Question 1 (5 Marks)

Both domestic and international capital markets are vital to the long-term financing of investment plans and projects for governments, businesses and individuals. Moreover, capital markets offer abundant opportunities for investing, borrowing, speculation and hedging. In a purely domestic context, the economic growth of a country is largely dependent on the development, organisation and efficiency of that country’s domestic capital markets. Capital markets are markets for long-term funding that include equity markets, corporate debt markets, and government debt markets. Capital markets also encompass the foreign exchange markets and derivatives markets in the essential roles played by these markets in the facilitation of international funding, and financial risk management respectively.

In your own words briefly describe and discuss the following markets and the functions and roles played by these markets in the context of a nation’s capital markets:

(a) Equity market;

(b) Corporate debt market;

(c) Government debt market;

(d) Foreign exchange market;

(e) Derivatives market.

Marking Criteria:

You are required to read Topic 1 before attempting question 1. In answering this question you will need to demonstrate an understanding of the functions of a nation’s capital markets, and the various markets that both form and play a role in capital markets. Your response to question 1 should be no more than 1000 words in total for all parts of this question (a, b, c, d & e combined). The following criteria will be used in marking your response to this question:

Have you clearly explained and demonstrated your understanding of the following markets and the functions and roles played by these markets in the context of a nation’s capital markets?
Equity market;
Corporate debt market;
Government debt market;
Foreign exchange market;
Derivatives market.
Have you demonstrated an overall understanding of these markets in the context of both the domestic capital market and international capital markets?

Question 2 (5 Marks)

A corporation is a legal entity established under the Corporations Law of a country and listed on a stock exchange. A publicly listed corporation relies on capital markets for long-term funding. There are a number of equity and debt funding alternatives available to a corporation. Firstly, in your own words identify and briefly explain the various funding alternatives and techniques available to a corporation. Secondly, describe and discuss in greater detail, two equity funding strategies and one debt funding strategy that may be used by a corporation to fund its long-term financing needs.