Page 130 - CAPE Financial Services Syllabus Macmillan_Neat

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FINANCIAL SERVICES STUDIES
UNIT 1 - PAPER 02

KEY AND MARK SCHEME

1. (a) Term structure of interest rate theories:

- Expectation Theory
- Segmented Markets Theory
- Liquidity Premium Theory

1 mark for each up to a maximum of 3 marks
(b) Rationales behind the efficient market hypothesis

In an efficient market:

- all unexploited profit opportunities will be eliminated
- not everyone in a financial market must be well informed
- not everyone in a financial market must have rational

expectation

1 mark for each up to a maximum of 3 marks

(c) Factors which explain the demand for assets
- Wealth – resources owned by individuals
- Expected return – the returns associated with a
particular asset viz-a-viz an alternative asset
- Risk – the degree of uncertainty associated with one
asset relative to an alternative asset
- Liquidity – the ease and speed with which an asset can be
converted into cash relative to alternative asset

1 mark for each up to a maximum of 4 marks

(d) Primary uses of funds for the following intermediary
- Commercial banks: Business and consumer loans, mortgages,
government securities and municipal bonds
- Savings and loan associations – mortgages
- Mutual savings banks – mortgages
- Credit unions – consumer loans

1 mark for each up to a maximum of 5 marks