Financial Markets and Risk Management

Question 1

Yield Curve

Answer 1

1) Relationship between bonds yields and maturity

2) Normally Upwards = More risk for higher return in longer maturity

Question 2

Financial Intermediaries

Answer 2

1) Savings and Loans
2) Mutual savings banks
3) Credit unions
4) Mutual funds

Question 3

Open end fund

Answer 3

Mutual fund

Buy at the fund’s net asset value

Size changes based on demand

Question 4

Close end fund

Answer 4

1) Fixed number of shares are issued to investors

2) They trade at prices that differ from fund’s net asset value

Question 5

Call Option

Answer 5

Gives holder the right to purchase security at a price for a limited time frame (usually 90 days)

Ex. Price $30 – I buy call option at $32 for 3 months – price goes to $40 = $8 per share profit

Question 6

Spot Market –

Answer 6

purchase and sale of commodities for current delivery

Question 7

Futures market –

Answer 7

setting price today for delivery at future time

Question 8

Money Market –

Answer 8

market for securities one year or less

Question 9

Capital market –

Answer 9

for longer term investments

Question 10

Primary Market –

Answer 10

IPO

Question 11

Secondary Market –

Answer 11

trading by investors after issuance by a corporation