The assignment focuses on analyzing how financial markets and interest rates function in theory and practice, while emphasizing critical thinking, research evidence, applied problem-solving, and most importantly creativity.
Assignment tasks (to complete both parts) The works are graded on comparative basis, thus, creativity and originality are a priority. Part 1 – Case-Based Question (Research & Application) – Mandatory: use of graphs, tables, and real-world data. – Mandatory: use at least 2 credible and recent academic references beyond the textbook. – Strong emphasis for assessment is: critical thinking + research evidence Answer in 300-500 words each. 1. Explain the main functions of financial markets and why they are essential for economic growth. 2. Compare direct vs. indirect finance. Provide an example of each. 3. Analyze the role of the Armenian financial system in channeling funds between savers and borrowers. Provide at least two examples from real life. 4. Discuss the importance of banks, financial markets, and central banks. Provide at least two examples from real life. Part 2 – Applied Analysis (Problem Solving) Solve the following problems: 1. A 5-year, $1,000 bond with an annual 6% coupon rate is in the market. • If the market interest rate rises to 8%, calculate the bond’s price. • Explain what this means for investors. 2. Suppose the demand for bonds increases while the supply remains constant. What happens to bond prices and interest rates? Illustrate with a supply–demand graph. 3. Calculate the yield to maturity on the bond that has a price of $2,000 and pays a $70 dividend for the life of the bond. What will happen if the dividend is $50 instead of $70? Illustrate with a graph the change in the dividend payment. 4. Consider two scenarios. In the first, the nominal interest rate is 6 percent, and the expected rate of inflation is 4 percent. In the second, the nominal interest rate is 5 percent, and the expected rate of inflation is 2 percent. In which scenario would you rather be a lender and why? In which would you rather be a borrower and why?