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EFMA 2614 > Chapter 2 > Flashcards

Chapter 2 Flashcards

1
Q

List ways in which firms get funds from external sources.

A

Banks
Stock Markets
Investment groups.

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2
Q

sketch the flow of funds diagram.

A

ayt bet.

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3
Q

What are financial institutions?

A

They are intermediaries that channel the savings of individuals, businesses and governments into loans and investments.

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4
Q

What are deposit intermediaries?

A

Individuals that receive money from clients and use it to run their businesses. e.g. SARB

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5
Q

What is a commercial bank?

A

Institution that provide savers with a secure place to invest money and offer loans to individuals. e.g. Nedbank

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6
Q

What is an investment bank aka landbank?

A

Institution that assists companies in raising capital and advise firms on major transactions such as mergers. e.g. Old Mutual

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7
Q

State the difference between a commercial bank and investment banks & Landbanks.

A

Commercial banks are more individually oriented, while Investment banks & Landbanks are more highly specialized and deal with the facilitation of capital through businesses.

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8
Q

What are non-deposit intermediaries?

A

Individuals that don’t take deposits, instead they perform other financial services and collect fees for them as a primary means of business.

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9
Q

List some examples of non-deposit intermediaries.

A

Contractual intermediaries - pension funds
Stokvels
Microlenders

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10
Q

List the functions of intermediaries.

A

Channel savings into investment
Help solve mis-match in liquidity preferences
Offer intermediation by demanders and suppliers of funds.

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11
Q

What are financial markets?

A

Forums in which suppliers pf funds and demanders of funds can transact in business directly.

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12
Q

Concisely explain the money market and the capital market.

A

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

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13
Q

What is the primary market?

A

Financial market in which securities are issued first time.

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14
Q

What is a secondary markey.

A

Financial market in which preowned securities are traded.

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15
Q

What are broker markets?

A

Security exchanges in which the buyer and the seller trade securities on a centralized trading platform.

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16
Q

What is a dealer market?

A

Market in which buyer and seller execute orders by security dealers.

17
Q

Tabulate the differences between broker and dealer markets.

A

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.

18
Q

What is a financial instrument?

A

A claim against a person or institution for the payment of a future sum of money.

19
Q

Purpose of financial instrument?

A

Satisfy needs of financial market participants.

20
Q

What are the characteristics of financial claims?

A

Marketability
Reversibility

21
Q

Know the financial instruments examples.

A

ayt bet.

22
Q

Briefly explain the JSE

A

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

23
Q

What is the role of capital markets from a firm’s perspective?

A

To be a liquid company where firms can interact with investors to obtain external financial resources.

24
Q

What is the role of capital markets from an investors’ perspective?

A

To be an efficient market that allocates funds to most productive uses.

25
Q

What makes a market efficient?

A

A market’s ability to give money to the best investments and show fair prices.

26
Q

What makes capital markets efficient?

A

Transparency
Timeliness in respect to prices adjusting to new information.
Fair value.
Competition among investors.

27
Q

Please focus on the capital market efficiency examples sir

A

ayt bet.

28
Q

List the forms of efficiency.

A

Weak efficiency
Semi-strong efficiency
Strong efficiency

29
Q

Please study the table of the forms of efficiency and master it bro

A

ayt bet.

29
Q

List the common misconceptions about efficient markets.

A

Efficient markets mean you can’t make money – you can earn a return that is appropriate to risk taken (fairness)
Market efficiency will not protect you from wrong choices – diversify

EFMA 2614 (4 decks)

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