Question

3.(a) What is a Mutual Fund (MF)? Briefly describe how a MF acts as a Financial Intermediary (FI). Note: This question refers to a general mutual fund NOT a Money Market Mutual Fund (MMMF).

(b ) What is the attraction of investing in a MF rather than directly investing in the stock and bond markets?

5. a) What are the principal arguments for a country to have an “independent” central bank?

(b) In Canada, how does a government approved low inflation mandate for the Bank of Canada help ensure the independence of the Bank of Canada? How does this low inflation mandate impose a constraint on the Government of Canada’s ability to run large and persistent budget deficits?

Answer 1

3.(a) Mutual fund is a pool of funds which is maintained by a group of professionals who take investments from many investors and purchase securities out of that investment.The investors may be individual of group or any institution.

Mutual funds are managed by professionals who are known as fund managers.The main role of a fund manager is to manage the funds in a profitable way.The fund manager invest in those securities which are trending and can provide a capital asset management to the investors.Mutual funds also provide liquidity to the investors.

b)Mutual provides a diverse investing oppurtunity to the investor which is many a times a win-win situation because there is a chance that if one security does not perform then the other security can perform.

It provides economies of scale which is very useful for the investors.

It provides liquidity to the investors.

A Professional management is provided to the investment of the investors.