Exam (elaborations)

AFM 121 MIDTERM WITH CORRECT ANSWERS

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AFM

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AFM

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Uploaded on August 28, 2024
Number of pages 12
Written in 2024/2025
Type Exam (elaborations)
Contains Questions & answers

afm
afm 121 midterm with correct answers
what is the vital function of financial markets

Institution AFM
Course AFM

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AFM 121 MIDTERM WITH CORRECT
ANSWERS

What is the vital function of financial markets? ANSWER Help
facilitate transfer of capital

What are the three components of the wealth transfer process?
ANSWER Financial instruments (what is actually bought / sold)

Financial markets (facilitating / buying financial instruments)

Financial intermediaries (people / companies involved in
financial instruments and markets)

What is capital made up of? ANSWER Capital is made up of
governments, corporations and individuals

How is capital transferred? ANSWER Direct investment (land,
real estate)
Indirect investment (stocks, bonds, t-bills)

When will people transfer capital? ANSWER When it is easy,
cheap, and generates a good return

What does capital flow depend on? ANSWER Political
environment
Economic trends
Fiscal and Monetary policy
Investment opportunities
Labour force (highly educated / laws governing rights of labour
force)

, Who provides capital? ANSWER Retail investors (individuals
that buy retail)

Institutional Investors (pension funds and mutual funds)

Foreign investors (can include foreign retail, institutional and
government investors)

Who uses capital? ANSWER Companies and businesses (earn
money through internally through existing operations and
reinvest the money) (raise money by issuing stocks/bonds)

Government (t bills, longer term debt) (spend on all forms of
government spending that aren't covered by tax and other
revenues)

What are the different kinds of financial instruments? ANSWER
Debt
Equity
Investment Funds
Derivatives
Private equity

What makes a market efficient? ANSWER Fast
Cheap
Liquid

What are primary markets? ANSWER Securities are sold by
issuers for the first time

Issuer receives money from this sale

What are secondary markets? ANSWER Where securities
previously issued are bought and sold

Funds do not go to issuer

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