Capital Market Overview

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Questions and Answers

What is the function of the capital market?

Channels savings into short-term investments

Enables transactions for long-term funds (correct)

Facilitates short-term borrowing and lending

Provides a platform for buying and selling goods and services

Which securities are considered key in the capital market?

Bonds, common stock, and preferred stock (correct)

Treasury bills and savings bonds

Mortgage-backed securities

Foreign exchange options and futures

What is the primary market primarily responsible for?

Facilitating trading of existing securities

Issuing new securities to the public (correct)

Providing loans to individuals and businesses

Trading derivatives and commodities

What is the main role of financial intermediaries?

Channel savings into loans or investments Signup and view all the answers

How are bonds typically used by businesses and governments?

To raise large sums of money or capital over the long term Signup and view all the answers

In the secondary market, what type of transactions occur?

Trading of existing securities between investors Signup and view all the answers

What is the primary function of a financial manager?

Preparing financial statements and forecasts Signup and view all the answers

Which of the following is NOT a characteristic of the money market?

Trading in long-term debt instruments Signup and view all the answers

What is the role of the financial market in the economy?

Creating and trading of financial assets Signup and view all the answers

Who regulates the Malaysia financial market?

Bursa Malaysia Signup and view all the answers

Which types of securities are commonly traded in the money market?

T-bills and commercial paper Signup and view all the answers

What is the main function of financial intermediaries in the financial market?

Mobilizing funds between savers and investors Signup and view all the answers

What is the main focus of corporate finance?

Creating and maintaining economic value of a firm Signup and view all the answers

What is the key characteristic of an investment in finance?

Creating wealth in the future Signup and view all the answers

Which activity falls under the definition of finance as the actual process of attracting money?

Investment Signup and view all the answers

In finance, what is the function of an insurance contract?

Reimbursement against losses Signup and view all the answers

What is the primary role of financial intermediaries in the financial market?

Facilitating transactions between savers and borrowers Signup and view all the answers

Which market is mainly concerned with short-term debt securities?

Money market Signup and view all the answers

Study Notes

Financial Managers

Prepare financial statements, business activity reports, and forecasts
Monitor financial details to ensure legal requirements are met
Supervise employees who do financial reporting and budgeting
Review company financial reports and seek ways to reduce costs
Analyze market trends to find opportunities for expansion or for acquiring other companies
Help management make financial decisions

Financial Market

A marketplace where creation and trading of financial assets, such as shares, debentures, bonds, derivatives, currencies, etc. take place
Plays a crucial role in allocating limited resources in the country's economy
Acts as an intermediary between savers and investors by mobilizing funds between them
The Malaysia financial market is governed and regulated by the Bursa Malaysia or the Malaysia stock exchange

Types of Financial Markets

Money Market

Exists as a result of the interaction between the suppliers and demanders of short-term funds (less than 1 year)
Most transactions are made in marketable securities which are short-term debt instruments such as T-bills and commercial paper
Transactions can be executed directly or through an intermediary

Capital Market

A market that enables suppliers and demanders of long-term funds to make transactions
Key securities are bonds (long-term debt) and both common and preferred stock (equity)
Bonds are long-term debt instruments used by businesses and government to raise large sums of money or capital
Common stock are units of ownership interest or equity in a corporation

Primary Market vs Secondary Market

Primary Market

The market that facilitates the issuance of new securities
The first offering of stock to the public is referred to as an Initial Public Offering (IPO)

Secondary Market

The sale of shares between investors
The market that facilitates the trading of existing securities

Financial Intermediaries

Financial institutions that channel the savings of individuals, business, and government into loans or investment
Key suppliers and demanders of funds are individuals, business, and government
Individuals are net suppliers of funds, while business and governments are net demanders of funds

Introduction to Finance

Definition: Finance is a field concerned with the allocation (investment) of assets and liabilities over space and time, often under conditions of risk or uncertainty
Also referred to as the art and science of managing money or fund
Finance refers to 2 main activities: (a) actual process of attracting money, (b) management of the fund

Corporate Finance

Concerns on the creation and maintenance of economic value or wealth of a firm
Focuses on the process of planning and managing a firm's long-term investment and also the mixture of debt and equity maintained by a firm

Investment and Insurance

Investment is an asset or item that is being purchased with the hope that it will generate income or appreciate in the future
In an economic sense, an investment is the purchase of goods that are used to create wealth in the future
In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future
Insurance is a contract in which an individual or entity receives financial protection or reimbursement against losses from an insurance company

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Description

Explore the key concepts of the capital market, including long-term funds transactions, capital market securities like bonds and stocks, and the purpose of bonds and common stock in raising capital.