of R10 215 [5] profit of R10 548

4. The yield rate of the seller in the secondary market was ……… .

[1] –0,0550 or –5,50 %[2] 0,0017 or 0,17 %[3] 0,0297 or 2,97 %[4] 0,0550 or 5,50 % [5] 0,0533 or 5,33 %

Questions 5 to 9 (which cover sections 4.3, 4.4 and 5.1.2 of the learning units) are based on the

following scenario:

Brenda is a financial manager at Air South Africa. On 15 March 2018, she has to invest a short-

term surplus on behalf of Air South Africa for a period of 90 days and has to choose between the

following two instruments:

Instrument A: Negotiable certificate of deposit

Nominal value: R2 200 000

Issue date: 5 March 2018

Expiry date: 13 June 2018

Interest rate at issue: 7,000%

Interest rate on 15 March 2018: 6,500%

Instrument B: Treasury Bill


Issue date: 15 March 2018


Discount rate on 15 March 2018: 6,500%

From 5 March 2018 to 13 June 2018, there are 100 days.

From 15 March 2018 to 13 June 2018, there are 90 days.

ECS2605/101/1/2018

37

5. If instrument A is bought on 15 March 2018, Air South Africa will pay ......... for it.

[1] R2 161 508 [2] R2 200 000 [3] R2 206 823 [4] R2 242 192 [5] R2 242 768

6. If instrument B is bought on 15 March 2018, Air South Africa will pay ......... for it.

[1] R2 200 000 [2] R2 202 829 [3] R2 206 823 [4] R2 242 192 [5] R2 242 768

7. The maturity value of instrument A is ......... .

[1] R2 000 000 [2] R2 161 508 [3] R2 200 000 [4] R2 206 823 [5] R2 242 192

8. The yield on instrument B is ......... .

[1] 1,62% [2] 6,50% [3] 6,61% [4] 6,74% [5] 7,00%

9. Daisy should choose to invest in ......... .

[1] instrument A

[2] instrument B

[3] either instrument

38

Questions 10 and 11 (which cover sections 4.5 and 5.1.2 of the learning units) are based on the following information: On 18 April 2018, AB Bank experienced a financial deficit. The SARB agrees to finance this deficit through a repurchase agreement with a maturity of 7 days at a repurchase rate of 7,250%. FOUR of the following bonds serve as an underlying instrument for this transaction:

Government bond A Principal: R4 000 000 Issue date: 1 January 2014 Expiry date: 31 December 2024 Coupon rate: 12,5% Coupon payment dates: 30 June and 31 December The bond register closes one month before the coupon payment dates.

The market prices of the bonds at the relevant dates are as follows: 18 April 2018: R103,250% 25 April 2018: R104,750%

10. Which of the following is correct?

On 18 April 2018, ......... .

[1] AB Bank will receive R16 520 000 from the SARB

[2] the SARB will receive R16 520 00 from AB Bank


[4] the SARB will receive R16 000 000 from AB Bank



On 25 April 2018, the amount that will be paid to finalise this repurchase agreement is .........

.

[1] R16 000 000 [2] R16 497 030 [3] R16 520 000 [4] R16 542 970 [5] R16 760 000

ECS2605/101/1/2018

39


following information on a bond:

BOND

Principal value: R1 000 000

Coupon rate: 13,25%

Issue date: 1 February 2009

Maturity date: 31 January 2029

Coupon payment dates: 31 January and 31 July

The bond register closes a month before the coupon payment dates.

12. Based on the information above and given the fact that on 2 February 2018 the market price

of the bond is R97,500%, which of the following statements is/are correct on 2 February

2018?

(a) The running yield on the bond is 12,68%.

(b) The running yield on the bond is 13,25%.

(c) The running yield on the bond is 13,59%.

(d) The bond is trading at a discount.

(e) The bond is trading at a premium.

[1] a e

[2] b d

[3] c e

[4] b e

[5] c d

13. Suppose that the bond traded at a market price of R104,500% on 15 July 2018. The number

of days from 31 January 2018 to 15 July 2018 is 165 and the number of days from 15 July

2018 to 31 July 2018 is 16. The accrued interest amount was ……… .

[1] R5 808 [2] R13 756 [3] R14 521 [4] R59 897 [5] R132 500

40

14. Suppose that the bond traded at a market price of R104,500% on 15 July 2018. On 15 July

2018, the clean price was ……… and the all-in price was ……… .

[1] R1 000 000 ; R985 103[2] R1 000 000 ; R1 045 000 [3] R1 045 000 ; R1 039 192[4] R1 045 000 ; R1 050 808 [5] R1 045 000 ; R1 104 897

15. Suppose that the bond traded at a market price of R97,500% on 30 September 2018. The

number of days from 31 July 2018 to 30 September 2018 is 61 and the number of days from

30 September 2018 to 31 January 2019 is 123. At that date, the clean price was ……… and

the all-in price was ……… .

[1] R975 000 ; R952 856 [2] R975 000 ; R997 144[3] R997 144 ; R975 000[4] R997 144 ; R1 019 288[5] R1 000 000 ; R1 022 144


16. If a foreign exchange dealer quotes a price of USD16,4695/ZAR16,7695 and the client

wishes to buy USD 1 million and sell ZAR, how much ZAR will the client need to sell?

[1] ZAR 59 632 [2] ZAR 60 718 [3] ZAR 1 000 000 [4] ZAR 16 469 500 [5] ZAR 16 769 500

17. If a foreign exchange dealer quotes a price of ZAR0,7398/BWP0,7641 and the client wishes

to buy ZAR and sell BWP 50 000, how much ZAR does the client receive?

[1] ZAR 36 990 [2] ZAR 38 205 [3] ZAR 50 000 [4] ZAR 65 436 [5] ZAR 67 586

ECS2605/101/1/2018

41


18. Air South Africa has a call option to buy 10 thousand barrels of jet fuel at a strike price of R1

528 per barrel. The option expires on 31 May 2018. Air South Africa will exercise the option

on 31 May 2018 if the market price of jet fuel is ……… .

A. R1 347 per barrel

B. R1 483 per barrel

C. R1 564 per barrel

D. R1 629 per barrel

[1] only A

[2] only A and B

[3] only D

[4] only C and D

[5] only B, C and D

Question 19 is based on sections 5.3 and 5.4 of the learning units.

19. Air South Africa has a call option to buy US dollars and sell rand at an exchange rate of

USD/ZAR15,891. The option expires on 15 April 2018. This option is in the money at an

exchange rate of ......... .

A. USD/ZAR14,500

B. USD/ZAR15,000

C. USD/ZAR15,500

D. USD/ZAR16,500

[1] only A

[2] only A and B

[3] only D

[4] only B and C

[5] only A, B and C

42


20. If the rand-euro exchange rate changed from EUR/ZAR13,6968 to EUR/ZAR18,3768, it

would mean that ……… .

A. the rand depreciated

B. the rand appreciated

C. European products will now be less expensive for South African buyers

D. South African products will now be less expensive for European buyers.

[1] A and C

[2] A and D

[3] B and C

[4] B and D

ECS2605/101/1/2018

43




CLOSING DATE:

LEARNING UNITS:

PRESCRIBED BOOK:


29 March 2018

1 to 5


20%

This is a written assignment. You should please submit your answers to the questions in this

assignment to your e-tutor on the e-tutor website. Your e-tutor will provide feedback to you.

Should you not be linked to an e-tutor by such time, alternative arrangements will be

communicated to you via myUnisa. Use this feedback to improve your answer and hand the

assignment in by the closing date.

You must submit your final assignment as a pdf or Word file on myUnisa before the due

date, or you can submit a written or typed version on paper that is bound in an assignment cover

supplied by Unisa. Make sure that your language usage is correct and that your assignment is

clearly legible. Your marked assignment will be returned to you and you will also receive general

feedback on how these questions should be answered in TL202.

Question 1

1.1 Explain the main objective of monetary policy in South Africa. (2) 1.2 Explain how a higher interest rate level can be expected to influence the exchange rate of

the rand. (2) 1.3 Distinguish between hedging and speculation in the foreign exchange market. (4) Question 2

Please read the following extract from an article that appeared on the Finance24 website during

June 2015 and answer the questions that follow:

SA banks face increased bad debt levels

Jun 26 2015 07:23

Standard & Poor’s cut the nation’s credit rating to the lowest investment-grade level in June last year and Fitch Ratings has it on a negative outlook as a shortage of power constrains growth in SA.

Downgrades would mean higher funding costs for banks.

