L3 Financial Markets

Question 1

Financial Markets

Answer 1

Brings buyers and sellers together to aid in the transfer of financial assets

Question 2

Financial Markets

Answer 2

Brings buyers and sellers together to aid in the transfer of financial assets

Question 3

Efficient financial markets

Answer 3

Availability of past transaction information( on prices, volume and participants, must be timely, accurate and available for all market participants)
Liquidity (Liquidity relates to the ease with which a financial asset is sold, or exchanged for money.
Low transaction costs(Transaction costs are all costs associated with the purchase or sale of a financial asset. They depend on the market, type of security traded, amount of trade, etc.) The major costs when trading securities relate to brokerage fees.
–Rapid adjustment to new available information

Question 4

Money Markets

Answer 4

Markets that trade debt securities with maturities of one year or less (e.g. Certificates of Deposits, Treasury bills)

Question 5

Capital Markets

Answer 5

Markets that trade debt (bonds) and equity (stock) instruments with maturities of more than one year

Question 6

Primary Markets

Answer 6

Markets in which users of funds (e.g. corporations, governments) raise funds by issuing financial instruments (e.g. stocks and bonds).

New issues of securities are distributed to the investors.

Question 7

Ways of primary market

Answer 7

The investment banker may purchase the entire issue from the issuer and resell it to investors
Profits come from the buy-sell margin and from commissions
The risks of not-selling the issue are with the investment bank

or

2. Alternatively, the investment bank may not purchase the issue but act as a broker
   A contract of best efforts is signed stipulating that the bank should make all efforts to sell the issue
   Because there is no guarantee the entire issue will be placed, fees are lower