Questions and Answers
What defines the value of a derivative?
Which of the following is NOT considered an underlying asset for derivatives?
In which financial zone is London considered the main financial center?
Who are the main participants in the global financial market?
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Where do the majority of financial transactions take place in the global financial market?
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What is the primary purpose of a financial market?
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Which of the following is NOT a feature of financial markets?
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Which securities are typically traded in capital markets?
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How long do trades in the money market typically last?
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What is traded in the foreign exchange market?
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Which of the following is a characteristic of capital markets?
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What types of instruments are primarily utilized in the money market?
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Which of the following would be considered a role of the central bank?
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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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Description
This quiz covers the key concepts of Chapter 1 in Financial Markets, focusing on the financial market environment and the roles of central banks. You'll explore the definitions and significance of financial markets, including trading in securities like stocks and bonds.