44

2.1.1 Explain what a credit rating is. (2) 2.1.2 Explain why a downgrade implies higher funding costs for banks. (2) 2.1.3 Explain how the real sector of the economy may be influenced by such a downgrade. (2) 2.2 Explain the flows of funds related to a bond over its lifespan. Clearly indicate the dates of

the flows as well as the direction of the flows. (6)

ECS2605/101/1/2018

45

9.5.5 Assignment 01 (second semester)

ASSIGNMENT 01 (SECOND SEMESTER)


CLOSING DATE:

LEARNING UNITS:

PRESCRIBED BOOK:


10 August 2018

1 and 2

Chapters 1, 2, 3 and 5

20%

The first 10 questions of this assignment are about you and not about the study material. The last two

questions are about your experience concerning the completion of this assignment. We want to know a

little bit more about our students to make sure that our study material is on the correct level and we also

want to find out about the level of service provided by Unisa. These questions do not have correct or

incorrect answers.

Please answer this assignment on the prescribed answer sheet.

1. Which ONE of the following is true of your registration for ECS2605?

[1] This is the first time I have registered.

[2] This is the second time I have registered.

[3] This is the third time I have registered.

[4] This is the fourth time I have registered.

[5] I have registered for ECS2605 more than four times.


[1] This is my first registration for ECS2605

[2] I have been registered for this module before, but have never written the examination.

[3] I have written the examination for this module once.

[4] I have written the examination for this module twice.

[5] I have written the examination for this module three or more times.


[1] My home language is English.

[2] My home language is Afrikaans but I prefer to study ECS2605 in English.

[3] My home language is Afrikaans and I would prefer to study ECS2605 in Afrikaans.

[4] My home language is not English or Afrikaans but I prefer to study ECS2605 in English.

[5] My home language is not English of Afrikaans and I would prefer to study ECS2605 in my

46

home language.


[1] I passed Mathematics with a C symbol or higher.

[2] I passed Mathematics with a D symbol or lower.

[3] I passed Mathematical Literacy with a C symbol or higher.

[4] I passed Mathematical Literacy with a D symbol or lower.

[5] I did not pass Mathematics or Mathematical Literacy.


relevant to them.


[1] I passed English with a C symbol or higher.

[2] I passed English with a D symbol.

[3] I passed English with a E symbol.

[4] I had an F-symbol or lower for English.

[5] I did not do take English for matric.


relevant to them.

6. Which ONE of the following describes your situation best?

[1] I am a full-time student who is not in any form of employment.

[2] I am a full-time student who works part-time for extra pocket money (not to pay for my studies).

[3] I am a full-time student who works part-time to pay for my studies.

[4] I work full-time and only study after work, and the work that I do is not related to my degree at

all.

[5] I work full-time and only study after work, and the work that I do is related to my degree.

7. How long after you registered did you receive your study material?

[1] immediately (when I registered)

[2] in less than a week after registration

[3] between one and two weeks after registration

[4] between two and three weeks after registration

[5] more than three weeks after registration

ECS2605/101/1/2018

47

8. Regarding the service provided by the Economics department:

[1] I have never tried to contact the Economics department.

[2] I contacted the department on one occasion, but found them unhelpful.

[3] I tried to contact the department by telephone, but could not get through to them.

[4] I sent the department an e-mail, but never received a reply.

[5] I contacted the department and found them friendly and helpful.

9. Which ONE of the following best describes your access to SMS messages?

[1] I can receive SMS messages on my own cell phone.

[2] I can receive SMS messages on the cell phone of someone who lives with me.

[3] I can receive SMS messages on the cell phone of someone I know, but who does not live with

me.

[4] I cannot receive SMS messages at all.


[1] I have access to the internet.

[2] I have access to e-mail.

[3] I have access to both the internet and e-mail.

[4] I do not have access to either the internet or e-mail.

The following 10 questions (11 – 20) are about the study material, and are the assignment questions.

Feedback on answering these questions will be provided in TL202


11. Which ONE of the following is an example of a secondary market transaction?

[1] Company A issues bonds to finance a long-term deficit.

[2] Company B issues shares to obtain capital.

[3] The SARB issues Reserve Bank debentures that are taken up by banks.

[4] Company A buys shares in Company C from Company B.

[5] Bank D buys bonds from Company C when it is issued.


12. Which one of the following is NOT a function of the financial system?

[1] Pooling of savings.

[2] Exchange rate stability.

[3] Efficient allocation of funds.

[4] Money creation.

[5] Reduction of risk.

48


13. What is the key feature that is recognised in the aftermath of the global financial crisis of 2007/8 that

must be emphasised to identify the development of systemic risk timeously?

[1] Exchange control

[2] Banning OTC transactions

[3] Transparency at market, product and participant level

[4] Limiting cross-border transactions

[5] Fixed profit margins for financial intermediaries


14. Which one of the following is NOT an objective of financial regulation?

[1] Protect consumers or investors

[2] Ensure the solvency and financial soundness of the country’s financial institutions

[3] Promote fairness, efficiency and transparency in the securities markets

[4] Promote a stable financial system by monitoring, mitigating and managing systemic risk

[5] Ensure a competitive exchange rate


15. Which of the following variables has a positive relationship with the amount of money that is created?

a. The level of the repo rate

b. The reserve ratio

c. The ratio of demand deposits that individuals wish to keep in the form of coins and banknotes

d. The amount of excess reserves that banks wish to keep

e. The amount of new loans that individuals are willing to take

[1] a, b, c, d and e

[2] a, b, d and e

[3] a, b and c

[4] d and e

[5] only e

ECS2605/101/1/2018

49


16. Which ONE of the following activities will contribute to the interest income of banks?

[1] Acting as underwriter for an investing firm that is raising funds on the capital market.

[2] Bearing the risk of selling securities of a firm that is issuing new shares on the capital market.

[3] Promoting the selling of securities issued by a client of the bank in the capital market.

[4] Providing a bank loan to a firm that is experiencing a deficit.

[5] Providing investment advice to a pension fund.


17 The mismatch between the assets and liabilities of a bank exists because….

a. banks’ assets are of a more short term nature than their liabilities

b. banks’ liabilities are of a more short term nature than their assets.

c. banks’ assets are more risky than their liabilities

d. banks’ liabilities are more risky than their assets

[1] a and b

[2] a and d

[3] b and c

[4] b and d

[5] only b


18. Which of the following statements is/are correct?

According to the Banks Act 94 of 1990….

a. South African banks are required to adhere to a minimum capital adequacy ratio of 8%.

b. South African banks are required to adhere to a daily liquid asset requirement set at 5% of

total liabilities over a period of 20 working days.

c. South African banks are required to adhere to a cash reserve requirement equal to 2,5% of

their adjusted total liabilities to the public.

[1] a, b and c

[2] only a and b

[3] only a and c

[4] only b and c

[5] only b

50


19. What is the primary objective of the South African Reserve Bank (SARB)?

[1] Development and maintenance of financial markets

[2] Achievement and maintenance of price stability

[3] Efficient provision of banking services to government

[4] Provision of statistical data and information to the public

[5] Financial regulation

20. Which ONE of the following describes an action that will decrease the liquidity deficit of the banking

sector?

[1] The SARB issues SARB debentures which are taken up by a South African bank.

[2] The SARB issues SARB debentures which are taken up by an insurance company.

[3] An insurance company sells government bonds to a South African bank.

[4] The statutory cash requirement is increased.

[5] The SARB provides cash to Absa Bank under a repurchase agreement at the repo rate.

The last two questions (21 and 22) are about your experience of this assignment.

21. The learning units that I had to study to complete this assignment…….

[1] helped me to work through the textbook systematically.

[2] did not help me to better understand the study material in the textbook.

[3] were totally irrelevant to the assignment questions.

[4] I did not use the learning units at all, although I had access to these.

[5] I did not have access to the learning units.

22. Which ONE of the following best describes your situation?

[1] I worked through all the prescribed study material before attempting this assignment.

[2] I quickly glanced through the prescribed study material before attempting this assignment.

[3] I did not study the prescribed study material before attempting the assignment, but looked for

the answers in the study material.

[4] I could answer the questions without referring to the study material.

[5] I just chose my answers randomly.

ECS2605/101/1/2018

51




CLOSING DATE:

LEARNING UNITS:

PRESCRIBED BOOK:


17 August 2018

3


20%


1. Which one of the following does NOT form part of the Investment Institutions Division of the FSB?

[1] Capital Markets Department

[2] Directorate of Market Abuse

[3] Collective Investment Schemes Department

[4] Credit Rating Services Department

[5] Insurance Department

2. The purpose of new policy regarding the Insurance Division is to:

a. limit new entrance to the insurance industry.

b. lower cost of insurance products for consumers.

c. enhance fairness and transparency of investment and risk policies.

d. improve the long-term savings environment by making it safer for investors to participate here.

[1] a, b, c and d

[2] a, b and c

[3] a, c and d

[4] b, c and d

[5] c and d


3. Which of the following statements apply to short-term insurance?

Short-term insurance …..

a. undertakes to make good an insured’s actual loss.

b. pays out a predetermined amount on a predetermined date.

c. invests a large part of their assets in cash and short-term instruments.

d. invests a large part of their assets in capital market instruments.

