Podcast
Questions and Answers
Which market primarily deals with short-term securities?
Which market primarily deals with short-term securities?
The Capital Market is known for having low levels of risk.
The Capital Market is known for having low levels of risk.
False (B)
What type of funds are typically supplied by banks in the Capital Market?
What type of funds are typically supplied by banks in the Capital Market?
Large amounts of funds for long-term periods
The Money Market primarily aims for raising funds for financing of __________.
The Money Market primarily aims for raising funds for financing of __________.
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Match the financial instruments to their markets:
Match the financial instruments to their markets:
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What type of investors are typically referred to as retail investors?
What type of investors are typically referred to as retail investors?
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Direct investing allows investors to have no control over their investment decisions.
Direct investing allows investors to have no control over their investment decisions.
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What are money market instruments commonly known as?
What are money market instruments commonly known as?
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___ are long term capital market instruments that offer fixed returns over a period of time.
___ are long term capital market instruments that offer fixed returns over a period of time.
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Match the type of investment vehicle with its characteristic:
Match the type of investment vehicle with its characteristic:
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What is a key characteristic of financial investments?
What is a key characteristic of financial investments?
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Real investments refer to assets that are intangible and cannot be physically touched.
Real investments refer to assets that are intangible and cannot be physically touched.
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What is the primary purpose of making an investment?
What is the primary purpose of making an investment?
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Investing involves trading a known dollar amount today for some expected greater future stream of ________.
Investing involves trading a known dollar amount today for some expected greater future stream of ________.
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Match the type of investment with its description:
Match the type of investment with its description:
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Which of the following is NOT an advantage of investing in financial assets?
Which of the following is NOT an advantage of investing in financial assets?
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The trade-off in investing means sacrificing future consumption for present consumption.
The trade-off in investing means sacrificing future consumption for present consumption.
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What is commonly understood as the current commitment of funds in hopes of future payments?
What is commonly understood as the current commitment of funds in hopes of future payments?
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Flashcards
Institutional Investors
Institutional Investors
Legal entities that pool resources to buy securities.
Direct Investing
Direct Investing
Buying/selling financial instruments directly in markets.
Short-term Investment Vehicles
Short-term Investment Vehicles
Money market instruments maturing in a year or less.
Fixed Income Securities
Fixed Income Securities
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Treasury Bonds
Treasury Bonds
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Money Market
Money Market
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Capital Market
Capital Market
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Short-term securities
Short-term securities
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Long-term securities
Long-term securities
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Financial instruments (Capital Market)
Financial instruments (Capital Market)
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Investment
Investment
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Finance
Finance
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Real Investment
Real Investment
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Financial Investment
Financial Investment
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Investment Advantages (Financial Assets)
Investment Advantages (Financial Assets)
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Individual Investor
Individual Investor
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Investment Trade-off
Investment Trade-off
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Investment Compensation
Investment Compensation
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Study Notes
Finance
- Finance is both a science and an art, applying economic and accounting principles to manage, allocate, and utilize financial resources, investments, and expenditures.
Investment
- Investment involves forgoing immediate consumption to accumulate a larger amount for future consumption.
- It's a trade-off between present and future consumption.
- Investment commits capital for a specific period to obtain future payments compensating for time, expected inflation, and uncertainty.
- Real investment involves tangible assets like machines, land, and plant, contributing to the economy's productive capacity.
- Financial investment relates to paper or electronic contracts (e.g., stocks, bonds) enabling individuals to claim real assets.
Advantages of Investing in Financial Assets
- Divisibility
- Marketability/Liquidity
- Shorter holding period
- Information availability
Investment Types
- Individual Investors: These are individuals investing on their own. Often called retail investors.
- Institutional Investors: These are legal entities that gather funds to invest in securities or other assets. They often buy and sell securities in larger quantities.
Investment Types
- Direct Investment: Buying or selling financial instruments directly in financial markets.
- Indirect Investment: Buying or selling financial instruments through financial intermediaries.
Direct vs. Indirect Investment
- Direct Investment: Provides control and allows investors to decide when to buy/sell.
- Indirect Investment: Managed by professionals, diversifying risk and allowing smaller investors access to more diversified investments.
Common Investment Vehicles
- Short-term investment vehicles: Such as money market instruments (Matures in a year or less), Certificate of Deposits, Treasury Bills, Commercial Paper.
- Fixed-income securities: Long-term investments with fixed returns over a set period. Examples include preferred stock and long-term debt securities (bonds).
- Bonds, Treasury notes/bonds- debt instruments issued by government for more than a year, corporate bonds - long-term debt instruments for private institutions borrowing money. Examples include Secured bonds, unsecured bonds (debentures), callable bonds, convertible bonds.
- Common stocks: ownership shares in a corporation, representing residual claims with limited liability.
- Speculative investment vehicles: High-risk with potential for significant returns.
Financial Markets
- Capital Market: Markets for securities with maturities longer than a year, like stocks and bonds.
- Money Market: Short-term securities market (a year or less) where funds are borrowed and lent.
- Primary Market: Where securities are first issued to investors.
- Secondary Market: Allows investors to buy and sell existing securities.
Money Market vs. Capital Market
- Money Market: Short term, low risk, readily converted to cash.
- Capital Market: Long term, potentially higher risk.
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Description
Explore the essential concepts of finance and investment in this quiz. Understand the principles of managing financial resources and the distinction between real and financial investments. Discover the advantages of investing in financial assets and the types of investors involved.
