Assignment & Case Study - Roles of Financial Markets and Institutions

Roles of Financial Markets and Institutions - Flow of Funds Exercise
Assignment 1 & Case study
Each student has been allotted one country by the instructor.
The purpose of this assignment and case study is to understand the financial markets and institutions
vis-a vis existence of characteristics of Efficient Market Hypothesis in the allotted country.
This exercise focuses on the interactions of a single manufacturing firm in the financial markets. (I’ve
named it as XYZ & Company; however, you have to use your own name for presentation purpose e.g
Waleed Bin Shaheen & Company).
In order to do this, students are first required to go through the three chapters taught online in the
class thoroughly, perhaps more than once. Before solving the case, discover and describe the
following areas in the allotted country, in line with what has been taught in the class. Please note that
your assignment will be evaluated based on not just what has been given in the slides/books but also
what was discussed in the class which perhaps you may not find in the books/slides. The following
will further help you in assessment of the study.
a) Describe all the types of financial markets e.g. debt market, stock market, foreign Exchange
market, that facilitate the flow of funds in your allotted country.
b) Describe the types of securities traded within financial markets therein.
c) Describe the financial institutions and their role within financial markets.
d) Describe the fluctuations in rates/prices in the market and their impacts on the economy
e) Discuss the degree of asymmetry of information in the financial markets.
f) Financial scandals over last 25 years and how were they dealt with by the regulators and the
Government
g) Comment on how far the financial markets there are perfect in line with parameters of
Efficient Market Hypothesis as taught in the class
You are expected to display your understanding of how financial markets and institutions are
integrated and facilitate the flow of funds in the business and financial environment of your allotted
country in line with with has been taught and discussed in the class . In the end this exercise provides
a list of questions about this company that requires the application of concepts presented in the three
chapters as they relate to financial markets & institutions and the flow of funds therein.
Page 1 of 3
Case:
XYZ & Company is a large manufacturing firm that was created 20 years ago by your family in the
allotted country. It was initially financed with an equity investment by your family and 10 other
individuals. Over time, XYZ & Company obtained substantial loans from finance companies and
commercial banks.
It has purchased Treasury securities worth $5 million that it could sell if it experiences any liquidity
problems. XYZ has assets valued at about $50 million and generates sales of about $100 million per
year.
Some of its growth is attributed to its acquisitions of other firms. Because of its expectations of a
strong economy of the allotted country, XYZ plans to grow in the future by expanding its business
and by making more acquisitions. It expects that it will need substantial long-term financing and
plans to borrow additional funds of $350 million, either through loans or by issuing bonds. It is also
considering issuing stock to raise funds in the next year and to have some specific foreign currency
lines of credits to facilitate its business directly with UK, Europe and Japan.
XYZ & closely monitors conditions in financial markets that could affect its cash inflows and cash
outflows and thereby affect its value. The market, besides fixed rate also offer floating interest rates
on the loans which are tied to market interest rates and are adjusted every quarter/six months. Thus
XYZ’s cost of obtaining funds is sensitive to interest rate movements. It has a credit line with a bank
in case it suddenly needs additional funds for a temporary period.
a) In what way is XYZ & Company a surplus unit?

b) In what way is XYZ a deficit unit?
c) How might finance companies in that country facilitate XYZ’s expansion? Discuss rates and
commissions.
d) How might commercial banks in that country facilitate XYZ’s expansion? Discuss the interest
rates on all forms of credits
e) Why might XYZ have limited access to additional debt financing during its growth phase?
f) How might securities firms facilitate XYZ’s expansion?
g) How might XYZ use the primary market to facilitate its expansion?
h) How might it use the secondary market?
i) What best course of action for financing mix will you propose based on cost of funds offered
by the financial institutions and financial markets in that country?
j) The loans that XYZ has obtained from commercial banks stipulate that XYZ must receive the
bank’s approval before pursuing any large projects. What is the purpose of this condition?
Does this condition benefit the owners of the company?
Page 2 of 3
Please note that no plagiarism is allowed. You are expected to present your assignment and
case must reflect all parameters in line with what has been taught and discussed in the class.
The assignment & case study is to be submitted on LMS. Last date for submission is July 05,
2020 at 11:55 PM.
Once again, let me be very clear, your assignment will be assessed on the basis of
how well you have been able to comprehend the topics through discussions in the
class.
Best of Luck
M. Yousuf Saudagar
Page 3 of 3

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Roles of Financial Markets and Institutions - Flow of Funds Exercise

Assignment 1 & Case study

Each student has been allotted one country by the instructor.

a) In what way is XYZ & Company a surplus unit?

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