[1] a and c

[2] a and d

[3] b and c

52

[4] b and d

4. Which one of the following definitions is NOT correct?

[1] Reinsurance is when a policy holder has to renew a short-term policy.

[2] Insurable interest refers to the financial interest in the preservation of something.

[3] A guarantee policy provides insurance in the event of a person failing to discharge an

obligation.

[4] A professional liability policy provides insurance to professional persons such as lawyers in

the event of a successful claim for negligence against them.

[5] The short-term insurance ombudsman acts as a mediator between policy holders and insurers

in an attempt to settle disputes.


5. Which of the following statements regarding the nature and purpose of retirement funds are correct?

a. Retirement funds’ main purpose is to provide an income in old age.

b. Retirement funds often also provide death benefits.

c. Retirement funds may not provide disability benefits.

d. Retirement funds are non-profit institutions.

[1] a and b only

[2] a, b and d only

[3] a, c and d only

[4] b, c and d only

[5] a, b, c and d

6. Which of the following is NOT an advantage of a defined contribution fund?

[1] The members share directly in good investment returns.

[2] The contributions are fixed.

[3] The benefits and the cost are easier to understand than those under a defined benefit fund.

[4] The amounts of benefits are guaranteed.

[5] Benefits are usually purchased from insurers, which allows for flexibility in choosing the

benefits structure and amount of each benefit.

Questions 7 and 8 are based on section 3.4 of the learning units. 7. Which one of the following is NOT a characteristic of hedge funds?

[1] Freedom to invest according to investment strategy of the fund

[2] Allowed to advertise

[3] Managed by a general partner who earns fees based only on investors profits, not losses

[4] Illiquid, investors may not be able to redeem at any time

[5] A private pool of investment capital, limited to the partners

ECS2605/101/1/2018

53

8. Which one of the following definitions is NOT correct?

[1] The Public Investment Corporation invests funds on behalf of public sector entities based on

investment mandates set by clients and approved by the FSB.

[2] Approved investment managers are registered with the SARB and are responsible for investing

the surplus funds of banks.

[3] An exchange traded fund is a traded financial instrument representing ownership in an

underlying portfolio of securities.

[4] A property loan stock company issues linked units in a property portfolio that represents part

equity and part debenture.

[5] A Real Estate Investment Trust is a company that sells shares that can be listed on the stock

exchange or privately held, and uses these funds to invest mainly in real estate, either through

purchasing properties of through providing mortgages for investing in property.

Questions 9 and 10 are based on section 3.5 of the learning units. 9. Which of the following applies to a stokvel?

a. Usually a formalised agreement based on formal legal documents.

b. The key economic reason for participation is to provide insurance products.

c. Members who receive the pool of funds early in the cycle are in the position of borrowers.

d. Members who receive the pool of funds later in the cycle are in the position of savers.

[1] a and b only

[2] c and d only

[3] a, c and d only

[4] b, c and d only

[5] a, b, c and d

10. Which of the following applies to a cooperative bank?

a. Cooperative banks are controlled by managers appointed by the regulator.

b. The purpose of a cooperative bank is to maximise profit.

c. Cooperative banks allocate net profit to members.

d. Cooperative banks usually belong to the community in which it operates.

[1] only b

[2] c and d

[3] a, c and d

[4] b, c and d

[5] a, b, c and d

54




CLOSING DATE:

LEARNING UNITS:

PRESCRIBED BOOK:


31 August 2018

4 and 5


40%

Complete the assignment and provide your final answers on the prescribed answer sheet. The

answers will be supplied in Tutorial Letter 203. Note that the formula sheet, which will be supplied

to you in the examination and which you should use to complete this assignment, can be found

in section 12 of this tutorial letter.

Note: When doing calculations, round off all calculated amounts to two digits after the decimal.

Round off the final answer to the closest full rand.


following scenario:

The South African Reserve Bank (SARB) issues Reserve Bank debentures (RBDs) worth R8 000

000 at an annual interest rate of 7,200%. These debentures have a 56-day term. Then, 25 days

later (i.e. 31 days before expiry), the RBDs are traded at a market interest rate of 6,980%.

1. On issue, the SARB will receive ……… for each RBD traded.

[1] R7 911 626 [2] R8 000 000 [3] R8 047 426 [4] R8 085 672 [5] R8 088 376

2. The maturity value is ……… .

[1] R7 911 626 [2] R8 000 000 [3] R8 047 426 [4] R8 085 672 [5] R8 088 376

ECS2605/101/1/2018

55

3. The seller in the secondary market realised a capital ……… .

[1] loss of R1 259 [2] loss of R39 452 [3] profit of R1 259 [4] profit of R39 452 [5] profit of R40 711

4. The yield rate of the seller in the secondary market was ……… .

[1] –0,0083 or –0,83 %[2] 0,0051 or 0,51 % [3] 0,0297 or 2,97 % [4] 0,0743 or 7,43 %[5] 0,1460 or 14,6 %

Questions 5 to 9 (which cover sections 4.3, 4.4 and 5.1.2 of the learning units) are based on the

following scenario:

Linda is a financial manager at Mr Iron. On 15 May 2018, she has to invest a short-term surplus

on behalf of Mr Iron for a period of 120 days and has to choose between the following two

instruments:

Instrument A: Negotiable certificate of deposit


Issue date: 15 April 2018

Expiry date: 12 September 2018

Interest rate at issue: 8,000%

Interest rate on 15 May 2018: 8,181%

Instrument B: Treasury Bill


Issue date: 15 May 2018

Expiry date: 12 September 2018

Discount rate on 15 May 2018: 6,7266%

From 15 April 2018 to 12 September 2018, there are 150 days.

From 15 May 2018 to 12 September 2018, there are 120 days.

56

5. If instrument A is bought on 15 May 2018, Mr Iron will pay ......... for it.

[1] R3 500 000 [2] R3 520 386 [3] R3 600 000 [4] R3 615 070 [5] R3 712 718

6. If instrument B is bought on 15 May 2018, Mr Iron will pay ......... for it.

[1] R3 500 000 [2] R3 500 483 [3] R3 520 386 [4] R3 600 000 [5] R3 615 070

7. The maturity value of instrument A is ......... .

[1] R3 500 000 [2] R3 520 386 [3] R3 600 000 [4] R3 615 070 [5] R3 712 718

8. The maturity value of instrument B is ......... .

[1] R3 500 000 [2] R3 500 483 [3] R3 520 386 [4] R3 600 000 [5] R3 615 070

9. Daisy should choose to invest in ......... .

[1] instrument A

[2] instrument B

[3] either instrument

Questions 10 and 11 (which cover sections 4.5 and 5.1.2 of the learning units) are based on the following information: On 20 July 2018, New Mutual Bank experienced a financial deficit. The SARB agrees to finance this deficit through a repurchase agreement with a maturity of 7 days at a repurchase rate of 8,575%. TWO of the following bonds serve as an underlying instrument for this transaction:

Government bond A

ECS2605/101/1/2018

57

Principal: R4 000 000 Issue date: 1 May 2017 Expiry date: 31 April 2023 Coupon rate: 8% Coupon payment dates: 31 October and 31 April The bond register closes one month before the coupon payment dates.

The market prices of the bonds at the relevant dates are as follows: 20 July 2018: R98,756% 27 July 2018: R99,812%


On 20 July 2018, ......... .

[1] New Mutual Bank will receive R8 000 000 from the SARB

[2] the SARB will receive R7 900 480 from New Mutual Bank


[4] the SARB will receive R7 984 960 from New Mutual Bank



On 27 July 2018, the amount that will be paid to finalise this repurchase agreement is .......

[1] R7 884 960 [2] R7 900 480 [3] R7 913 476 [4] R7 984 960 [5] R8 000 000


following information on a bond:

BOND

Principal: R5 000 000 Issue date: 1 July 2018 Expiry date: 30 June 2023 Coupon rate: 7%

58

Coupon payment dates: 30 June and 31 December

The bond register closes a month before the coupon payment dates.

12. Based on the information above and the fact that the current market price of the bond is

R103,475%, which of the following statements is/are correct?

(a) The annual yield on the bond will be lower than the coupon rate

(b) The annual yield on the bond will be higher than the coupon rate

(c) The bond is trading at a discount.

(d) The bond is trading at a premium.

[1] a c

[2] a d

[3] b c

[4] b d

13. Based on the information above and the fact that the current market price of the bond is

R103,475%, the annual yield be … .

