SECTION ONE (Compulsory) ：Single-choice questions
　　from the following four options, select a correct and fill in its labeling the brackets. (A total of 10 points)
　　1. Which belongs to the Tightening of fiscal policy tools? ( )
　　A. Reduce government spending and increase tax revenue
　　B. Reduce government spending and reduce taxes
　　C. Increasing government spending and reducing taxes
　　D. Increase in government expenditure and increase tax revenue
　　2. What market is the Most in need of the advertising? ( )
　　A. Fully competitive market
　　B. Monopolize market
　　C. Competitive monopoly market
　　D. Oligopoly market
　　3. The value of national output: ( )
　　A. Is the same of the output of all businesses.
　　B. Is the aggregate of output of employed persons.
　　C. Is synonymous with aggregate manufacturing output.
　　D. Utilizes the "added value" concept.
　　4. With C = 10 + 0.7Y and the level of income changing from $70 billion to $80 billion, the increase in consumption and the revised average propensity to consume (ape) respectively would be: ( )
　　A. $9 billion and 0.78.
　　B. $6 billion and 0.8.
　　C. $7 billion and 0.79.
　　D. $7 billion and 0.825.
　　5. Which of the following goods is likely to have the most elastic demand? ( )
　　A. A particular brand of breakfast cereal.
　　B. Breakfast cereals in general.
　　C. A very cheap good on which not much is spent (e.g. matches newspaper) .
　　D. An essential good.
　　6. School students paying a lower fare than adults on the MTR trains, or cheaper tickets to the theatre, is an example of: ()
　　A. The suppliers making less profit because some customers pay a lower price.
　　B. Consumers obtaining more consumer surplus.
　　C. Price discrimination allowing the suppliers to make more profit from charging a higher price to
　　customers whose demand is more elastic.
　　D. Price discrimination allowing the suppliers to make more profit from charging a lower price to customers whose demand is more elastic.
　　7. A futures trader goes long one futures contract at $450. The settlement price 1 day before expiration is $500. On expiration day, the future is trading at $505. The least likely way the futures trader will lock in her profits on expiration is: ( )
　　A. Take delivery of the underlying asset and pay $500 to the short.
　　B. Close out the futures position by selling the futures contract at $505.
　　C. Take delivery of the underlying asset and pay the expiration settlement price to the short.
　　D. Cash settle the futures and receive the difference between $500 and the expiration settlement price.
　　8. In the context of break-even analysis, the Margin of Safety for a firm is: ( )
　　A. The difference between the sales revenue achieved and the break-even revenue.
　　B. The difference between planned (or actual) output and the break-even quantity in a particular time period.
　　C. The percentage difference between planned (or actual) output and the break-even quantity.
　　D. The difference between planned (or actual) output and the break-even quantity.
　　9. There is 5-year annuity of $3,000 per year. However, the first payment will not pay until year 3. Assuming the interest rate is 10%, calculate the present value of this annuity. ( )
　　A. $8397.
　　B. $9,399.
　　C. $10,258.
　　D. None of the above.
　　10. Hub Global, Inc. has issued two classes of debt securities to finance its operations, a first mortgage bond and debenture bonds. All else equal, will the default and recovery rates of the debenture likely be higher than the first mortgage bond? ( )

　　A. Answer A.
　　B. Answer B.
　　C. Answer C.
　　D. Answer D.
　　SECTION TWO(Compulsory)： Reading Comprehension (10 points)
　　Gary Zeller, an independent portfolio manager who manages money for high-net-worth individuals, is a proponent of the efficient market hypothesis. He uses the Treynor-Black model to determine asset allocations for his portfolios. At the moment, he is considering several investments for new portfolios. Here are their characteristics.

