Funding Markets Answer: Also known as investment markets, these markets match those with
surplus funds (investors) to those seeking funds (borrowers)
Transactional Markets Answer: These markets facilitate immediate business and have evolved
around the needs of end-users
Risk Management Markets Answer: These markets enable participants to hedge or control their
exposures
Primary Market Answer: This market is where:
- New debt or equities securities are issues
- New bonds / stocks are sold to investors
Secondary Market Answer: This market is where:
- Previously issued securities are bought and sold
- Most stock exchange transactions
B. A three month certificate of deposit
- Money market instruments must be repaid within a year Answer: Which of the following is a
money market instrument?
,A. A five year bond
B. A three-month certificate of deposit (CD)
C. The common stock of a commercial bank
D. A five year, transferrable loan
Transactional Finance Answer: This area of finance covers areas where money is needed to facilitate
immediate business, such as foreign exchange, trade finance, and commodities markets
Derivatives Answer: Financial instruments whose value is based on or derived from the value of
another interest, known as underlying are known as _________________ .
Give certainty to future costs / revenues
Setting max / minimum values for key variables
Forwards Answer: This type of derivative is where assets can be purchased / sold, or contracts
entered, at some time in the future, at a price determined today
Options Answer: This type of derivative gives the holder the right, but not the obligation, to buy /
sell an asset or enter a contract at some point in the future, at a predetermined price, known as the
strike or exercise price
Swaps Answer: This type of derivative is a contract in which one party agrees to exchange cash
flows with another party at specified future dates
, Buyers and Sellers
Purchases or Sells Answer: Difference between broker and market maker:
A broker acts as an intermediary between _________ and _________, transferring securities between
them in exchange for a fee. A market maker ___________ or ___________ securities as principal
Ten year treasury note
- long term instruments make up capital markets; short term instruments make up money markets
Answer: Which is a capital market instrument?
a. Ten year treasury note
b. 6 month commercial paper (CP) issued by a corporation
c. Bank overdraft provided to a small US corporate borrower
d. 1 month U.S. Treasury Bill
C - A market for buying and selling securities after the initial offer period - for example, the buying and
selling of government bonds after an initial auction Answer: What is a secondary market ?
A. A subcategory of a broader market sector - for example, the government bond market relative to the
overall bond market
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