[1] 5,67% [2] 6,76% [3] 7% [4] 7,76%

14. Suppose that the bond traded at a market price of R103,475% on 10 December 2018. The

number of days from 30 June 2018 to 10 December 2018 is 163 and the number of days

from 10 December 2018 to 31 December 2018 is 21. On 10 December 2018, the clean price

was ……… and the all-in price was ……… .

[1] R5 000 000 ; R5 173 750 [2] R5 173 750 ; R5 153 613[3] R5 173 750 ; R5 173 750[4] R5 173 750 ; R5 193 887[5] R5 173 750 ; R5 020 050

15. Suppose that the bond traded at a market price of R99,862% on 15 July 2018. The number

of days from 1 July 2018 to 15 July 2018 is 14 and the number of days from 15 July 2018 to

31 December 2018 is 169. On 15 July 2018, the clean price was ……… and the all-in price

was ……… .

ECS2605/101/1/2018

59

[1] R4 993 100 ; R5 006 525[2] R4 993 100 ; R4 979 675 [3] R5 000 000 ; R4 993 100[4] R5 006 525 ; R4 979 675[5] R5 006 525 ; R5 006 525


16. If a foreign exchange dealer quotes a price of USD13,1895/ZAR13,4695 and the client

wishes to sell USD 9 million and buy ZAR, how much ZAR will the client receive?

[1] ZAR 668 176 [2] ZAR 682 361 [3] ZAR 9 000 000 [4] ZAR 118 705 500 [5] ZAR 121 225 500

17. If a foreign exchange dealer quotes a price of ZAR8,6398/JPY8,9278 and the client wishes

to buy ZAR and sell JPY 750 000, how much ZAR does the client receive?

[1] ZAR 84 007 [2] ZAR 86 808 [3] ZAR 750 000 [4] ZAR 6 479 850 [5] ZAR 6 695 850


18. Mr Iron has a put option to sell 500 000 metric ton of iron ore at a strike price of R938 per

ton. The option expires on 30 September 2018. Mr Iron will exercise the option if the market

price of iron ore is ……… .

A. R902 per ton

B. R964 per ton

C. R1 181 per ton

D. R1 253 per ton

[1] only A

[2] only A and B

[3] only D

[4] only C and D

[5] only B, C and D

60

Question 19 is based on sections 5.3 and 5.4 of the learning units.

19. Mr Iron has a call option to buy US dollars and sell rand at an exchange rate of

USD/ZAR18,491. The option expires on 15 October 2018. This option is in the money at an

exchange rate of ......... .

A. USD/ZAR17,500

B. USD/ZAR18,000

C. USD/ZAR18,500

D. USD/ZAR19,500

[1] only A

[2] only A and B

[3] only D

[4] only C and D

[5] only A, B and C


20. If the rand-euro exchange rate changed from EUR/ZAR16,8557 to EUR/ZAR15,0368, it

would mean that ……… .

A. the rand depreciated

B. the rand appreciated

C. European products will now be less expensive for South African buyers

D. South African products will now be less expensive for European buyers.

[1] A and C

[2] A and D

[3] B and C

[4] B and D

ECS2605/101/1/2018

61




CLOSING DATE:

LEARNING UNITS:

PRESCRIBED BOOK:


14 September 2018

1 to 5


20%

This is a written assignment. You should please submit your answers to the questions in this

assignment to your e-tutor on the e-tutor website. Your e-tutor will provide feedback to you.

Should you not be linked to an e-tutor by such time, alternative arrangements will be

communicated to you via myUnisa. Use this feedback to improve your answer and hand the

assignment in by the closing date.

You must submit your final assignment as a pdf or Word file on myUnisa before the due

date, or you can submit a written or typed version on paper that is bound in an assignment cover

supplied by Unisa. Make sure that your language usage is correct and that your assignment is

clearly legible. Your marked assignment will be returned to you and you will also receive general

feedback on how these questions should be answered in TL202.

Question 1

1.1 Define a dealer and a broker and distinguish between the two (4)

1.2 Explain why short-term and long-term insurance companies have different investment

portfolios. (3)

Read the following article and answer the questions that follow.

Lower inflation signals possible rate cut Lameez Omarjee

Johannesburg – The possibility of a rate cut before the year’s end has improved, given

lower inflation as well as a narrower than expected current account deficit, say analysts.

According to Statistics South Africa (StatsSA), inflation eased to 6.3% for February. This

was down from 6.6% reported in January.

FNB economist Mamello Matikinca explained that although the South African Reserve

62

Bank’s (SARB) outlook is more bearish, the possibility of an interest rate cut has not been

ruled out.

Matikinca explained the persistent rand strength may contribute to a cut. However, all

eyes are on the Federal Reserve Bank’s (Fed) policy decisions. “We do not anticipate

significant rand weakness, however, aggressive policy tightening in the US on the back

of rising inflation remains a risk to the rand outlook,” she said.

Sanisha Packirisamy, economist at Momentum Investments said that lower food inflation

would drive down headline and core inflation over the next 18 months.

Inflation expectations are for it to remain close to the upper band of the target for the five-

year outlook.

She added, however, that a lower electricity tariff increase will be reflected in July 2017

inflation and may provide further inflation relief.

The rand may strengthen on the back of higher commodity prices as well as global

demand and interest rate tightening by the Fed.

“However, political risks and lingering rating downgrade fears could spur some rand

weakness into year end,” she said.

At the previous Monetary Policy Committee (MPC) meeting, the SARB warned that a

volatile currency poses a threat to inflation.

Current account deficit impact on rand:

The current account deficit narrowed to 1.7% in the fourth quarter of 2016, but over the

medium term it is expected to average at 4%, said Packirisamy.

Among the contributing factors which led to the current account narrowing include higher

commodity prices, improved terms of trade and increased dividend receipts.

South Africa still remains reliant on net foreign portfolio flows to fund the current account

deficit. “As such, SA will need to keep an attractive real interest rate profile, which limits

the extent of the expected interest rate cutting cycle, which is likely to commence in late

2017,” she said.

Of the current account deficit, Kevin Lings, chief economist at Stanlib said that domestic

exports are expected to improve, despite the strength of the rand. The commodity price

effect will drive this. Import demand is expected to remain stagnant given the “slump” in

ECS2605/101/1/2018

63

the domestic economy.

If the current account deficit improves over the next year, it will ease some of the pressure

on the rand, he said.

“However, domestic political risks intertwined with the on-going risk of a credit rating

downgrade coupled with changes in global risk appetite are likely to keep the rand volatile

in 2017.

Source: Fin24, 23 March 2017

Question 2

2.1 What interest rate is being referred to in the article? (1)

2.2 Who is responsible for setting/ adjusting this interest rate? (1)

2.3 Explain why a lower than expected inflation rate could affect monetary policy. (3)

2.4 How could a stronger exchange rate be expected to influence inflation? (2)

2.5 How could monetary policy affect the exchange rate of the rand? (3)

2.6 Explain how a credit rating downgrade could affect the rand. (3)

64

9.5.9 Assignment 05 (both semesters)

Note: This is a self-evaluation assignment. You must not hand in this assignment. The answers

will become available to you on the E-tutor website and will also be mailed to you in

TL201. If you are unsure about the correct answer, discuss this with fellow students on

the Discussion Forum on the E-tutor website. Your E-tutor will comment if necessary.

ASSIGNMENT 05/ 2018 (FIRST AND SECOND SEMESTER)

CLOSING DATE:

LEARNING UNITS:

PRESCRIBED BOOK:

Complete by 15 April (First semester)

Complete by 30 September (Second semester)

1 to 5

Chapters 1 to 16

This assignment consists of two sections. Section A contains 52 multiple-choice questions, while

section B contains essay questions that require short, written answers. This is a self-evaluation

assignment and must not be submitted to the university. Do the questions without referring to

the answers, then mark it yourself using the suggested answers so so that you can identify the

areas of the study material that you still do not understand.

The formula sheet that will be supplied to you in the exam, and that you should use to complete

this assignment, can be found on the last page of this tutorial letter.

Section A: Multiple-choice questions


a. An active secondary market enables the central bank to buy and sell financial

instruments in order to influence the money market deficit.

b. An option is a definite agreement to buy or sell, on a set date in the future, a standard

quantity and standard quality of a specific asset at a predetermined price.

c. A futures contract, the underlying asset of which is coffee, is considered to be a

financial instrument.

[1] a b c

[2] a b

[3] b c

[4] a c

ECS2605/101/1/2018

65

[5] None of the above.


a. One of the functions of the SARB is to collect tax payments.

b. One of the functions of the SARB is investing the government sector’s short-term

funds.

c. The South African Reserve Bank is responsible for the collection and interpretation of

statistics relating to real and financial economic activities.

[1] a b c

[2] a b

[3] b c

[4] a c



a. An increase in the total value of repurchase agreements concluded by the SARB under

the repo system implies an increase in the SARB’s financial assets.

b. The liabilities of the South African Reserve Bank may include loans granted to the

banks under the marginal lending facility.

c. The liabilities of the South African Reserve Bank include government deposits.