　　The risk-free rate is 5.7%. The expected return of the S&P 500 Index is 10%, and the index’s standard deviation is 14%.
　　Zeller plans to create a portfolio using a mix of the S&P 500 Index, the risk-free asset, and the four stocks discussed above. He uses the data above to select the appropriate asset allocations to maximize returns.
　　Recent market activity has Zeller concerned. For several weeks he has seen stocks with weak fundamentals stage a strong rally, while solid, steady-growth stocks have lagged. After extensive research into technical trends and an analysis of the market’s fundamentals, Zeller has come to believe the recent trend in the market is likely to continue, with speculative stocks continuing to rally.
　　Despite the gains in speculative stocks, Zeller sees continued weakness in larger, solid stocks causing a decline in the S&P 500 Index. To compensate for this risk, he purchases put options on the 50 largest stocks in the capitalization-weighted index instead of buying the index itself for the new portfolios.
　　Later that day, Zeller receives an e-mail from Florence Whitaker, a client whose portfolio has performed poorly in recent months. She is not happy with the results and questions Zeller’s allocation strategy.
　　In a response e-mail, Zeller defends the Treynor-Black model and makes the following points:
　　The strategy is designed to beat the market, but not necessarily to generate gains when the market is down.
　　In your portfolio, I overweight the stocks with the highest potential return to boost performance.
　　A mix of individual stocks and index funds gives the portfolio better potential returns than the index, while offering less risk than the individual stocks.
　　All of the stocks in your portfolio have betas below 1.
　　After sending the e-mail, Zeller opens up a spreadsheet to crunch some numbers. Several of his portfolios have underperformed over the last year, and he resolves to consider whether he should relax his assumptions about the accuracy of forecasts.
　　1) From highest allocation to lowest, how should Zeller allocate the four stocks in his portfolio? ()
　　A. Hearthstone, Minster Mask and Costume, Kustom Auto, Imperial Shipyards.
　　B. Minster Mask and Costume, Kustom Auto, Imperial Shipyards, Hearthstone.
　　C. Kustom Auto, Imperial Shipyards, Minster Mask and Costume, Hearthstone.
　　D. Minster Mask and Costume, Hearthstone, Kustom Auto, Imperial Shipyards.
　　2) Which of Zeller’s actions is least compatible with the use of the Treynor-Black model? His: ()
　　A. Purchase of put options.
　　B. Use of index funds.
　　C. Willingness to actively manage portfolios.
　　D. Support of the efficient market hypothesis.
　　3) In light of his observations about market movements, Zeller should: ()
　　A. Increase his cash allocation.
　　B. Increase his index-fund allocation.
　　C. Take no action, the model will account for any changes.
　　D. Increase his allocation of actively managed stocks.
　　4) If Zeller stops assuming forecasts are accurate, he will most likely: ()
　　A. Increase the number of stocks in the portfolio.
　　B. Shift subtly toward CAPM.
　　C. Reduce both risk and potential return of the portfolio.
　　D. Need to rebalance the portfolio more often.
　　5) Assuming Zeller intends to take positions in all four of the stocks discussed above, how many should he sell short? ()
　　A. 1.
　　B. 0.
　　C. 2.
　　D. 3.
　　SECTION THREE(Compulsory)：Explanations of terms(25 points)
　　1. Margin requirement
　　2. Interest ceiling
　　3. Bank for International Settlements (BIS)
　　4. Bancassurance
　　5. Secondary market
　　SECTION FOUR(Compulsory)：Answer Questiones (32 points)
　　1: Explain the Mechanism of Money Supply.
　　2: What is the Function of stock exchanges?
　　3: List the Counter-measures of Deflation as more as possible.
　　4: What is Financial Liberalization? And what is The Nature of Financial Liberalization?
　　SECTION FIVE(Compulsory)：Caculation (13 points)
　　Let’s take an example. Suppose that a share of Haier in the Hong Kong Stock Market had a closing price yesterday of HK $ 10, but new information was announced after the market closed that caused a revision in the forecast of price next year to go to HK $15. If the annual equilibrium return on Haier is 20% , what does efficient markets theory indicate the price will go to today when the market opens? (Assume that Haier pays no dividends. )
　　SECTION SIX(Compulsory)：Explanations of Model (10 points)
　　Please illustrate the macroeconomic-based risk factor models:

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