Question 4 10 marks Today the Hong Kong Monetary Authority H

Question 4 (10 marks) Today, the Hong Kong Monetary Authority (HKMA) announced the tender results of the latest new issue of the Exchange Fund Bills (EFB). Open Bank, one of the Eligible Market Makers (EMM) recognized by the HKMA, has been successfully allotted 83 units of the 182-day EFB (a) (6 marks) If the final bid yield of the 182-day EFB is 1.38% pa. and the par value of one unit of EFB is $500,000, assess the total amount which Open Bank has to pay to the HKMA upon settlement (b) Critically discuss two functions performed by financial markets 4 marks) that improve the efficiency of an economy.

Solution

The total amount that is to be paid on settlement to the HKMA by open bank is

= ($500000 * 1.38% *182/365* 83) + ($500000*83) = $285565.48 + $41500000 = $41785565.48

The functions that are performed by the Financial markets that improve the efficiency of economy are

1. The proper allocation of funds as per the demand and supply in the market so that their is proper balance maintained in the economy. There is a diverse array of Financial instruments , financial products that suits the need of overall economy includes borrowers and lenders etc.

2. There is a direct flow of the savings and investments in the market efficiently in the economy in such way that can facilitate the productions of goods and services and proper accumulation of capital.