[1] a b c

[2] a b

[3] b c

[4] a c



a. The liabilities of the SARB include the reserve deposits that banks are legally obliged

to keep with the Reserve Bank.

b. The SARB seeks to achieve the predetermined inflation targets through changes in the

repo rate.

c. The SARB uses accommodation policy to influence the size of the money market

deficit.

[1] a b c

66

[2] a b

[3] b c

[4] a c



a. Banks prefer to keep any excess reserves with the SARB.

b. The level and the structure of interest rates in South Africa are solely determined by

SARB policies.

c. Banks can use any money market instrument as underlying security for repo

transactions with the SARB.

[1] a b c

[2] a b

[3] b c

[4] a c



a. Weekly repo auctions to provide liquidity to the banks at the current repo rate form part

of the SARB’s "lender-of-last-resort" function.

b. When the SARB sells SARB debentures in the open market, this will lead to an

increase in the money market deficit.

c. When newly issued government bonds are taken up by banks, and the money is placed

in the tax and loan accounts that the South African government holds with the

commercial banks, this will lead to an increase in the money market deficit.

[1] a b c

[2] a b

[3] b c

[4] a c



a. The primary objective of public debt management operations is to influence the money

market deficit.

b. Public debt management operations do not influence the money market deficit.

c. When a central bank buys domestic currency and sells another currency in the foreign

ECS2605/101/1/2018

67

exchange market, this leads to an increase in the money market deficit.

[1] a b

[2] a c

[3] b c

[4] c


8. The most important instrument that the South African Reserve Bank uses to influence the

level of short-term interest rates in the country is . . .

[1] cash reserve requirements.

[2] liquid asset requirements.

[3] tax and loan accounts.

[4] changes in the repo rate.

[5] open market operations.


a. Monetary and fiscal policies never influence each other.

b. The Corporation for Public Deposits invests in long-term instruments.

c. The SARB regularly uses changes in reserve asset requirements to influence the size

of the money market deficit.

[1] a b c

[2] a b

[3] a c

[4] c



a. The SARB uses changes in cash reserve requirements as a monetary policy

instrument.

b. The SARB is the only financial institution that holds foreign exchange reserves.

c. The SARB's objective, as far as foreign reserve management is concerned, is to reach

a predetermined exchange rate target.

[1] a b c

[2] a b

68

[3] b c

[4] b



a. The SARB intervenes when the rand shows signs of weakening.

b. Banks can create money.

c. When a clothes shop extends credit to a client, this creates money.

[1] a b c

[2] a b

[3] b c

[4] b



a. A bank’s profit is influenced by the difference between the interest that it pays on its

liabilities and the interest that it receives on its assets.

b. Net interest income forms the largest part of banks’ income.

c. Banks need to be regulated, because a lender of last resort exists for banks (the

SARB).

[1] a b c

[2] a b

[3] b c

[4] a c



a. Foreign banks are not allowed to operate in South Africa.

b. The aim of the minimum liquid asset requirements and capital requirements prescribed

by the Banks Act is to keep the risk position of the banks within safe limits.

c. Banking services are examples of credence service, and it is therefore necessary to

regulate banks in order to instil confidence in these services.

[1] a b c

[2] a b

[3] b c

ECS2605/101/1/2018

69

[4] a c



a. Bank are not obliged to identify their clients’ source of deposits.

b. Banks are not regulated by the National Credit Act.

c. The Banks Act prescribes that banks have to hold 2,5% of their total liabilities to the

public with the SARB (in a non-interest bearing cash reserve account).

[1] a b c

[2] a b

[3] b c

[4] a c



a. The purpose of the FAIS Act is to combat money laundering.

b. It is necessary to regulate the banks owing to the liquid nature of their liabilities

compared with the illiquid nature of their assets.

c. Banks need to be regulated because of the asymmetric nature of their assets and

liabilities, that is, high-risk assets (loans) and low-risk liabilities (deposits).

[1] a b c

[2] a b

[3] b c

[4] a c



a. Short-term insurance provides for pure risk.

b. Long-term insurance provides for both pure and speculative risk.

c. Short-term insurance deals with certainties, while long-term insurance deals only with

eventualities.

[1] a b c

[2] a b

[3] a

70

[4] c



a. The liabilities of short-term insurers represent funds that will be paid out on

predetermined dates.

b. All long-term insurers in South Africa are non-profit organisations.

c. One can only acquire shares in a public insurance company by becoming a

policyholder of that company.

[1] a b c

[2] a c

[3] b c

[4] c



a. Long-term insurers keep a large part of their assets in the form of cash and liquid

deposits.

b. An analysis of the balance sheet of a typical life insurance company shows that these

companies invest mainly in shares.

c. The long-term insurance ombudsman is appointed by the Financial Services Board.

[1] a b c

[2] a

[3] b

[4] c



a. Retirement funds are non-profit organisations.

b. Retirement funds only pay out when the member retires and not upon death.

c. A retirement fund’s solvency depends on the solvency of its members’ employer.

[1] a b c

[2] a

[3] b

[4] c

ECS2605/101/1/2018

71



a. In the case of non-contributory funds, only the members contribute to the fund.

b. In the case of a defined benefit fund, the investment risk lies with the member.

c. A pension fund provides a lifelong pension after retirement, while a provident fund

provides only a lump sum cash benefit at retirement.

[1] a b c

[2] a

[3] b

[4] c



a. If the market value of the assets that a defined benefit fund invests in, appreciates, the

amount that the employer has to contribute, decreases.

b. In the case of a defined contribution fund, the member will only know the actual amount

of the retirement benefit on the date of retirement.

c. In the case of a defined benefit fund, the members share in good investment returns.

[1] All the statements are correct.

[2] a b

[3] a c

[4] a

[5] Not 1, 2, 3 or 4


a. In the case of a defined contribution fund, the benefit is determined by the member’s

final salary on retirement.

b. Retirement funds may not invest in foreign assets.

c. Regulation 28 prohibits retirement funds from investing in derivatives.

[1] a b c

[2] a b

[3] b c

[4] a c

72



a. Monthly pensions received from a retirement fund are not subject to tax.

b. A retirement fund that is growing can invest in a wider range of assets than a

contracting fund, which has to invest in assets with stable market value and high-

income yields (e.g. government bonds).

c. Retirement funds invest most of their funds in South African shares.

[1] a b c

[2] a b

[3] b c

[4] a c



a. For banks, the primary risk is credit risk (i.e. the risk that borrowers may default).

b. For insurers, the primary risk is underwriting risk (i.e. the risk that insurance premiums

charged do not cover all possible events).

c. The selling price of collective investment schemes in securities, as quoted daily in the

media, is always lower than the buying price. This means that an investor in collective

investment schemes in securities will always make a loss.

[1] a b c

[2] a b

[3] b c

[4] a c



a. The trustee of a collective investment scheme (CIS) is responsible for taking

investment decisions involving the fund.

b. Investment trusts and CISs in securities are both listed on the JSE.

c. CISs in securities may never invest more than 10% of their total assets in one particular

security.

[1] a b c

[2] a b

ECS2605/101/1/2018

73

[3] a c

[4] c



a. Hedge funds are managed by a general partner who gets paid a fixed salary.

b. Hedge funds are liquid and may be redeemed at any time.

c. Collective investment schemes in property invest only in shares.

[1] a b c

[2] a

[3] b

[4] c



a. A participation bond fund uses the funds received from investors to provide first

mortgage bonds for buildings constructed for commercial or industrial purposes.

b. The Public Investment Corporation invests only in short-term securities.

c. Investment managers have to register with the Financial Services Board for approval.

[1] a b c

[2] a b

[3] b c

[4] a c



a. Banks not only issue NCDs, but also buy them.

b. The term “money market” usually refers only to the wholesale part of the market (i.e.

that part of the short-term securities market which deals in instruments with large

denominations).

c. The SARB does not take part in money market activities.

[1] a b c

[2] a b

[3] b c

74

[4] a c



a. RBDs are classified as direct securities.

b. Bankers’ acceptances, Treasury bills and negotiable certificates of deposit are all

examples of financial instruments that may be traded in the money market.

c. A fixed interest amount is payable on Treasury bills.

[1] a b c

[2] a b

[3] b c

[4] b



a. An economic unit experiencing a financial deficit can acquire funds by, inter alia,

issuing new financial instruments, selling existing financial instruments in its

possession and by making use of a bank’s credit facilities.

b. Banks are not the sole providers of funds used on the financial markets.

c. The interest rate on negotiable certificates of deposit is determined on the expiry date.

