Chapter 2 Flashcards
Types of Financial Markets
Physical Asset Markets vs. Financial Assets Markets Debt (or bond) Markets vs. Stock Markets Spot Markets vs. Futures Markets Money Markets vs. Capital Markets Primary Markets vs. Secondary Markets Private Markets vs. Public Markets
List Financial Institutions
- Depository Institutions
- Contractual Savings Institutions
- Investment Intermediaries
- Investment Banks
- Financial Service Corporations
- Central Banks
Financial Market
A place of exchange (physical location or electronic network) where Financial Instruments are bought and sold, either on a wholesale basis or retail basis.
Financial Instruments include Debt Instruments and Equity Instruments (or derivatives thereof).
Financial Instrument
A bundle of legal rights to receive money/value in the future under specified conditions for the Buyer/Owner of the instrument, and a bundle of legal obligations to pay money/value in the future under specified conditions for the seller of the instrument.
Financial Institution
Organization created for long-term service that creates financial instruments to sell to investors from the major economic sectors to raise funds to enable the Financial Institution to buy financial instruments sold by participants in the major economic sectors which have productive investment opportunities.
It provides a middleman role in the Financial Markets and Capital Allocation Process
The Capital Allocation Process
- Direct Transfers from Net Savers Productive Project Investors.
- Indirect Transfers through Investment Banks.
- Indirect Transfers through Financial Intermediaries
What is the main difference between debt and equity instruments?
a. Market value changes daily
b. Debtholders can vote for board members
c. Debt instruments provide a legal right to be paid
d. Equity instruments do not receive dividends
e. There is no difference
c. Debt instruments provide a legal right to be paid
Which of the following is an example of a financial institution?
a. Depository institutions
b. Investment banks
c. Central banks
d. Financial service corporations
e. All of the above are financial institutions
e. All of the above are financial institutions
What is the purpose of a stock market index?
a. To give information about all the stocks in the market
b. To give a price for each industry
c. To measure a sample of common stocks’ market price performance
d. To measure a sample of bond’s market price performance
e. To buy and sell
c. To measure a sample of common stocks’ market price performance
A publicly-held company’s stock price is more efficient when:
a. The size of the company is minimized, allowing for easier analysis
b. Companies close off investors to focus instead on their primary efficiencies
c. Companies are followed by many equity analysts
d. The performance of the company’s stock outperforms the market, regardless of size
e. All of the Above
c. Companies are followed by many equity analysts
Commercial Banks:
a. Often accept money from savers and the use these funds to buy stock, long-term bonds, or short-term debt instruments issued by businesses or government units
b. An example of an investment intermediary
c. Have the primary goal of helping companies raise equity capital
d. The traditional department stores of finance through which the Federal Reserve expands or contracts the money supply
e. All of the Above
d. The traditional department stores of finance through which the Federal Reserve expands or contracts the money supply
A difference between publicly-owned corporations and closely-held corporations:
a. Most large companies are closely held
b. Closely held corporations are owned by a select group of individuals who are typically associated with the firm’s operations and management
c. Closely held corporations have stocks that are solely traded on the New York Stock Exchange
(NYSE) or through discount brokers such as Charles Schwab
d. Closely held corporations have risk which is substantially lower than AAA+ treasury bonds
and US Treasury Bills
e. All of the Above
b. Closely held corporations are owned by a select group of individuals who are typically associated with the firm’s operations and management
The following is true about the business population in the U.S. except ____.
a. A majority of U.S. businesses are Non-Employers
b. A substantial majority of all existing companies are actively traded daily
c. Most businesses have fewer than 100 employees
d. Companies must seek permission from the SEC to sell their common stock to the investing
public
e. None of the above
b. A substantial majority of all existing companies are actively traded daily
Debt and Equity share the following in common:
a. Both rely on interest income in the future with specified dates and amounts
b. Both have stockholders that have the right to vote for board members and to authorize certain things
c. Both have legal rights to be paid specific amounts with specified dates
d. Both may involve dividend payments
e. None of the Above
e. None of the Above
Depository Institutions
Sell Insured deposits and make loans, and buy Debt Instruments issued by government organizations.
Ex: Commercial Banks, Credit Unions
