Chapter 2 - Markets

Question 1

Types of assets (2)

Answer 1

1. Real assets

2. Financial assets

Question 2

Real assets

Answer 2

Entity producing flow of goods or services

E.g. land, people, goodwill

Question 3

Financial asset

Answer 3

Contract giving its owner claim to payments

E.g. currency, bond, stock, loan

Question 4

Financial market players: lender-saver (4)

Answer 4

1. Households
2. Business firms
3. Government
4. Foreigners

Question 5

Financial market players: borrower-spender (4)

Answer 5

1. Business firms
2. Government
3. Households
4. Foreigners

Question 6

Segments of Financial Markets (2)

Answer 6

1. Direct finance (financial markets)
   Borrowers borrow directly from lenders in financial markets by selling financial assets
2. Indirect finance (financial intermediaries)
   Borrowers borrow indirectly from lenders via financial intermediaries by issuing financial assets

Question 7

Financial Market Securities (3)

Answer 7

1. Debt Markets (bond)
   Issued by govts. & comps. Provide key macro variable: ROI
2. Equity Markets (stock)
   Represents ownership claim in the firm, can pay dividends
3. Derivatives (options, swaps, futures…)
   Financial instruments that depend on other assets

Question 8

Types of Issuance Markets (2)

Answer 8

1. Primary Market
   New securities are sold to initial buyers, arranged by an investment bank. OR treasury (finance ministry) issues govt. bonds. Primary markets are almost never heard of except in the case of famous IPOs (FB, TWT)
2. Secondary Market
   Securities previously issued are bought and sold