Exam FIN 564|Elaborations| FIN 564 : Management of Financial Institutions (FIN 564 )

1. Should countries forgo using their own currency and adopt as legal tender a stable foreign currency? Address the following in your answer: a. Give two advantages and two disadvantages of dollarization.2. What are the differences in the structures of the New York and Nasdaq exchanges? How are stocks traded on each? What role (or roles) does a specialist or market maker play in the two exchanges?3. Barr Bank has just purchased bonds for $106 million that have a par value of $100 million, three years remaining to maturity, and an annual coupon rate of 14 percent. It expects the required rate of return on these bonds to be 12 percent one year from now.Define the term “duration” in the context of fixed income securities. What is meant by the terms “price risk” or “interest rate risk”? What is the relationship between “interest rate risk” and duration?“Municipal-Bond Fans Get a Rude Awakening” (WSJ 2/8/05) Summary: Last week brought losses of 15% or more for a group of bonds with a solid triple-A rating. The losses occurred when New York City exercised the call feature on some of their municipal bonds. A call feature allows the issuer to redeem the bond early at a set price (usually a few percentage points above par value).Explain the government bond quotes below. If you wanted to buy the 2nd bond listed, what price would you pay? Why are the bonds selling at different prices? What is the asked yield? Why do the bonds have the same asked yield when their prices are different?