FIN 306 SU1 EXAM QUESTIONS WITH VERIFIED SOLUTIONS LATEST UPDATE 2026
Direct finance - Answers Funds transfer from lenders to borrowers directly through financial market
Indirect finance - Answers Funds transfer from lenders to borrowers indirectly through financial
intermediaries before financial market
Functions of financial system - Answers Savings
Liquidity
Payment
Risk
Policy
Savings function - Answers Mobilising savings
Capital allocation
Maturity transformation
Liquidity function - Answers Liquid assets
Financial services & instruments
FIntech
Payment function - Answers Seamless fund transfer
Essential infrastructure
Variety of payment services
Risk function - Answers Identify, assess, and mitigate risk
Maintain stability
Protect against losses
Policy function - Answers Monetary policy transmission
Fiscal policy support
Regulatory oversight & crisis management
Types of financial institutions - Answers Banks
Insurance companies
Fund management companies
Brokerage firms
Fintechs
Primary vs secondary - By issuance - Answers P: Issue new debt/equity securities for the first time via
IPOs
S: Trade existing securities (repurchased/resold)
Money vs capital - by maturity - Answers M: Debt securities with maturities > 1 year
Low risk, low return
C: Long term debt and equity securities with no specific maturity date
High risk, high return
Over the counter vs exchange traded - by trading mechanism - Answers OTC: decentralised,
customisable, lesser regulations, limited public info, higher counterparty risk
ET: centralised, staandardised, strict regulations, public info avail, lower counterparty risk
Mortgage markets - Answers Primary - issue new mortgage loans
Secondary - Buying and selling existing mortgage loans
Foreign exchange markets - Answers currency bought and sold
one currency converted to another
Derivative markets - Answers Payoff linked to another security issued previously
Agreement to exchange specific asset/cash flow at predetermined price on a specific future date
Financial asset - Answers something valuable
cash, shares, trade on favourable terms (market price goes down -> pay less)
Financial liability - Answers Contractual obligation
Pay cash/financial asset
Unfavourable trade terms (market price goes up -> pay more)
Equity instrument - Answers Represents ownership in entity
Residue interest after liabilities paid
Alternative asset market - Answers Private equity, real estate, commodities, hedge funds
Used to diversify portfolio
Rich people stuff
Direct finance - Answers Funds transfer from lenders to borrowers directly through financial market
Indirect finance - Answers Funds transfer from lenders to borrowers indirectly through financial
intermediaries before financial market
Functions of financial system - Answers Savings
Liquidity
Payment
Risk
Policy
Savings function - Answers Mobilising savings
Capital allocation
Maturity transformation
Liquidity function - Answers Liquid assets
Financial services & instruments
FIntech
Payment function - Answers Seamless fund transfer
Essential infrastructure
Variety of payment services
Risk function - Answers Identify, assess, and mitigate risk
Maintain stability
Protect against losses
Policy function - Answers Monetary policy transmission
Fiscal policy support
Regulatory oversight & crisis management
Types of financial institutions - Answers Banks
Insurance companies
Fund management companies
Brokerage firms
Fintechs
Primary vs secondary - By issuance - Answers P: Issue new debt/equity securities for the first time via
IPOs
S: Trade existing securities (repurchased/resold)
Money vs capital - by maturity - Answers M: Debt securities with maturities > 1 year
Low risk, low return
C: Long term debt and equity securities with no specific maturity date
High risk, high return
Over the counter vs exchange traded - by trading mechanism - Answers OTC: decentralised,
customisable, lesser regulations, limited public info, higher counterparty risk
ET: centralised, staandardised, strict regulations, public info avail, lower counterparty risk
Mortgage markets - Answers Primary - issue new mortgage loans
Secondary - Buying and selling existing mortgage loans
Foreign exchange markets - Answers currency bought and sold
one currency converted to another
Derivative markets - Answers Payoff linked to another security issued previously
Agreement to exchange specific asset/cash flow at predetermined price on a specific future date
Financial asset - Answers something valuable
cash, shares, trade on favourable terms (market price goes down -> pay less)
Financial liability - Answers Contractual obligation
Pay cash/financial asset
Unfavourable trade terms (market price goes up -> pay more)
Equity instrument - Answers Represents ownership in entity
Residue interest after liabilities paid
Alternative asset market - Answers Private equity, real estate, commodities, hedge funds
Used to diversify portfolio
Rich people stuff
