Module 2 Flashcards
____ is a market in which financial assets (securities), such as stocks and bonds can be purchased or sold.
Financial market
______ are transferred in financial markets when one party purchases financial assets previously held by another party.
Funds
_____ facilitate the flow of funds and thereby allow financing and investing by households, firms, and government agencies.
Financial markets
______ facilitate the flow of funds and thereby allow financing and investing by households, firms, and government agencies.
Financial markets
Those participants who have more money than they spend are referred to as _____
surplus units (or investors)
____ they provide their net savings to the financial markets.
surplus units (or investors)
Those participants who spend more money than they receive are referred to as ____
deficit units
Many deficit units such as firms and government agencies access funds from financial markets by issuing _____ which represent a claim on the seller.
securities
_____ represent debt (also called credit, or borrowed funds) incurred by the issuer.
Debt securities
Deficit units that issue the debt securities are ____
borrowers
The surplus units that purchase debt securities are ____
creditors
they receive interest on a periodic basis (such as every six months).
creditors
A key role of financial markets is to accommodate ____
corporate finance activities
(also called financial management) involves corporate decisions such as how much funding to obtain and what types of securities to issue when financing operations.
Corporate finance
Corporate finance also called ___
financial management
The _____ serve as the mechanism whereby corporations (acting as deficit units) can obtain funds from investors (acting as surplus units).
financial markets
Another key role of financial markets is accommodating surplus units who want to invest in either debt or equity securities.
Accommodating investment needs
____ involves decision by investors regarding how to invest their funds.
Investment management
The _____ offer investors access to a wide variety of investment opportunities, including securities issued by the government as well as securities issued by corporations.
financial markets
____ facilitate the issuance of new securities.
Primary markets
____ facilitate the trading of existing securities, which allows for a change in the ownership of securities.
Secondary markets
____ transactions provide funds to the initial issuer of securities
Primary market
Many types of _____ have a secondary market, so that investors who initially purchase them in the primary market do not have to hold them until maturity.
securities
____ can be classified as money market securities, capital market securities and derivative securities.
Securities
Securities can be classified as _____, _____, and _____.
Money market securities
Capital market securities
Derivative securities
_____ facilitate the sale of short-term debt securities by deficit units to surplus units.
Money markets
Money markets facilitate the sale of _____ by deficit units to surplus units.
short-term debt securities
The securities traded in this market are referred to as _____
money market securities
_____ which are debt securities that have a maturity of one year or less.
money market securities
_____ facilitate the sale of long-term securities by deficit units.
Capital markets
Capital markets facilitate the sale of _____
long-term securities
The securities traded in this market are referred to as ____
capital market securities
_____ are commonly issued to finance the purchase of capital assets such as buildings, equipment, or machineries.
Capital market securities
Three common types of capital market securities are ____, ____, and ____
bonds, mortgages, stocks
____ are long-term debt securities issued by the government agencies and corporations to finance their operations. They provide a return to investors in the form of interest income.
Bonds
Bonds are ______ issued by the government agencies and corporations to finance their operations. They provide a return to investors in the form of interest income.
long-term debt securities
They provide a return to investors in the form of interest income.
Bonds
____ are perceived to be free from default risk because they are issued by the government treasury.
Treasury bonds
In contrast, bonds issued by corporations are subject to default risk because the issuer could default on its obligation to repay the debt.
Treasury bonds
_____ are long-term debt obligations created to finance the purchase of real estate.
Mortgages
____ are debt obligations representing claims on a package of mortgage.
Mortgage-backed securities
____ or equity securities represent partial ownership in the corporations that issue them.
Stocks
They are classified as capital market securities because they have no maturity and therefore serve as a long-term source of funds.
Stocks
____ are financial contracts whose values are derived from the values of underlying assets (such as debt securities or equity securities).
Derivative securities
Many _____ enable investors to engage in speculations and risk management.
derivative securities
Derivative securities allow an investor to speculate on movements in the value of the underlying assets without having to purchase those assets.
Speculation
Financial institutions and other firms can use derivative securities to adjust the risk of their existing investment in securities.
Risk management
A ____ is a financial security with a value that is reliant upon, or derived from, an underlying asset or group of assets.
derivative
Stocks
Bonds
Commodities
Currencies
Interest Rates
Market Indices
Bonds
