TOPIC 1 - financial markets

Question 1

real assets meaning

Answer 1

Assets that produce goods and services

Question 2

Financial assets meaning

Answer 2

Claims to the income from real assets

Question 3

What does real assets generate

Answer 3

Income

Question 4

Financial assets are often called?

Answer 4

Securities

Question 5

What are traded in financial markets

Answer 5

Securities

Question 6

Examples of securities

Answer 6

Bonds and common stock

Question 7

What is a financial market

Answer 7

Where securities are traded

Question 8

Financial markets enable what?

Answer 8

The exchange of previously issued securities

Question 9

What do financial markets facilitate

Answer 9

Capital raising by enabling new issues of securities

Question 10

Example of a financial market

Answer 10

London stock exchange

Question 11

What is a primary market

Answer 11

Where new security issues are sold to the initial buyers

Question 12

Whats a common way for firms to raise capital

Answer 12

by selling initial securities

Question 13

What are investment banks elected to manage

Answer 13

capital raising

Question 14

What is a secondary market

Answer 14

Where previously-issued stocks are traded

Question 15

Common stock represents what

Answer 15

An ownership stake in a firm

Question 16

Each common stock gives the holder the right to

Answer 16

Have one vote in annual meetings
Have a share in the dividends paid

Question 16

Who do shareholders elect

Answer 16

The board of directors

Question 17

What is a stock market index

Answer 17

A performance measure of a group of stocks in the market

Question 18

Example of a stock market index

Answer 18

S&P 500, FTSE 100

Question 19

A stock market index is often interpreted as what

Answer 19

A measure for the whole stock market

Question 20

What are the issues with using indexs as the entire market

Answer 20

Are the firms representative of the whole market
How are individual firms weighted

Question 20

What are the main differences in preferred stocks

Answer 20

Firms pay dividends to them first
No voting rights

Question 20

Whats more risky PS or CS

Answer 20

PS as dividends prioritized

Question 21

The dividends in PS are what

Answer 21

Cumulative and prioritized

Question 22

Sometimes PS can be converted to what

Answer 22

A fixed number of CS

Question 23

Whats the IPO

Answer 23

Initial public offeringW

Question 24

What is IPO

Answer 24

A company's first equity issue made available to the public

Question 25

When do IPOS occur

Answer 25

When a privately held company decides to go public

Question 26

What is a SEO

Answer 26

Secondary equity offering

Question 27

When do SEOs occur

Answer 27

When an already publicly traded company issues additional equity

Question 28

What is it called when you lend money in the short run

Answer 28

Short-term fixed-income securites

Question 29

What does short term mean in money markets

Answer 29

A maturity of less than a year

Question 30

Why are money market securites generally low risk

Answer 30

AS most trade in large denominations so households can buy a little bit of the large diverse portfolio

Question 31

What is a certificate of deposit

Answer 31

A time deposit with a bank - depositor may not withdraw before the maturity date

Question 32

When are principals and interest paid by the bank

Answer 32

At the end of the fixed term

Question 33

Where can certificates of deposit be bought

Answer 33

From banks or from a broker

Question 34

Who backs treasury bills

Answer 34

The government

Question 35

Why are treasury bills considered the least risky money market

Answer 35

As they are backed by the government so wont default

Question 36

Where can Treasury bills be purchased from

Answer 36

Directly at auction or a government security dealer

Question 37

What is a commercial paper

Answer 37

A short-term unsecured debt note, issued by well known companies

Question 38

Where are commercial papers often traded

Answer 38

Through dealers

Question 39

What type of security is a commercial paper

Answer 39

Discount security

Question 40

What maturities are in bond markets

Answer 40

Over one year

Question 41

What is a bond

Answer 41

A debt security that is committed to pay back to the holder the principal and coupon

Question 42

What is a bond principal

Answer 42

The cash amount borrowed and paid back at maturity

Question 43

What is a bond coupon

Answer 43

The periodic interest payments

Question 44

Where are most bonds traded

Answer 44

At over-the-counter dealer markets

Question 45

What are treasury notes

Answer 45

Government bond backed by US gov,maturities up to 10 years

Question 46

What are treasury bonds

Answer 46

A gov bond issued by the US gov

Question 47

what is a gilt

Answer 47

Government bonds of the UK and other commonwealth countires

Question 48

What is a corporate bond

Answer 48

Refers to a bond issued by a corporation

Question 50

What is a secured bond

Answer 50

Supported by collateral in event of bankruptcy

Question 51

What are unsecured bonds

Answer 51

No collateral

Question 52

What are callable bonds

Answer 52

Gives the issuing firm the right ot repurchase at a set price

Question 53

What is a convertible bond

Answer 53

Investors can convert bonds into a set amount of equity shares

Question 54

What bond protects against inflation

Answer 54

treasury inflation protected securities

Question 55

What bonds are issued by states and local governments

Answer 55

Municipal bonds

Question 56

What are eurobonds

Answer 56

Bonds in another currency - Euros in this case

Question 57

Financial markets are generally very what

Answer 57

Competitive

Question 58

Investments face a what

Answer 58

Risk-return trade-off

Question 59

What does financial markets being competitive imply

Answer 59

Markets are efficent Investments have risk to profit ratio

Question 60

Why are financial markets important

Answer 60

Allow optimal allocation of funds Optimal allocation of risk Allows smooth consumption

Question 61

Who are the key players in the financial markets

Answer 61

Capital providers Capital recipients

Question 62

What are capital providers

Answer 62

People who supply funds for a future return

Question 63

What are capital recipients

Answer 63

People who seek funds for their investments at the cost of interest payments

Question 64

What third parties are there in markets

Answer 64

Financial intermediates - banks Brokers Dealers Investment bankers

Question 65

What do financial intermediaries do

Answer 65

Receive money from capital providers and reinvest the proceeds to capital recipients

Question 66

What do commercial banks do

Answer 66

Recieve deposits from savers and re-lend the money to borrowers

Question 67

What is a commercial banks profit

Answer 67

The difference in borrowing and lending interest rates

Question 68

How do investment companies work

Answer 68

Receive capital from a pool of investors and reinvest that in various securities - charge a fee to make money

Question 69

What is a broker

Answer 69

A commissioned agent of a buyer who allows trade by locating a seller to complete

Question 70

What does a broker not do in the asset they trade

Answer 70

Take a position - they do not maintain inventory

Question 71

What are the profits for a broker

Answer 71

The commission they charge on their sales

Question 72

Whats the difference between dealers and brokers

Answer 72

Dealers do take a position and no commission - buying shares and selling them themselves

Question 73

How do dealers make profits

Answer 73

Buying assets at a lower price and reselling them at a higher price

Question 74

What are the 3 activites an investment banker does

Answer 74

advise Underwriting Sales assistance

Question 75

What advising do investment bankers do

Answer 75

Advising companies whether they should issue bonds and stocks and what conditions

Question 76

What underwriting role do investment bankers use

Answer 76

Guaranteeing companies a price on the securities they issue

Question 77

What sales assistance role do investment bankers do

Answer 77

Assisting in the sale and marketing of new securities