[1] a b c

[2] a b

[3] b c

[4] a c



a. “Financial investment” refers to the buying of financial instruments.

b. “Real investment” refers to the acquisition of capital goods, such as equipment used

in the production process.

c. Investors on the financial markets always make a profit when they sell securities.

[1] a b

[2] b c

[3] a c

[4] c

ECS2605/101/1/2018

75


32. On 31 December 2007, Firm A bought a newly issued security that was going to expire on

31 December 2008. Firm A paid R110 000 for the security, which was issued at a 10%

discount. Based on this information, which of the following statements is/are correct?

a. The nominal value of the security was R100 000.

b. The tenure or maturity of the instrument was 365 days.

c. If Firm A sold this security to Firm B on 30 June 2008, this transaction took place in the

secondary market.

[1] a b

[2] b c

[3] a c

[4] c



a. The buying price of a negotiable certificate of deposit will be higher than the maturity

value.

b. The buying price of a bankers' acceptance will be lower than its nominal value.

c. The nominal annual return on a 180-day Treasury bill will be slightly lower than the

discount rate.

[1] a b

[2] b c

[3] a c

[4] b



a. When interest rates fall, a capital profit may be realised on a banker’s acceptance sold

in the secondary market.

b. Bankers’ acceptances are usually sold to banks in the primary market.

c. Bankers’ acceptances are not traded actively in the secondary market.

[1] a b c

[2] a b

76

[3] a c

[4] b c



a. The holder of a banker’s acceptance has to hold it until the maturity date.

b. Banks issue bankers’ acceptances on their own initiative.

c. Negotiable certificates of deposit are usually issued on the initiative of banks.

[1] a b

[2] b c

[3] a c

[4] c



a. The secondary market for negotiable certificates of deposit is active and well

developed.

b. Banks may use bankers’ acceptances to obtain accommodation from the SARB.

c. Banks may use negotiable certificates of deposit to obtain accommodation from the

SARB.

[1] a b c

[2] b c

[3] a b

[4] a c



a. Banks may use government stock to obtain accommodation from the SARB.

b. A Treasury bill represents a charge on the revenues and assets of the Republic of

South Africa.

c. A Treasury bill may be presented to the Treasury on any day before its maturity date,

and the Treasury has to buy it back.

[1] a b c

[2] a b

[3] a c

ECS2605/101/1/2018

77

[4] b



a. Treasury bills are traded in large volumes in the secondary market.

b. If an existing negotiable certificate of deposit is sold and the seller undertakes to

repurchase it at a future date, this is known as a repurchase agreement.

c. As part of its accommodation system to the banks, the SARB will buy negotiable

certificates of deposit from the banking system on the agreement that the banks will

repurchase them on a predetermined date.

[1] a b c

[2] b c

[3] a c

[4] b


39. A Treasury bill with a nominal value of R1m is bought at a discount rate of 5% per year. The

remaining tenure of this Treasury bill is 146 days. Based on this, which of the following

statements is/are correct?

a. The amount received by the seller is R950 000.

b. The nominal annual return on this Treasury bill will be 5,102041%.

c. The actual annualised yield on this Treasury bill will be 13,1579%.

[1] a b

[2] a c

[3] a

[4] b


Questions 40 to 43 are based on the following information:

Bank A issues a negotiable certificate of deposit that will expire in 73 days’ time at an interest rate

of 10%. The proceeds for the seller are R980 392,15. 20 days later (i.e. 53 days before expiry)

this negotiable certificate of deposit is traded at a market interest rate of 9,5%.

40. Based on the above, which of the following statements is/are correct?

78

a. The seller will receive interest on the negotiable certificate of deposit on the maturity

date.

b. The value at maturity will be R980 392,15.

c. The value at maturity will be R1 000 000 (rounded off to the closest rand).

[1] a b

[2] b c

[3] a c

[4] c


41. Based on the above information, which of the following statements is/are correct?

a. The consideration when the negotiable certificate of deposit is traded in the secondary

market (53 days before expiry at a market interest rate of 9,5%) is R986 393 (rounded

to the closest rand).

b. The consideration when it is traded in the secondary market (53 days before expiry at

a market interest rate of 9,5%) is R1 013 795 (rounded to the closest rand).

c. The total income earned by the seller in the secondary market is R6 001 (rounded to

the closest rand).

[1] a

[2] a c

[3] b c

[4] b



a. The seller in the secondary market earned R5 372 (rounded to the closest rand) in

interest on the negotiable certificate of deposit.

b. The seller in the secondary market earned R5 103 (rounded to the closest rand) in

interest on the negotiable certificate of deposit.

c. The seller in the secondary market realised a capital loss on the negotiable certificate

of deposit.

[1] a c

[2] b c

[3] a

[4] b


ECS2605/101/1/2018

79


a. The seller in the secondary market’s yield rate was 10,95% (rounded to two digits after

the comma).

b. The seller in the secondary market’s yield rate was 11,17% (rounded to two digits after

the comma).

c. The seller in the secondary market’s yield rate was 3,06% (rounded to two digits after

the comma).

[1] a

[2] b

[3] c



a. Long-term financial instruments are traded on the capital market.

b. Investors buy only financial instruments on which a fixed-interest amount is payable

on the capital market.

c. The interest amount that can be earned on a fixed-interest-bearing bond (e.g.

government stock), is calculated by making use of the coupon rate and the buying

price.

[1] a b c

[2] a b

[3] b c

[4] a c



a. If RSA bonds with a coupon rate of 15% are sold in the primary market at a price of

R114,55%, these bonds are sold at a premium.

b. Returns on government bonds are solely the result of the difference between the

buying price and the selling price.

c. If the holder of an RSA bond bought the bond at a premium, the running yield that is

earned on it will be lower than the coupon rate.

[1] a b c

80

[2] a b

[3] b c

[4] a c



a. The yield to maturity represents the effective return that the holder of a long-term bond

will earn if the bond is kept until maturity.

b. The yield to maturity on a bond can be influenced by the market forces of demand and

supply in the bonds market, the maturity of the bond, expectations concerning interest

rates and the credibility of the issuer.

c. The price at which bonds trade can be influenced by the market forces of demand and

supply in the bonds market, the maturity of the bond, expectations concerning interest

rates and the credibility of the issuer.

[1] a b c

[2] a b

[3] b c

[4] a c


47. AB Holdings hold a government bond that will expire on 1 September 2012. Interest is

payable on this bond biannually on 1 March and 1 September and the bond register closes

one month before the coupon payment date. Based on this, which of the following

statements are correct?

a. If AB Holdings sold the bond to REO Bank on 15 April 2010, interest accruing to AB

Holdings had to be subtracted from the clean price.

b. If CJ Limited bought the bond from AB Holdings on 15 February 2010, interest accruing

to CJ Limited had to be subtracted from the clean price.

c. If the bond is traded on 15 September 2010, the all-in price will be lower than the clean

price.

[1] a b c

[2] a b

[3] b c

[4] a c



ECS2605/101/1/2018

81

a. Exchangeable bonds grant the bondholder the right or option to convert the bond to a

specific predetermined number of issuer shares.

b. Callable bonds give the holder the right to sell the bonds back to the issuer at par on

certain predetermined dates (at the holder’s discretion).

c. If someone in the UK buys bonds issued by a South African company in rands, these

are called foreign bonds.

[1] a b c

[2] a b

[3] b c

[4] a c



a. One of the advantages of a well-developed stock exchange is that real investors can

raise capital by issuing new shares.

b. Shares are examples of fixed-interest securities.

c. A well-developed stock market provides for liquidity of investment in shares, because

it should be fairly easy to convert these shares into cash.

[1] a b c

[2] a b

[3] b c

[4] a c



a. A fixed rate government bond is a security that pays interest at regular intervals and

repays the capital amount on predetermined dates.

b. A debenture is an interest-bearing security that is not secured by any specific asset of

the issuing company.

c. Ordinary shareholders have no right to the profits of a company until dividends are

declared.

[1] a b c

[2] a b

[3] b c

82

[4] a c



The functions of the JSE Securities Exchange include

a. channelling savings into investments

b. providing credit to the corporate sector

c. providing investment liquidity

[1] a b c

[2] a b

[3] b c

[4] a c



a. If the rand/dollar exchange rate changes from ZAR/USD 0.0841 to ZAR/USD 0.0826,

we say that the rand has depreciated.

b. If the dollar/rand exchange rate changes from USD/ZAR 11.8251 to USD/ZAR 12.444,

we say that the rand has appreciated.

c. If the dollar/rand exchange rate changes from USD/ZAR 9.675 to USD/ZAR 8.342, we

say that the rand has appreciated.

