This document is provided to give you some help and guidance so that you can get the maximum number of points on the examinations in ECN 314 - Money, Banking and Financial Markets.  Many students are not used to the style of examination, so I have prepared this to give you some assistance so that you can get the highest score and grade possible.  The exam style is more of a graduate exam style and requires a different strategy than a multiple choice exam.

The exams are a combination of essays, T-F-Uncertain/Explain in an Essay and problems.

General hints:

1. Write as legibly as possible, in complete sentences. Try to avoid using shorthand (e.g. writing b/c instead of the writing out the word "because"), abbreviations, and/or symbols (e.g. using up or down arrows instead of writing out the words "increase" or "decrease") in your answers.

2. Full credit for an essay requires that you write a complete essay of a minimum of at least one full paragraph, with at least three or four sentences.  In almost all cases, an essay of several paragraphs would be more appropriate.  As a general rule, plan on writing an essay of at least one full page in your blue book.  One or two sentence “essays” will NOT count for full credit.

3. T-F-Uncertain/Explain problems should be treated just like an essay question.  One or two paragraphs are almost always required to fully explain your answer.  You will find a sample T-F-U/Explain question along with a complete answer, on the study guide section of my web page.

Remember that this is very different from a regular T-F exam question, which usually does NOT require an explanation.  A T-F-U/Explain question requires that you first select an answer (indicate clearly whether you are selecting True, False or Uncertain as your answer) and then write a COMPLETE explanation of why that answer is correct.  In some cases, more than one answer could be correct, and would depend on what assumptions you are making, how you choose to answer the question, etc.  A common mistake here is to attempt to answer in one sentence, which will usually not count for full credit.

For example, take the sample T-F-U/Explain test question: “If the current YTM is greater than a bond’s coupon rate, the bond will sell at a premium.”  An answer that would not qualify for full credit would be: “False, the bond would sell at a discount.”

A more detailed explanation would be required, with a discussion of the relation between coupon rates, current bond yields, and whether a bond sells at a discount or premium.  This would probably require at least one full paragraph with three or more sentences, such as:

“The statement is FALSE, the bond would sell at a discount, NOT a premium.  Assume that the coupon rate of the bond is 8% and current bond yields are 10%, so that the bond’s coupon rate is less than the current yields.  In other words, bond yields have risen since the original bond was issued.  Bonds are now being issued with coupon rates of 10% to reflect the current level of bond yields, and these bonds would sell at par (P=$1000).   In the bond market, previously issued bonds compete with newly issued bonds.  A bond with a coupon rate of only 8% would therefore be paying lower coupon payments ($80) than current bonds are paying ($100).  Therefore, the bond with a 8% coupon rate would only sell if it was offered at a discount ( P < $1000).   Investors now expect a 10% yield, and will only buy a 8% coupon bond if it is sold at discount, so that it will give investors a 10% rate of return.”

Other explanations are also possible.

When in doubt, you should probably write a longer essay instead of a shorter essay.   However, try to not include any information that does not directly address the question.  Plan on writing a full one page essay in your blue book.

If you want to practice writing an essay question or T-F-U/Explain question for evaluation before the first exam, you may submit an essay answer to any ONE question from the list of study guide questions and I will grade it for you.

4. Label all numbers with appropriate units.  For example, instead of “5", you should put $5, 5%, 5 years, FF5 / $, DM5, etc.

5. When you include a graph in your answer, make the graph large and carefully label the graph, with appropriate units specified on both the X and Y axis, such as YEARS, INTEREST RATE(%), PRICE ($), Quantity of Bonds, Quantity of Credit, Quantity of Money, etc. .

6. Show all of your work on the problems to get maximum partial credit.  If the answer is wrong, and there is no work to support the answer you could lose all of the points.  If the answer is wrong and the work shown indicates that you understood the problem but made a relatively small calculation error, you would possibly qualify for almost full credit.
 
 

Common reasons that answers do not receive full credit:

1.  Answers for Essay and T-F-U/Explain questions are TOO short, and not enough information is provided for me to accurately assess whether you understand the problem/issue.  For example, DO NOT try to answer two or three essay questions on one page in your blue book!

2. Answers for Essay and T-F-U/Explain questions are TOO long, especially when unnecessary, irrelevant or inaccurate information is provided.  Long essays may actually count for full credit, but will be costly in terms of the opportunity cost of your time!

3. The answer to a problem is wrong, and there is not enough work provided to assign partial credit accurately.  If there was a small error in an initial calculation that was carried through and resulted in a wrong final answer, I can take this into account when assigning partial credit, assuming that your work is shown!!