Financial Markets and Equities

Question 1

Financial Market

Answer 1

Platform or system that facilitates the exchange of financial assets between buyers and sellers.

Question 2

Types of Financial Assets (Securities)

Answer 2

• stocks
• bonds
• currencies
• commodities
• derivatives

Question 3

Types of Financial Markets

Answer 3

• stock markets
• foreign exchange markets
• money markets
• derivative markets

Question 4

Stock (Equity) Markets

Answer 4

• shares of publicly listed companies are bought and sold
• investors can buy and sell stocks through stock exchanges
• primary market is where securities are created
• secondary market is where those securities are traded by investors

Question 5

Foreign Exchange Market

Answer 5

• where currencies are traded
• participants include governments, financial institutions, corporations and individual traders
• 24 hours a day

Question 6

Money Market

Answer 6

• involves short-term borrowing and lending, typically periods for one year or less
• helps companies with financial needs to borrow money and provides profit by lending

Question 7

Derivates Market

Answer 7

Derivatives are financial instruments whose value is derived from an underlying asset, index, or rate.

Question 8

Buy Side

Answer 8

The side of the market that buys large amounts of securities for money or fund management.
Examples include asset managers, private equity funds, mutual funds, life insurance companies, unit trusts, hedge funds, and pension funds.

Question 9

Sell Side

Answer 9

The other side of the financial market, including brokers and broker-dealers (often investment banks), which deals with the creation, promotion, and selling of traded securities to the buy side (e.g. IPO, corporate bonds).

Question 10

Active Investment

Answer 10

Made trading decisions to try and beat passive investment benchmarks.

Question 11

Passive Investment

Answer 11

Build wealth gradually, a buy-and-hold strategy.
Passive investments track the market.

Question 12

Automated Trading

Answer 12

Trading decisions are made by computer programs.

Question 13

Shares

Answer 13

Bought and sold in equity markets, allowing public ownership.

Question 14

Cash Dividends

Answer 14

Dividend value deducted from close price.

Question 15

Stock Dividends/Stock Splits

Answer 15

Close price divided by the factor by which the number of shares has increased.

Question 16

Stock Dividend Examples

Answer 16

If we were to give out one share for every share owned, we would essentially be saying we have a stock dividend of 1 share for every share owned.
So in this example, whatever the stock price is, let’s say $25, would then be $12.50 since we now have two of those shares, therefore the $25 would be split evenly between them.

Another example could be a stock dividend of two shares for every share owned. This would mean the price would be adjusted to a third since we own three.

If we were to have 1 share for every 2 shares owned, then we would consider the price of having three shares with the doubled close price; since we own two shares, it is two prices combined.
So if we had a $25 close price, it would result in $50 / 3 (owned shares), which gives us $16.67.

Question 17

Stock Splits Example

Answer 17

A stock split can give a split like 2:1, 3:1, 1:2 etc.
If we had a split of 2:1, then the adjustment would be 1/2. Therefore, if we had some close price, like $25, we would end up with $12.50.

Question 18

Cash Dividend Example

Answer 18

Assuming we have a $25 pre-adjusted close price and a $2.50 dividend is paid on each share.
The adjusted close price would be $22.50.

Question 19

Automated Equity Market

Answer 19

A large portion of the equity markets are covered with automated trading, accounting for 70%.