Learning outcomes: Describe current global trends and factors which have impacted liquidity in financial markets and explain their liquidity impact. Summarize trends over the past 10 years in the volume and liquidity of the following financial markets: interest rates and interest rate derivatives, sovereign bonds, repos, corporate bonds, CDS, securitized products, foreign exchange, equities, and emerging market financial products
Questions:
604.1. According to PwC's Global Financial Markets Liquidity study (August 2015), the "rates markets" collectively refers to key interest rates, such as central bank policy rates, interbank rates and government bond yields, which form the basis for a vast array of financial contracts acting as key benchmarks for use in commercial contracts, loan agreements and in asset pricing. Each of the following statements is true about the liquidity of these rates markets EXCEPT which statement is false?
a. Major central banks policy rates have very low (eg, at or near zero) since 2009 as an era of loose monetary policy has persisted
b. During the financial crisis of 2008 to 2009, two spread measures jumped up: off-the-run versus on-the-run 10-year Treasury bills, and 6-month LIBOR versus central bank policy rates
c. Notional amounts and average trading volumes of interest rate derivatives (ie, IRS, STIR), have declined sharply after the financial crisis as investors have shunned the increasing swap rates of the 5-year fixed-floating EUR IRS
d. Following the financial crisis, many governments adopted expansionary fiscal policies to counteract recessionary pressure, and this led to large amounts of government bond issuance, increasing the stock of government bonds outstanding
604.2. In the years subsequent to the global financial crisis of 2007-2009, each of the following decreased (or declined) EXCEPT which has in general increased?
a. US and European securitization issuance
b. US corporate investment grade bond bid-ask spreads
c. Global notional credit default swaps (CDS) outstanding
d. Average daily volume of foreign exchange (FX) spot transactions
604.3. According to PwC's Global Financial Markets Liquidity study (August 2015), each of the following asset classes (market) has experienced at least some decline in market liquidity after the financial crisis EXCEPT which has experienced a general increase in liquidity?
a. Mid-cap equities, as indicated by trading volumes and average transaction size
b. Emerging markets (e.g., EM fixed income, EM equities), as indicated by bid-ask spreads
c. Non-oil commodities (e.g., wheat, cooper), as indicated by bid-ask spreads
d. Long-term forward foreign exchange (FX), as indicated by bid-ask spreads and conversations with market participants
Answers here:
Questions:
604.1. According to PwC's Global Financial Markets Liquidity study (August 2015), the "rates markets" collectively refers to key interest rates, such as central bank policy rates, interbank rates and government bond yields, which form the basis for a vast array of financial contracts acting as key benchmarks for use in commercial contracts, loan agreements and in asset pricing. Each of the following statements is true about the liquidity of these rates markets EXCEPT which statement is false?
a. Major central banks policy rates have very low (eg, at or near zero) since 2009 as an era of loose monetary policy has persisted
b. During the financial crisis of 2008 to 2009, two spread measures jumped up: off-the-run versus on-the-run 10-year Treasury bills, and 6-month LIBOR versus central bank policy rates
c. Notional amounts and average trading volumes of interest rate derivatives (ie, IRS, STIR), have declined sharply after the financial crisis as investors have shunned the increasing swap rates of the 5-year fixed-floating EUR IRS
d. Following the financial crisis, many governments adopted expansionary fiscal policies to counteract recessionary pressure, and this led to large amounts of government bond issuance, increasing the stock of government bonds outstanding
604.2. In the years subsequent to the global financial crisis of 2007-2009, each of the following decreased (or declined) EXCEPT which has in general increased?
a. US and European securitization issuance
b. US corporate investment grade bond bid-ask spreads
c. Global notional credit default swaps (CDS) outstanding
d. Average daily volume of foreign exchange (FX) spot transactions
604.3. According to PwC's Global Financial Markets Liquidity study (August 2015), each of the following asset classes (market) has experienced at least some decline in market liquidity after the financial crisis EXCEPT which has experienced a general increase in liquidity?
a. Mid-cap equities, as indicated by trading volumes and average transaction size
b. Emerging markets (e.g., EM fixed income, EM equities), as indicated by bid-ask spreads
c. Non-oil commodities (e.g., wheat, cooper), as indicated by bid-ask spreads
d. Long-term forward foreign exchange (FX), as indicated by bid-ask spreads and conversations with market participants
Answers here:
Last edited by a moderator:
