European Financial Markets and Institutions J. de Haan, S. Oosterloo and D. Schoenmaker Exercises for Chapter 3 European Financial Markets 1. Explain the role of credit rating agencies in financial markets. 2. What is the difference between quote driven and order driven markets? 3. The most important money market segments are the unsecured deposit markets (with various maturity, ranging from overnight to 1 year), and the secured repo markets (often called repos) with maturities also ranging from overnight to 1 year. Explain the main differences between both segments in terms of risk and return. 4. On January 15, 2009, the European Central Bank issues the following press release: "At today’s meeting the Governing Council of the ECB took the following monetary policy decisions: The interest rate on the main refinancing operations of the Eurosystem will be decreased by 50 basis points to 2.00%, starting from the operation to be settled on 21 January 2009. The interest rate on the marginal lending facility will be set at 3.00%, with effect from 21 January 2009. The interest rate on the deposit facility will be set at 1.00%, with effect from 21 January 2009." a. What are main refinancing operations? b. What is the difference between the marginal lending facility and the deposit facility? c. Why are the rates on these facilities different? 5. Interest rates on bonds are affected by the term premium, credit risk, and liquidity risk. Explain how. 6. Explain why the following statement is wrong: When an investor buys stock in a company, he helps financing this company. .