Chapter 2 Flashcards
(30 cards)
List ways in which firms get funds from external sources.
Banks
Stock Markets
Investment groups.
sketch the flow of funds diagram.
ayt bet.
What are financial institutions?
They are intermediaries that channel the savings of individuals, businesses and governments into loans and investments.
What are deposit intermediaries?
Individuals that receive money from clients and use it to run their businesses. e.g. SARB
What is a commercial bank?
Institution that provide savers with a secure place to invest money and offer loans to individuals. e.g. Nedbank
What is an investment bank aka landbank?
Institution that assists companies in raising capital and advise firms on major transactions such as mergers. e.g. Old Mutual
State the difference between a commercial bank and investment banks & Landbanks.
Commercial banks are more individually oriented, while Investment banks & Landbanks are more highly specialized and deal with the facilitation of capital through businesses.
What are non-deposit intermediaries?
Individuals that don’t take deposits, instead they perform other financial services and collect fees for them as a primary means of business.
List some examples of non-deposit intermediaries.
Contractual intermediaries - pension funds
Stokvels
Microlenders
List the functions of intermediaries.
Channel savings into investment
Help solve mis-match in liquidity preferences
Offer intermediation by demanders and suppliers of funds.
What are financial markets?
Forums in which suppliers pf funds and demanders of funds can transact in business directly.
Concisely explain the money market and the capital market.
money market = short-term debt instruments (<12 months)
low rusk & low reward
e.g. treasury bills
capital market = long-term debt instruments (>12 months)
e.g. bonds
What is the primary market?
Financial market in which securities are issued first time.
What is a secondary markey.
Financial market in which preowned securities are traded.
What are broker markets?
Security exchanges in which the buyer and the seller trade securities on a centralized trading platform.
What is a dealer market?
Market in which buyer and seller execute orders by security dealers.
Tabulate the differences between broker and dealer markets.
Brokers execute a trade on behalf of others.
Dealers execute trades on their own behalf.
Brokers buy and sell securities for their clients.
Dealers buy and sell on their own accounts.
Brokers don’t have rights and freedoms to buy or sell securities.
Dealers have all those rights to buy and sell securities.
What is a financial instrument?
A claim against a person or institution for the payment of a future sum of money.
Purpose of financial instrument?
Satisfy needs of financial market participants.
What are the characteristics of financial claims?
Marketability
Reversibility
Know the financial instruments examples.
ayt bet.
Briefly explain the JSE
Johannesburg Stock Exchange consists of main board and alternative exchange.
SAFEX - acquired by JSE
BEXSA - acquired by JSE
Governed by Act of Parliament
it is a public listed company
ranked top 20
What is the role of capital markets from a firm’s perspective?
To be a liquid company where firms can interact with investors to obtain external financial resources.
What is the role of capital markets from an investors’ perspective?
To be an efficient market that allocates funds to most productive uses.
