BUSFIN Exam #2 Review - Chapter 1
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Questions and Answers

What differentiates money markets from capital markets?

  • Capital markets focus on international transactions while money markets do not.
  • Money markets deal with short-term financing while capital markets deal with long-term financing. (correct)
  • Money markets are subject to higher interest rates compared to capital markets.
  • Money markets primarily involve equities, capital markets involve bonds.

    • Which factor is NOT considered when analyzing bond yield to maturity (YTM)?

  • Credit quality of the issuer
  • Time remaining until maturity
  • Current market interest rates
  • Performance of stock markets (correct)

    • What does liquidity risk refer to in financial markets?

  • The risk of losing money on investments due to price volatility.
  • The risk that a borrower will default on a loan.
  • The risk associated with changes in interest rates.
  • The risk of being unable to sell an asset quickly without a significant price reduction. (correct)

    • How do premium bonds differ from discount bonds?

    <p>Premium bonds are sold at a price above face value, while discount bonds are sold below it.</p> Signup and view all the answers

    Which of the following best describes preferred stock?

    <p>It has a higher claim on assets than common stock in the event of liquidation.</p> Signup and view all the answers

    What is a key characteristic of mutual funds compared to ETFs?

    <p>ETFs typically have lower expense ratios than mutual funds.</p> Signup and view all the answers

    In the context of financial markets, what does the term 'agency debt' refer to?

    <p>Debt issued by government-sponsored enterprises.</p> Signup and view all the answers

    What type of yield is primarily associated with the income generated by a bond relative to its price?

    <p>Current Yield</p> Signup and view all the answers

    What are the two major dimensions of financial markets?

    <p>Primary and Secondary Markets</p> Signup and view all the answers

    Commercial banks are considered fund suppliers in the primary market.

    <p>False</p> Signup and view all the answers

    Investment banks are considered fund suppliers in the primary market.

    <p>False</p> Signup and view all the answers

    Which of the following are examples of capital market instruments?

    <p>Treasury Notes</p> Signup and view all the answers

    What is the primary function of secondary markets?

    <p>Trade existing securities and provide liquidity</p> Signup and view all the answers

    What are the three factors that can affect FX rates?

    <p>Political Instability</p> Signup and view all the answers

    Investors are the only ones affected by a shift in the yield curve.

    <p>False</p> Signup and view all the answers

    What is the most common type of coupon?

    <p>Fixed rate coupon</p> Signup and view all the answers

    A discount bond has a current yield greater than the coupon rate.

    <p>False</p> Signup and view all the answers

    What is the primary function of Duration?

    <p>Measure the risk of a bond</p> Signup and view all the answers

    Treasury bills and bonds are always issued at par.

    <p>False</p> Signup and view all the answers

    Treasury securities are free from credit risk.

    <p>True</p> Signup and view all the answers

    Corporate bonds are generally considered riskier than Treasury securities.

    <p>True</p> Signup and view all the answers

    What are the three main categories of corporate bonds?

    <p>Short-Term, Medium-Term, Long-Term</p> Signup and view all the answers

    The Federal Reserve is responsible for setting interest rates and monitoring the economy.

    <p>True</p> Signup and view all the answers

    What are the three main shapes of a yield curve?

    <p>Upward Sloping (Normal), Flat, Inverted</p> Signup and view all the answers

    The Fed's actions directly impact the Effective Federal Funds Rate (EFFR).

    <p>True</p> Signup and view all the answers

    What is the primary purpose of a mutual fund?

    <p>To provide access to institutional-grade investments for individual investors</p> Signup and view all the answers

    ETFs are actively managed funds by professional managers.

    <p>False</p> Signup and view all the answers

    What is the primary difference between Mutual Funds and ETFs?

    <p>Mutual funds trade at their net asset value (NAV), while ETFs trade on an exchange like stocks.</p> Signup and view all the answers

    The Dow Jones Industrial Average tracks the largest 30 firms in the United States.

    <p>True</p> Signup and view all the answers

    The S&P 500 is a value-weighted index.

    <p>True</p> Signup and view all the answers

    The NASDAQ 100 is a price-weighted index.

    <p>False</p> Signup and view all the answers

    The Russell 2000 index represents the performance of small-capitalization companies in the United States.

    <p>True</p> Signup and view all the answers

    What are the two main drivers of stock prices?

    <p>Earnings per share (EPS) and the P/E ratio</p> Signup and view all the answers

    What are the four main types of stock investing strategies?

    <p>Growth, Value, Income, Contrarian</p> Signup and view all the answers

    Contrarian investors typically buy low and sell high.

    <p>True</p> Signup and view all the answers

    Study Notes

    Exam Review - BUSFIN Exam #2

    • This review is a guide, not a complete list of exam questions.
    • Review PowerPoint slides and compare notes with the textbook.
    • If the textbook isn't available by September 25th, the exam will be adjusted accordingly.

    Chapter 1 - Liquidity Risk

    • Information on slide 22 will not be on the exam.
    • Information on slide 42 will not be on the exam.

    Primary vs. Secondary Markets

    • Covered in the material.

    Money Markets vs. Capital Markets

    • Covered in the material.

    Slide 14 - MMKT Instruments

    • Covered in the material.

    Slide 17 - Capital Market Instruments

    • Covered in the material.

    FX Rates

    • Foreign exchange rates fluctuate and are variable.
    • Affected by three factors (not listed).

    Nominal vs. Real Interest Rates

    • Covered in the material.

    Slide 36 - Risk-Free Rate

    • Covered in the material.

    Default or Credit Risk

    • Covered in the material.

    Slide 44 - Three YC Theories

    • Covered in the material.

    Agency Debt =

    • Covered in the material.

    Decoding Fixed Income

    • Premium vs. Discount Bond YTM
    • Current Yield vs. YTM
    • Principal vs. Average Life
    • Slide 7 - Bond Characteristics
    • Slide 9 - Shapes of YC
    • Slide 11 - How to Analyze Bonds
    • Floater Spread
    • How to tell if an asset or liability
    • Slide 15 - Duration Measures
    • Slide 16 - Principals of Duration
    • Formulas on page 18 will not be on the exam
    • Treasuries vs. Corps

    Decoding Stocks

    • Dividend vs. Capital Gains
    • Slide 5 - What moves stocks? (list of 7 items)
    • Slides 6/7 - Business Cycles
    • Slide 9 - Common vs. Preferred
    • Slide 10 - Various ways stocks are Described (Company Size, Type, Performance during Market Cycles, Short & Long Term, P/E)
    • Formulas on page 17 will not be included.
    • Mutual Funds vs. ETFs (Formulas on page 21 will not be on the exam).
    • Slide 22 - Analyzing Mutual Funds
    • Slide 23 - Analyzing ETF
    • Slide 31 - Stock Indexes

    WSJ Quizzes

    • WSJ #4: Five things to watch as JPMorgan kicks off bank earnings this week
    • U.S. Hiring Accelerated in September, Blowing Past
    • WSJ #5: Three big takeaways from bank earnings
    • WSJ #6: Savers bid a sad farewell to higher yields

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    Related Documents

    BUSFIN Exam #2 AU24 PDF
    3120 Exam 2 Notes - PDF

    Description

    Prepare for the BUSFIN Exam #2 with this comprehensive review focusing on liquidity risk, primary and secondary markets, and different types of interest rates. This guide highlights key concepts and excludes certain information to streamline your study process. Make sure to compare your notes and PowerPoint slides to maximize your understanding of the material.

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