[1] a b c

[2] a b

[3] b c

[4] a c


ECS2605/101/1/2018

83

Section B: Essay questions

1. Explain why the financial sector of an economy is important for the proper functioning of

the real sector by referring to the functions of the financial system. (5)

2. Explain how foreign exchange swaps between the South African Reserve Bank and

other banks will influence the money market. (7)

3. Clearly distinguish between short-term insurers and long-term insurers. (8)

4. Cleary explain all the flows of funds involved in a repurchase transaction between the

South African Reserve Bank and another bank. (7)

5. Suppose a bond pays coupons on 30 June and 31 December. The bond register closes

one month before the coupon payment date. Explain, in detail, how the all-in price of

this bond will be calculated if it trades on 15 June. (4)

6. Clearly distinguish between the following types of shares:

(i) preference shares and ordinary shares

(ii) cumulative preference shares and non-cumulative preference shares (4)

7. Clearly distinguish between bonds and shares. (6)

8. Who will make use of a vanilla interest rate swap? Explain your answer. (3)

Total: [44]

84

9.5.10 Assignment 06 (both semesters)

Note: This is a self-evaluation assignment. You must not hand in this assignment. The answers

will become available to you on the E-tutor website and will also be mailed to you in

TL201. If you are unsure about the correct answer, discuss this with fellow students on

the Discussion Forum on the E-tutor website. Your E-tutor will comment if necessary.

ASSIGNMENT 06/ 2018 (FIRST AND SECOND SEMESTER)

CLOSING DATE:

LEARNING UNITS:

PRESCRIBED BOOK:

Complete by 15 April (First semester)

Complete by 30 September (Second semester)

4 and 5

Chapters 9 to 16

As extra preparation for the exam, this assignment provides some additional questions on study

units 4 and 5. Please complete the assignment before looking at the answers. By doing this, you

will be able to decide for yourself whether you are ready for the exam (as far as these two learning

units are concerned).

Questions 1 to 10 test your knowledge of the theory of derivative instruments. 1. Which one of the following is a characteristic of a future?

[1] Contract negotiated to suit the needs of the buyer.

[2] Contract usually results in physical delivery of the underlying assets.

[3] Contract flexible in terms of timing.

[4] Contract flexible in terms of quantity of underlying asset.

[5] Exchange-listed contract.

2. Which one of the following characteristics applies to both futures and forwards?

[1] Contract negotiated to suit the needs of the buyer.

[2] Contract usually results in physical delivery of the underlying assets.

[3] Contract listed on an exchange.

[4] Contract to buy or sell a certain quantity of the underlying asset in the future.

[5] Will only be exercised if it is profitable for the holder to do so.

3. Which of the following statements with regard to derivatives are correct?

ECS2605/101/1/2018

85

a. Derivatives are leveraged investments, as only a small initial outlay is needed.

b. Derivatives’ prices are less volatile than the prices of the underlying assets. c. Derivatives contracts can be based on non-financial variables such as the weather. d. Derivatives can be used to reduce the risk of holding a market position.

[1] a c [2] a b d [3] a c d [4] b c d [5] c d

4. Which one of the following is a derivative instrument?

[1] Unit trusts, which derive their value from the shares that the fund has invested in.

[2] Satrix 40, which derives its value from the returns of the top 40 shares listed on the

JSE.

[3] An option to buy Satrix 40 at a specified price in one month’s time.

[4] A share that is sold below the market price.

[5] An investor buys a dual listed share on the JSE and simultaneously sells it on the

London Stock Exchange in order to take advantage of the price difference between the

two exchanges.

5. An option is said to be in-the-money if …

[1] the strike price of a call option is lower than the current market price of the underlying

instrument.

[2] the strike price of a put option is lower than the current market price of the underlying

instrument.

[3] the strike price of a call option is higher than the current market price of the underlying

instrument.

[4] the strike price of a put option is equal to the current market price of the underlying

instrument.

[5] the strike price of a call option is equal to the current market price of the underlying

instrument.

6. What are the characteristics of options?

a. The seller has an obligation to honour the option.

b. The expiry date is a specified date in the future.

c. The strike price may vary on a daily basis.

d. The buyer has the choice to exercise the option.

86

[1] a b

[2] a b d

[3] a c d

[4] b c d

[5] b d

7. Holding a long call option, with the premium of R5 and a strike price of R40 when the

underlying asset is trading at R60, implies that the position is

[1] out-of-the-money and showing a loss of R20

[2] in-the-money and showing a profit of R15

[3] out-of-the-money and showing a loss of R15

[4] in-the-money and showing a profit of R20

8. A fall in the price of the underlying asset will have which of the following effects on the

premiums of an option?

a. Call premiums will rise.

b. Put premiums will fall.

c. Put premiums will rise.

d. Call premiums will fall.

[1] a b

[2] a c

[3] b d

[4] c d

9. On 1 March 2013, Company ABC sells an American-style option that will expire on 31 May

2013. The option may be exercised on …

a. 1 May 2013

b. 31 May 2013

c. 1 June 2013

[1] a

[2] b

[3] c

[4] a b

[5] a b c

ECS2605/101/1/2018

87

10. Mine ABC has imported capital equipment and has to pay $1 million for this equipment on

1 December 2013. On 28 February 2013, it enters into a forward contract to buy the dollars

on 1 December at a specific exchange rate. This is an example of … using a derivate.

[1] hedging

[2] speculation

[3] alternative investment

[4] creation of synthetic financial instruments

[5] taking on risk

Questions 11 to 25 are all questions that test your understanding of the different calculations that

apply to financial instruments. A summary of the formulas that you can use can be found at the

end of Tutorial Letter 101. Note that this formula page will also be provided in the examination.

All amounts are rounded off to the nearest rand.


Instrument X

Nominal value: R1 m

Issue date: March 2013


Number of days to maturity: 92

Discount rate: 10%

11. Instrument X could be

[1] a corporate bond

[2] a Treasury bill

[3] a negotiable certificate of deposit

[4] a Reserve Bank debenture

[5] a repurchase agreement

12. On issue date, the consideration was

[1] R1 100 000,00

[2] R1 025 205,48

[3] R1 000 000,00

[4] R974 794,52

[5] R900 000,00

88

13. On issue date, the annualised yield on Instrument X was

[1] 10,26%

[2] 10,00%

[3] 3,65%

[4] 2,47%

[5] 0,25%

14. On maturity date, the value of Instrument X was

[1] R1 100 000

[2] R1 025 205,48

[3] R1 000 000

[4] R974 794,52

[5] R900 000


The South African Reserve Bank issues debentures with a nominal value of R2 million at an

annual interest rate of 12%. These will expire in 181 days. One hundred days later (i.e. 81 days

before expiry), the debentures are traded at a market interest rate of 10%.

15. On issue, the South African Reserve Bank received

[1] R1 516 022

[2] R1 880 986

[3] R1 946 740

[4] R2 000 000

[5] R2 119 014

16. The consideration in the secondary market is

[1] R1 516 022

[2] R1 880 986

[3] R1 946 740

[4] R2 000 000

[5] R2 073 010

17. The seller in the secondary market realised

[1] a capital profit of R7 257

ECS2605/101/1/2018

89


[3] a capital loss of R19 750

[4] a capital loss of R65 753


18. The seller in the secondary market’s yield rate is

[1] 13,3%

[2] 12%

[3] 10%

[4] 1,3%

[5] 0,133%


Suppose bonds with a nominal value of R5 million were sold by Bank X to ABC Investment

managers on 24 January 2013 at an all-in market price of R95,500%. Bank X undertook to

repurchase the bonds again seven days later at a repurchase rate of 8,00%.

19. The consideration in the first leg of this transaction is

[1] R5 007 671

[2] R5 000 000

[3] R4 992 329

[4] R4 775 000

[5] R4 500 000

20. What amount will be paid in the second leg of the transaction?

[1] R4 775 000

[2] R4 782 326

[3] R5 007 326

[4] R5 157 000

[5] R5 400 000

21. In the second leg of the foregoing transaction

[1] Bank X pays an amount of R7 326 in interest.

[2] ABC Investment managers pay R3 726 in interest.

[3] Bank X receives an amount of R3 726 in interest.

90

[4] ABC Investment managers pay R7 326 in interest.

[5] ABC Investment managers receive R3 726 in interest.

Questions 22 to 25 are based on the following information (on a bond):

Bond X

Principal value: R10 million

Coupon rate: 10%

Issue date: 1 January 2005

Maturity date: 31 December 2014

Coupon payment dates: 30 June and 31 December

Bond registers close a month before the coupon payment dates.

22. Based on the foregoing information and the fact that the bond’s current market price is

R102,500%, which of the following statements is/are correct?

a. The running yield on the bond is 9,76%.

b. The running yield on the bond is 10%.

c. The bond is trading at a premium.

d. The bond is trading at a discount.

