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Equity Stock Markets: Concepts and Instruments
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Equity Stock Markets: Concepts and Instruments

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Questions and Answers

What is the primary characteristic that distinguishes short-term markets from long-term markets?

  • Mode of trading, i.e., OTC or exchange-traded
  • Type of financial instruments traded
  • Maturity period of the instruments (correct)
  • Holding period by the investor
  • Which of the following markets is NOT classified as a short-term market?

  • Equity stock market (correct)
  • Treasury bills market
  • Commercial paper market
  • Call money market
  • What is the term for the marketplace where financial instruments are traded?

  • Financial market (correct)
  • Money market
  • Capital market
  • Monetary market
  • Which of the following instruments is typically traded in a long-term market?

    <p>Government securities</p> Signup and view all the answers

    What is the term for the market where instruments with maturities up to 180 days are issued and traded?

    <p>Short-term market</p> Signup and view all the answers

    What is the primary difference between OTC and exchange-traded financial markets?

    <p>Mode of trading, i.e., formal exchange or bilateral contract</p> Signup and view all the answers

    Which of the following is an example of a long-term market instrument?

    <p>Equity stock</p> Signup and view all the answers

    What is the term for the market where instruments with maturities from one year to perpetuity are issued and traded?

    <p>Long-term market</p> Signup and view all the answers

    What is a primary responsibility of the exchange in an 'Exchange Traded' transaction?

    <p>Bearing the counterparty risk</p> Signup and view all the answers

    What is a characteristic of Product Markets?

    <p>The cost is a reality within the control of the company</p> Signup and view all the answers

    What type of market is an example of a Factor Market?

    <p>Labor Market</p> Signup and view all the answers

    Who bears the counterparty risk in an Over-the-Counter (OTC) transaction?

    <p>The two entities participating in the transaction</p> Signup and view all the answers

    What is the primary difference between Product Markets and Factor Markets?

    <p>The nature of the transaction (goods and services vs. pre-requisites for production)</p> Signup and view all the answers

    What is the role of the market forces in Product Markets?

    <p>Driving the price of goods and services</p> Signup and view all the answers

    What type of market is characterized by transactions executed through an exchange?

    <p>Exchange Traded Market</p> Signup and view all the answers

    What is the primary distinction between Equity Stock Markets and Product Markets?

    <p>The nature of the transaction (equities vs. goods and services)</p> Signup and view all the answers

    What is the basis of the return earned by equity investors in a firm?

    <p>Profit after tax</p> Signup and view all the answers

    Why are equity investments considered riskier than bond investments?

    <p>Equity investments are volatile and risky due to dependence on profit after tax</p> Signup and view all the answers

    What is the ranking of claim on assets of a firm in the event of insolvency or shutdown?

    <p>Lenders, bondholders, and other creditors, equity shareholders</p> Signup and view all the answers

    What is the liability of equity shareholders limited to?

    <p>The extent of their investments in the equity stock</p> Signup and view all the answers

    What characteristic of preference stocks distinguishes them from equity stocks?

    <p>Fixed dividend</p> Signup and view all the answers

    What is the ranking of claim on assets of preference shareholders compared to equity shareholders and bondholders?

    <p>Higher than equity shareholders but lower than bondholders</p> Signup and view all the answers

    When are dividends paid out to preference shareholders?

    <p>Out of profit after tax</p> Signup and view all the answers

    What is the key difference in the dividend structure between preference and equity stocks?

    <p>Fixed dividend for preference, variable for equity</p> Signup and view all the answers

    What is the concept used to estimate the price of an equity stock?

    <p>Time value of money</p> Signup and view all the answers

    What is the similarity between the formula to estimate the price of equity stocks and bonds?

    <p>Both use the concept of present value</p> Signup and view all the answers

    What is the purpose of a privately held firm going public?

    <p>To raise equity capital</p> Signup and view all the answers

    What is the additional resource available to students to learn more about estimating the price of a stock?

    <p>A downloadable document</p> Signup and view all the answers

    What is the outcome of a privately held firm going public?

    <p>Its equity stocks can be traded publicly</p> Signup and view all the answers

    What is the principle used to estimate the price of equity stocks?

    <p>Present value of all future cash flows</p> Signup and view all the answers

    What is the primary difference between the price of equity stocks and bonds?

    <p>The type of cash flows</p> Signup and view all the answers

    What is the purpose of the concept of time value of money?

    <p>To estimate the present value of future cash flows</p> Signup and view all the answers

    What term is used for the first issuance of equity stocks?

    <p>Initial Public Offer (IPO)</p> Signup and view all the answers

    Which entities act as intermediaries between firms issuing equity stocks and prospective investors?

    <p>Investment Banks</p> Signup and view all the answers

    What additional role can intermediaries sometimes perform during the equity stock issuance process?

    <p>Underwriting the offer</p> Signup and view all the answers

    What is the correct term for subsequent rounds of issuing equity stocks after the initial round?

    <p>Follow-on Public Offer (FPO)</p> Signup and view all the answers

    Which term describes the process of buying and selling equity stocks?

    <p>Equity Trading</p> Signup and view all the answers

    Who typically pays an additional fee to the intermediaries in the equity stock issuance process?

    <p>Firms issuing the equity stocks</p> Signup and view all the answers

    What is NOT included as a permitted use of the document by Prof P C Narayan?

    <p>Reading the document during the course</p> Signup and view all the answers

    Which course is associated with the document authored by Prof P C Narayan?

    <p>Equity Stock Market: Concepts, Instruments, Risks and Derivatives</p> Signup and view all the answers

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