TOPIC 2: THE FINANCIAL MARKET ENVIRONMENT

Question 1

Are intermediaries that channel the SAVINGS of Individuals, businesses, and governments into LOANS OR INVESTMENT.

Answer 1

Financial Institutions

Question 2

Individuals are ___ ______ of funds.

Answer 2

Net suppliers

Question 3

Business and Governments are net ______ of funds.

Answer 3

Demander

Question 4

Provide SAVERS with a SECURE Place to invest funds and it also offers loans to individual and businesses borrowers.

Answer 4

Commercial Banks

Question 5

• Assist companies in RAISING CAPITAL
• ADVISE Firms on major transactions such as ______ and _______ restructurings.
•Engage in trading and marketing activities

Answer 5

Investment Banks
•Mergers and Financial Restructurings

Question 6

was an act of Congress in ____ that created the federal deposit insurance

Answer 6

Glass-Steagall Act
•1933

Question 7

•engage in ______ activities, much like traditional banks but DO NOT ACCEPT ______.
• are not subject to the _______ regulations as traditional banks.

Answer 7

Shadow Banking System
•Lending
•Deposits.
- same

Question 8

Are FORUMS in which suppliers and demanders or funds CAN TRANSACT BUSINESS DIRECTLY.

Answer 8

Financial Markets

Question 9

• Transactions in “Short-Term marketable securities” take place in the _____ market.
• Transaction in “Long-term marketable securities” take place in the ______ market.

Answer 9

•Money Market
•Capital Market

Question 10

Involves the SALE of a NEW SECURITY directly to an investor or a group if investors.

Answer 10

Private Placement

Question 11

____ ______ of securities, which is the SALE of either BONDS or STOCKS to the GENERAL PUBLIC.

Answer 11

Public Offering

Question 12

The _________ is the financial market in which securities are INITIALLY ISSUED; The only market in which the issuer is directly involved in the transaction.

Answer 12

Primary Market

Question 13

Pre-owned Securities are traded (Those that are not new issues)

Answer 13

Secondary Market

Question 14

Created by a financial relationship between suppliers and demanders of SHORT-TERM FUNDS.

Answer 14

Money Market

Question 15

Most money market transaction are made in _______ securities. (Short-term debt instruments)

•Investors generally consider it as the least risky ______ available.

Answer 15

Marketable
Least Risky Investment

Question 16

International equivalent of the domestic money market is the __________ market.

Answer 16

Eurocurrency

Question 17

All eurodollar deposits are ______ deposits.

Answer 17

Time

Question 18

The key capital market securities are ______ (long term debt) and both common and ______ stock. (Equity or ownership)

Answer 18

Bonds
Preferred

Question 19

______ are long term debt instruments used by businesses and government to raise large sums of money (from diverse group of lenders).

Answer 19

Bonds

Question 20

______ are units of ownership interest or EQUITY in a corporation.

Answer 20

Common stock

Question 21

_______ is a special form of ownership that has features a both a bond and common stock.

Answer 21

Preferred Stock

Question 22

Greatest Investor.

Answer 22

Warren Buffet

Question 23

_____ are securities exchange “The buyer and seller are brought together to trade securities”.

Answer 23

Broker Markets

Question 24

_____ are markets which the buyer and seller are not brought together directly.

• As compensation for executing orders, market makers make money on the spread (Bid price-________)

Answer 24

Dealer Markets
Ask price

Question 25

In the _______ market, corporations and governments typically issues bonds denominated in DOLLARS and sell them to investors located OUTSIDE THE US.

Answer 25

EuroBond

Question 26

________ is a market for bonds issued by a foreign corporation or government that is dominated in the investor’s home market.

Answer 26

Foreign bond market

Question 27

____ allows corporations to sell blocks of shares to investors in a number of different countries.

Answer 27

International Equity Market

Question 28

From a firm’s perspective, the role of capital markets is to be a ______ market.

From the Investor’s perspective, the role of capital markets is to be and _____ market that allocates _____ to their most productive uses.

Answer 28

Liquid
Efficient market that allocates funds.

Question 29

Advocates of _______ finance, an emerging field that blends ideas from finance and psychology.

Argue that _______ and prices of other securities can deviate from their true values for extended periods.

Answer 29

Behavior Finance

Stock

Question 30

_____ is the process of pooling mortgages or other types of loans.

Answer 30

Securitization

Question 31

_______ represents claims on the cash flows generated by a pool of mortgages that can be purchased by individual investors.

Answer 31

Mortgage-backed securities

Question 32

Lenders relaxed standards for borrowers and created ______ mortgages.

Answer 32

Subprime

Question 33

The price of banks stocks fell ___% between January 2008 and March 2009

Answer 33

81%

Question 34

The Glass-Steagall act of 1933, established the ____ _____ ______ ______ which provides insurance for deposits at banks and monitor banks to ENSURE THEIR SAFETY AND SOUNDNESS.

Answer 34

Federal Deposit Insurance Corporation