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Questions and Answers
What is the process called when a business sells its stocks or bonds directly to savers, without going through any type of financial institution?
What is the process called when a business sells its stocks or bonds directly to savers, without going through any type of financial institution?
Which entity acts as an 'underwriter' and facilitates the issuance of securities in the primary market?
Which entity acts as an 'underwriter' and facilitates the issuance of securities in the primary market?
When a corporation receives the sales proceeds after new securities are involved, the transaction is called a:
When a corporation receives the sales proceeds after new securities are involved, the transaction is called a:
Which type of financial institution obtains funds from savers in exchange for its securities?
Which type of financial institution obtains funds from savers in exchange for its securities?
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In which type of transaction does an investment bank buy and hold the securities for a period of time, taking a risk?
In which type of transaction does an investment bank buy and hold the securities for a period of time, taking a risk?
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What is the primary method used by small firms for transferring capital between savers and borrowers?
What is the primary method used by small firms for transferring capital between savers and borrowers?
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In the capital allocation process, who are the key suppliers of funds?
In the capital allocation process, who are the key suppliers of funds?
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What is a financial market?
What is a financial market?
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What types of assets are dealt with in Financial Asset Markets?
What types of assets are dealt with in Financial Asset Markets?
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Who are the demanders or users of capital in the capital allocation process?
Who are the demanders or users of capital in the capital allocation process?
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What do individuals and institutions with 'excess funds' look for?
What do individuals and institutions with 'excess funds' look for?
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What distinguishes Physical Asset Markets from Financial Asset Markets?
What distinguishes Physical Asset Markets from Financial Asset Markets?
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In general, are individuals net suppliers or net demanders of funds?
In general, are individuals net suppliers or net demanders of funds?
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What do businesses and governments represent in the capital allocation process?
What do businesses and governments represent in the capital allocation process?
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What is the primary function of a financial market?
What is the primary function of a financial market?
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What types of assets are dealt with in Physical Asset Markets?
What types of assets are dealt with in Physical Asset Markets?
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Study Notes
Direct Security Issuance
- When a business sells its stocks or bonds directly to savers, without going through any financial institution, it's called direct security issuance.
Underwriter Role
- In the primary market, an investment bank acts as an 'underwriter' and facilitates the issuance of securities.
Primary Market Transaction
- When a corporation receives the sales proceeds after new securities are involved, the transaction is called a primary market transaction.
Financial Institution Funding
- Mutual funds and unit trusts are types of financial institutions that obtain funds from savers in exchange for their securities.
Risk-taking Investment Banks
- In a primary market transaction, an investment bank buys and holds the securities for a period of time, taking a risk.
Small Firm Capital Transfer
- The primary method used by small firms for transferring capital between savers and borrowers is the primary market.
Capital Allocation
- Households and governments are the key suppliers of funds in the capital allocation process.
Financial Markets
- A financial market is a platform that enables the transfer of capital between savers and borrowers.
Financial Asset Markets
- Financial Asset Markets deal with intangible assets such as stocks, bonds, and derivatives.
Demanders of Capital
- Businesses and governments represent the demanders or users of capital in the capital allocation process.
Investment Objectives
- Individuals and institutions with 'excess funds' look for returns, liquidity, and risk management.
Physical vs. Financial Asset Markets
- Physical Asset Markets deal with tangible assets such as commodities, real estate, and goods, distinguishing them from Financial Asset Markets.
Net Suppliers/Demanders of Funds
- In general, individuals are net suppliers of funds, while businesses and governments are net demanders of funds.
Capital Allocation Process
- Businesses and governments represent the demanders or users of capital in the capital allocation process.
Primary Function of Financial Markets
- The primary function of a financial market is to facilitate the transfer of capital between savers and borrowers.
Physical Asset Markets
- Physical Asset Markets deal with tangible assets such as commodities, real estate, and goods.
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Description
Test your understanding of the capital allocation process, financial markets, financial institutions, stock markets and returns, and stock market efficiency as covered in Chapter 2 of Financial Markets and Institutions.
