Module 4

Question 1

financial systems

Answer 1

mechanisms that allow anything of value to be exchanged btwn parties

Question 2

financial market

Answer 2

forums in which suppliers and demanders of funds can transact business directly
can affect operation of financial systems
money markets and capital markets

Question 3

money market

Answer 3

short term funds

typically consists of banks and gov’t securities

Question 4

federal funds

Answer 4

loans btwn fed reserve and banks

Question 5

eurocurrency market

Answer 5

loans btwn gov’t or something and banks

Question 6

interest

Answer 6

price of borrowing money

primarily depends on default risk

Question 7

default

Answer 7

not paying loan back in timely manner based on predetermined schedule

Question 8

borrowing $

Answer 8

banks get $ from fed
fed charges interest rate
banks lend to borrowers are higher interest rates

Question 9

interest rates increase

Answer 9

when $ supply is low

fewer ppl want loans

Question 10

interest rates decrease

Answer 10

when $ supply is high

Question 11

fed determines

Answer 11

how much $ goes into economy and interest rate

Question 12

marketable securities

Answer 12

instruments so widely accepted and purchased by others that they essentially have same qualities as cash
very liquid

Question 13

liquid asset

Answer 13

any asset that can easily be converted to cash

stocks

Question 14

hard asset

Answer 14

assets that company cannot convert into cash quickly, but still has significant value
ex buildings or specialized machinery

Question 15

asset liquidity

Answer 15

short maturity period
ability to be sold on daily basis
low relative risk

Question 16

short maturity period

Answer 16

$ wont be tied up

Question 17

ability to be sold on daily basis

Answer 17

stocks

Question 18

low relative risk

Answer 18

lending to stable borrower reduces risk that it will not be repaid
on its own low risk does not necessarily mean high liquidity

Question 19

capital market

Answer 19

for long terms funds (few years or longer, strategic investment)

Question 20

stock market

Answer 20

units of ownership (equity) in corp

Question 21

bond market

Answer 21

long term debt instruments

usually refers to govt bonds

Question 22

bonds

Answer 22

u r being loaned $ in form of issuing bond

u agree to pay back plus interest on predetermined schedule

Question 23

bebtor

Answer 23

company/municipality issuing bond

financial strength improves ability to issue bond

Question 24

creditor

Answer 24

purchaser of bond

want to invest money in low risk w/ solid yield rate

Question 25

yield rate

Answer 25

rate of return

Question 26

coupon rate

Answer 26

determined by bond rating based on risk
fee for borrowing debtors pay
low risk debtors have lower coupon rates

Question 27

callable bonds

Answer 27

allow debtor to repay bond before maturity

saves money on payments

Question 28

stocks

Answer 28

liquid but not as liquid as cash

downside: volatility

Question 29

market indices

Answer 29

represent overall health of stock market

e.g. dow jones, NASDAQ, S & P

Question 30

bear market

Answer 30

investors have widespread pessimism
sellers outweigh buyers
stock prices decrease

Question 31

bull market

Answer 31

investors optimistic about stock performance
buyers outweigh sellers
stock prices increase

Question 32

primary markets

Answer 32

businesses raise new capital by offering securities (stocks)

Question 33

ipo

Answer 33

used when firms looking for capital to expand i.e. going public

Question 34

secondary markets

Answer 34

reselling of stock from investor to investor

scottrade or e trade

Question 35

primary market in sport

Answer 35

direct sales from team to fans

ticketmaster

Question 36

secondary market in sport

Answer 36

fan to fan
ebay
stubhub

Question 37

inventory

Answer 37

stock of product

Question 38

accounts receivable

Answer 38

money owed to business by clients (delayed payments)

Question 39

accounts receivable and inventory

Answer 39

fall btwn liquid and hard assets
can be sold and collected
might be sold for less (in)
chance of non payment (AR)