Module 2

Question 1

____ is a market in which financial assets (securities), such as stocks and bonds can be purchased or sold.

Answer 1

Financial market

Question 2

______ are transferred in financial markets when one party purchases financial assets previously held by another party.

Answer 2

Funds

Question 3

_____ facilitate the flow of funds and thereby allow financing and investing by households, firms, and government agencies.

Answer 3

Financial markets

Question 4

______ facilitate the flow of funds and thereby allow financing and investing by households, firms, and government agencies.

Answer 4

Financial markets

Question 5

Those participants who have more money than they spend are referred to as _____

Answer 5

surplus units (or investors)

Question 6

____ they provide their net savings to the financial markets.

Answer 6

surplus units (or investors)

Question 7

Those participants who spend more money than they receive are referred to as ____

Answer 7

deficit units

Question 8

Many deficit units such as firms and government agencies access funds from financial markets by issuing _____ which represent a claim on the seller.

Answer 8

securities

Question 9

_____ represent debt (also called credit, or borrowed funds) incurred by the issuer.

Answer 9

Debt securities

Question 10

Deficit units that issue the debt securities are ____

Answer 10

borrowers

Question 11

The surplus units that purchase debt securities are ____

Answer 11

creditors

Question 12

they receive interest on a periodic basis (such as every six months).

Answer 12

creditors

Question 13

A key role of financial markets is to accommodate ____

Answer 13

corporate finance activities

Question 14

(also called financial management) involves corporate decisions such as how much funding to obtain and what types of securities to issue when financing operations.

Answer 14

Corporate finance

Question 15

Corporate finance also called ___

Answer 15

financial management

Question 16

The _____ serve as the mechanism whereby corporations (acting as deficit units) can obtain funds from investors (acting as surplus units).

Answer 16

financial markets

Question 17

Another key role of financial markets is accommodating surplus units who want to invest in either debt or equity securities.

Answer 17

Accommodating investment needs

Question 18

____ involves decision by investors regarding how to invest their funds.

Answer 18

Investment management

Question 19

The _____ offer investors access to a wide variety of investment opportunities, including securities issued by the government as well as securities issued by corporations.

Answer 19

financial markets

Question 20

____ facilitate the issuance of new securities.

Answer 20

Primary markets

Question 21

____ facilitate the trading of existing securities, which allows for a change in the ownership of securities.

Answer 21

Secondary markets

Question 22

____ transactions provide funds to the initial issuer of securities

Answer 22

Primary market

Question 23

Many types of _____ have a secondary market, so that investors who initially purchase them in the primary market do not have to hold them until maturity.

Answer 23

securities

Question 24

____ can be classified as money market securities, capital market securities and derivative securities.

Answer 24

Securities

Question 25

Securities can be classified as _____, _____, and _____.

Answer 25

Money market securities Capital market securities Derivative securities

Question 26

_____ facilitate the sale of short-term debt securities by deficit units to surplus units.

Answer 26

Money markets

Question 27

Money markets facilitate the sale of _____ by deficit units to surplus units.

Answer 27

short-term debt securities

Question 28

The securities traded in this market are referred to as _____

Answer 28

money market securities

Question 29

_____ which are debt securities that have a maturity of one year or less.

Answer 29

money market securities

Question 30

_____ facilitate the sale of long-term securities by deficit units.

Answer 30

Capital markets

Question 31

Capital markets facilitate the sale of _____

Answer 31

long-term securities

Question 32

The securities traded in this market are referred to as ____

Answer 32

capital market securities

Question 33

_____ are commonly issued to finance the purchase of capital assets such as buildings, equipment, or machineries.

Answer 33

Capital market securities

Question 34

Three common types of capital market securities are ____, ____, and ____

Answer 34

bonds, mortgages, stocks

Question 35

____ are long-term debt securities issued by the government agencies and corporations to finance their operations. They provide a return to investors in the form of interest income.

Answer 35

Bonds

Question 36

Bonds are ______ issued by the government agencies and corporations to finance their operations. They provide a return to investors in the form of interest income.

Answer 36

long-term debt securities

Question 37

They provide a return to investors in the form of interest income.

Answer 37

Bonds

Question 38

____ are perceived to be free from default risk because they are issued by the government treasury.

Answer 38

Treasury bonds

Question 39

In contrast, bonds issued by corporations are subject to default risk because the issuer could default on its obligation to repay the debt.

Answer 39

Treasury bonds

Question 40

_____ are long-term debt obligations created to finance the purchase of real estate.

Answer 40

Mortgages

Question 41

____ are debt obligations representing claims on a package of mortgage.

Answer 41

Mortgage-backed securities

Question 42

____ or equity securities represent partial ownership in the corporations that issue them.

Answer 42

Stocks

Question 43

They are classified as capital market securities because they have no maturity and therefore serve as a long-term source of funds.

Answer 43

Stocks

Question 44

____ are financial contracts whose values are derived from the values of underlying assets (such as debt securities or equity securities).

Answer 44

Derivative securities

Question 45

Many _____ enable investors to engage in speculations and risk management.

Answer 45

derivative securities

Question 46

Derivative securities allow an investor to speculate on movements in the value of the underlying assets without having to purchase those assets.

Answer 46

Speculation

Question 47

Financial institutions and other firms can use derivative securities to adjust the risk of their existing investment in securities.

Answer 47

Risk management

Question 48

A ____ is a financial security with a value that is reliant upon, or derived from, an underlying asset or group of assets.

Answer 48

derivative

Question 49

Stocks Bonds Commodities Currencies Interest Rates Market Indices

Answer 49

Bonds