TUTORIAL 1 - TUTORIAL DISCUSSION QUESTIONS

2. (a) Discuss the role of money in a financial system.
• money is a financial asset that facilitates financial and economic transactions
• a medium of exchange—swapped for goods and services
• a store of value—wealth is held or measured in money terms
• a standard of deferred payment—used to record indebtedness
• a unit of account—transactions are priced in money terms
• currency is generally divisible, portable and durable

(b) Does money have to be currency? If not, what are some alternatives?
• money is anything that is universally acceptable as a medium of exchange
• further, money generally has the characteristics of being divisible and a store of value
• examples: currency, EFTPOS, digital money.

3. Having recently inherited some money from a rich uncle, you are considering investing the funds in financial assets. You are aware that financial assets exhibit four main attributes. List and discuss these attributes. In your answer give examples to explain your points.
Four attributes are:
• return or yield
• risk
• liquidity
• time-pattern of the cash flows

Examples:
1. Term deposit with a bank:
• generally pays a fixed interest rate until maturity
• guaranteed by the bank—low risk (low return)
• funds usually are not available until maturity (less liquidity)
• interest paid periodically; principal repaid at maturity
2. Shares in a corporation:
• generally pay a dividend twice a year—amount determined by board
• no performance guarantees—higher risk (expect higher return)
• usually easy to sell shares at current price through the stock exchange
• dividends received half-yearly, if declared

4. The major financial institutions within the international markets fall into five classifications. Identify and briefly explain each of these classifications. Give an example of different