Podcast
Questions and Answers
What is a derivative and what determines its value?
What is a derivative and what determines its value?
A derivative is a security whose price is derived from underlying assets, and its value is determined by fluctuations in these underlying assets.
Name three common underlying assets in the derivative market.
Name three common underlying assets in the derivative market.
Stocks, commodities, and currencies are three common underlying assets.
Who are the main participants in the global financial market?
Who are the main participants in the global financial market?
Main participants include commercial banks, non-bank financial institutions, corporations, and individuals.
What are the three financial zones mentioned in the text?
What are the three financial zones mentioned in the text?
Identify the three main financial centers in the world.
Identify the three main financial centers in the world.
What is a financial market?
What is a financial market?
List two features of a financial market.
List two features of a financial market.
What is the primary purpose of capital markets?
What is the primary purpose of capital markets?
Define a money market.
Define a money market.
What types of investments are commonly traded in money markets?
What types of investments are commonly traded in money markets?
Explain the foreign exchange market.
Explain the foreign exchange market.
What role do central banks play in financial markets?
What role do central banks play in financial markets?
Give an example of a transaction that would take place in the capital market.
Give an example of a transaction that would take place in the capital market.
Flashcards
Derivative Security
Derivative Security
A security whose price is based on the price of an underlying asset.
Underlying Asset
Underlying Asset
The asset that a derivative security's value is based on.
Common Underlying Assets
Common Underlying Assets
Stocks, commodities, and currencies.
Financial Market
Financial Market
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Capital Market
Capital Market
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Money Market
Money Market
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Money Market Investment
Money Market Investment
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Foreign Exchange Market
Foreign Exchange Market
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Central Bank
Central Bank
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Capital Market Transaction
Capital Market Transaction
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Financial Center
Financial Center
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Financial Market Participants
Financial Market Participants
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Financial Zones
Financial Zones
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Study Notes
Financial Market Environment
- A financial market enables trading of financial securities and derivatives, including stocks, bonds, and precious metals, at low transaction costs.
- Key marketplaces include the stock market, bond market, foreign exchange market, and derivatives market.
Features of Financial Market
- Capital/Fixed Income Market
- Money Market
- Foreign Exchange
- Derivative Market
Capital Markets
- Capital markets involve buying and selling long-term debt or equity-backed securities.
- Composed of:
- Stock Market: Involves issuance of shares or common stock.
- Bond Market: Involves issuance of bonds.
Money Markets
- Concerned with high-quality short-term debt investments.
- Involves trading of loans for a duration of up to 365 days.
- Composed of:
- Deposits
- Banker’s acceptance
- Commercial paper
- Treasury bills
Foreign Exchange
- Platform for trading foreign currencies, allowing buyers and sellers to exchange one currency for another at an agreed rate on a specific date.
- Common currencies traded include the US Dollar, Euro, and Japanese Yen.
Derivative Market
- Derivatives are securities whose price is reliant on one or more underlying assets.
- These financial instruments are contracts between two or more parties influenced by the asset's value.
- Underlying assets include stocks, bonds, commodities, currencies, interest rates, and market indexes.
- Common derivative instruments include financial futures and options.
Main Participants in Global Financial Market
- Participants include commercial banks, non-bank financial institutions, corporations, individual investors, central banks, and brokers.
- Three major financial zones in the world: Asia, Europe, and North America.
- London serves as the primary financial center, followed by New York and Tokyo.
- Trading occurs in dealing rooms of various financial institutions and government bodies.
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