[1] a c

[2] a d

[3] b c

[4] b d

[5] b

23. Suppose that the bond trades at a market price of R95,00% on 30 September 2013. The

number of days from 30 June 2013 to 30 September 2013 is 92 days; the number of days

from 30 September 2013 to 31 December 2013 is also 92 days. The accrued interest amount

is

[1] R82 192

[2] R126 027

[3] R246 575

[4] R250 034

[5] R252 055

24. On 30 September 2013, the clean price is … and the all-in price is … .

ECS2605/101/1/2018

91

[1] R9 500 000, R9 500 000

[2] R9 752 055, R9 500 000

[3] R9 500 000, R9 752 055

[4] R9 247 945, R9 752 055

[5] R9 582 192, R9 626 027

25. Suppose that the bond trades at a market price of R95,00% on 15 December 2013. The

number of days from 30 September 2013 to 15 December 2013 is 76, from 15 December

2013 to 31 December 2013 is 16 days, and from 15 December 2013 to 30 June 2013 is 197

days. On 15 December 2013, the clean price is … and the all-in price is … .

[1] R9 500 000, R9 291 780

[2] R9 500 000, R9 456 164

[3] R9 500 000, R8 960 274

[4] R9 543 836, R9 500 000

[5] R9 708 219, R9 500 000

92

10 EXAMINATIONS

Use your my Studies @ Unisa brochure for general examination guidelines and examination

preparation guidelines.

10.1 Examination period

This module is offered in semester periods of approximately 15 weeks. This means that if you are

registered for the first semester, you will write the examination in May/June 2018 and the

supplementary examination will be written in October/November 2018. If you are registered for

the second semester you will write the examination in October/November 2018 and the

supplementary examination will be written in May/June 2019.

Sometime during the semester, the Examination Section will provide you with information

regarding the examination in general, examination venues, examination dates and examination

times. You have to submit Assignment 01 before the closing date to qualify for admission

to the examination.

10.2 Examination paper

The format of the examination paper is discussed in detail in Tutorial Letter 201 (which you will

receive during the semester).

The structure of the examination paper for 2018 is as follows:

It is a two-hour paper and consists of 3 sections (A, B and C) making up a total of 100 marks.

In Section A you must answer all the questions. You will be asked to explain certain concepts and

relationships, and short essay type questions which are based on the content of the whole

module. The total number of marks for this section is 20 marks. You will find examples of typical

questions that can be asked in Section A in section 11 of this tutorial letter.

In Section B you must answer two out of three questions. Each question will count 15 marks. You

will be asked to explain certain concepts and relationships, and short essay type questions which

are based on the content of the whole module. The total number of marks for this section is 30

marks.

Section C consists of 25 multiple-choice questions for 50 marks, based on the content of the

whole module. Examples of multiple-choice questions appear throughout the learning units and

the assignments.

ECS2605/101/1/2018

93

A final mark (semester mark + examination mark), as explained under the Section 8.4: How will

this work in practice, of 50% is required to pass this module.

10.3 Previous examination papers

Some previous examination papers are available to students on myUnisa under the “official study

material” folder and one example of a recent examination paper will be provided in Tutorial Letter

102. You may be able to obtain previous examination papers from elsewhere. However, we

advise you not to focus solely on old papers because the content of the modules and, therefore,

the examination papers changes from year to year. To concentrate only on previous examination

papers will not guarantee a pass. You must be able to answer questions on all the prescribed

work and study outcomes.

11 EXAMPLES OF QUESTIONS FOR SECTION A OF THE EXAMINATION

1. Explain why the financial sector of an economy is important for the proper functioning of the

real sector by referring to the functions of the financial sector. (8)

2. Distinguish between the following terms and provide relevant examples:

Money and capital markets (4)

Direct financing and indirect financing (4)

Negotiable instruments and non-negotiable instruments (4)

Primary and secondary markets (4)

3. Define what is meant by a “financial intermediary” and provide a relevant example. (6)

4. Define (a) credit market (3)

(b) commodities market (3)

5. Define what is meant by a “dealer” and a “broker” and distinguish between the two. (4)

6. Name the three elements of regulation. (3)

7. Briefly discuss the objectives of regulation. (8)

8. Provide definitions for the following concepts that show you understand these concepts:

Money

Currency

Current account deposit

94

Cheque

Reserve ratio (5)

9. Explain how banks can create money. (4)

10. List and explain the factors that play a role in determining the size of demand deposits. (10)

11. Explain and discuss the following two functions of banks:

Intermediaries (2)

Payment service providers (3)

12. Explain what is meant when we say there is a mismatch between the assets and liabilities

of banks.

(4)

13. Explain the different ways in which the liquidity deficit of an individual bank may be financed.

Indicate which of these will form part of the banking sector’s liquidity shortage. (5)

14. Describe how accommodation policy is applied by the SARB. (6)

15. Explain how the SARB can influence the size of the money market deficit, using:

Open market operations (4)

Longer-term reverse repos (4)

Foreign exchange swaps (4)

16. Explain what tax and loan accounts are. (1)

17. Define what is meant by “official foreign exchange reserves”. (2)

18. List the objectives of the management of foreign exchange reserves by the central

bank. (4)

19. Suppose the SARB wishes to decrease the amount of new loans extended by the banking

sector. How can the SARB achieve this? Explain. (4)

20. Define the role and functions of the Financial Services Board (FSB). (2)

21. Define short-term insurance and long-term insurance and explain the type of risk covered

by each.

(4)

22. Distinguish clearly between short-term and long-term insurance. (6)

ECS2605/101/1/2018

95

23. Define the following types of retirement funds:

Defined benefit fund (2)

Defined contribution fund (2)

24. Distinguish clearly between a defined benefit retirement fund and a defined contribution

retirement fund. (8)

25. Define “collective investment schemes”. (3)

26. Define an “investment trust”. (3)

27. Define a “hedge fund”. (3)

28. Explain the function of the Public Investment Corporation. (2)

29. Provide a definition for a microfinance institution. (3)

30. Define the following terms and distinguish between them:

Stokvels

Friendly Societies

Mutual Banks

Microlenders (5)

31. Define each of the following types of institutions by referring to their role in the economy:

SARB (2)

Financial Services Board (2)

Banks (2)

Short-term insurers (2)

Long-term insurers (2)

Microlenders (2)

Investment institutions (2)

Retirement funds (2)

32. Distinguish between:

the nominal value and consideration of a discount instrument (2)

the nominal annual return and effective annual return on a discount instrument (2)

96

33. Explain what is meant by a “bond”. (4)

34. Briefly discuss the flow of funds relating to a bond over its life span. (3)

35. Briefly discuss the factors included in a bond contract. (6)

36. Define and distinguish between:

Treasury bills (3)

Reserve Bank debentures (3)

Bankers' acceptances (3)

Negotiable certificates of deposit (3)

Repurchase agreements (3)

37. Explain what is meant by “shares” and “bonds” and distinguish between them. (6)

38. Distinguish between the spot market for foreign exchange and the forward market. (2)

39. Distinguish between hedging and speculation in the foreign exchange market. (4)

40. Briefly define the following derivative instruments:

future

option

interest rate swap (6)

ECS2605/101/1/2018

97

12 FORMULAS FOR ECS2605

NOTE: This formula page will also be supplied to you in the examination.

Discount instruments

Consideration = NV (1- id x n)

Price = 1 - (id x n)

iy = (discount amount/consideration) x (1/n)

id = iy /(1+ iy x n)

id = (1 - p) x 1/n

Interest add-on securities

MV = NV x (1 + i x n)

P = MV / (1 + i x n)

Accrued interest = (amount paid x i x nh)

Yield = [(amount received - amount paid)/amount paid] x 1/nh

or

Yield = [total income/amount paid] x 1/nh

Repurchase agreements

Market value of instruments = nominal value of underlying instruments x AIP of the instruments)

Interest payable = N x i x n (where N refers to amount paid in leg one)

Repurchase amount = N x (1 + i x n) (where N refers to amount paid in leg one)

The bond market

Coupon = coupon rate x principal

Annual yield = annual income/buying price

Accrued interest = coupon rate per annum x d/365

Accrued interest amount = principal x coupon rate per annum x d/365

All-in price (if bond trades cum interest) = clean price + accrued interest

All-in price (if bond trades ex interest) = clean price - accrued interest

98

13 CONCLUSION

Do not hesitate to contact us by e-mail if you are experiencing problems with the content of this

tutorial letter or with any academic aspect of the module.

We wish you a fascinating and satisfying journey through the learning material and trust that you

will complete the module successfully.

Enjoy the journey!

Storme Kennedy-Palmer – lecturer for ECS2605

DEPARTMENT OF ECONOMICS

ECS2605 2018 TL 101 3 cv - Unisa Study Notes...You may contact the lecturers during weekdays between...

Documents

Transcript of ECS2605 2018 TL 101 3 cv - Unisa Study Notes...You may contact the lecturers during weekdays between...