Chapter 2 - Market Participants and Market Structure

Question 1

What are Venture Capitalists?

Answer 1

Invest in start-ups with growth potential AND are already established

Question 2

What are Angel Investors?

Answer 2

Invest in start-ups with growth potential AND high risk

Question 3

What are Institutional Investors?

Answer 3

Organizations that invest other people’s money

Question 4

What are Personal Investors?

Answer 4

non-professional investors who invest their own capital

Question 5

What does a Broker do?

Answer 5

carries out buy and sell orders for clients acting as an intermediary between buyers and sellers charging their clients a commission

Question 6

What does a Dealer do?

Answer 6

executes buy and sell trade orders for itself from its inventory earning a mark-up (gain) or mark-down (loss)

Question 7

What does an Investment Advisor do?

Answer 7

make investment recommendations and carries out security analysis

Question 8

What does a Municipal Advisor do?

Answer 8

make investment recommendations and carries out municipal / bond analysis

Question 9

What does an Issuer do?

Answer 9

Companies or Organizations that sell securities to raise capital

Question 10

What does an Underwriter do?

Answer 10

Assist issuers to mitigate business risk

Question 11

What does a Transfer Agent do?

Answer 11

Manage investor financial records and monitor account balances, ensure timely payment of dividend and interest income, send monthly statements

Question 12

What does DTCC do?

Answer 12

clearing and settlement services for the financial markets

Question 13

What is a security

Answer 13

instrument that is

negotiable

interchangeable

holds monetary value

Question 14

What is an equity?

Answer 14

a security that represents ownership in an entity

Question 15

What is a CMO?

Answer 15

Collateralized Mortgage Obligation is an investment vehicle of pooled mortgages sold by financial institutions

Question 16

What factors/risks affect CMOs?

Answer 16

prepayment risk

credit risk

interest rate risk

Question 17

Do debt holders have voting rights?

Answer 17

No

Question 18

What is Debt?

Answer 18

security that represents borrowed funds with specific terms that outline the loan amount, interest rates, and timeline of repayment

Question 19

What do Market Makers do?

Answer 19

Assist in keeping the markets liquid by both buying and selling securities for a profit (or spread)

Question 20

What is a QIB?

Answer 20

Qualified Institutional Buyer is an institutional investor who must own and invest at least $100 Million in securities (not affiliated with themself)

Question 21

The Primary Market is:

Answer 21

the source of new securities and is facilitated by underwriting groups

Question 22

The Secondary market is:

Answer 22

where securities are traded after being initiated on the primary market

Question 23

What is the NYSE?

Answer 23

The NYSE is a listing platform for small-cap companies

Question 24

What is a Dealer-to-Dealer market?

Answer 24

Market place where dealers buy and sell securities from each other

Question 25

What are non-exchange issues?

Answer 25

securities that are not part of any organized exchange and are traded via OTC

Question 26

What is the “Clearing” process?

Answer 26

ESTABLISHES the OBLIGATIONS of funds (who needs to get paid how much), and happens EOD

Question 27

What is the “Settlement” process?

Answer 27

is the final exchange and transfer of actual funds between banks