Financial Markets and Money Market Quiz

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Questions and Answers

What is the main purpose of financial markets?

To issue government debt regularly

To facilitate the flow of funds and allow financing and investing (correct)

To trade short-term financial contracts

To provide investment opportunities for retail investors

Which of the following is considered a money market instrument?

Stocks

Treasury Bills (T-bills) (correct)

Shares in mutual funds

Bonds

Which of these entities is a major investor in the domestic money market?

Retail Investors

The Government Service Insurance System (GSIS) (correct)

The Central Bank

Commercial Banks

What is the main distinction between the money market and the capital market?

The money market deals with short-term financial contracts, while the capital market deals with long-term financial contracts. Signup and view all the answers

What is the primary difference between the primary market and the secondary market within the capital market?

The primary market deals with newly issued securities, while the secondary market deals with previously issued securities. Signup and view all the answers

What is the main function of the capital market?

To facilitate long-term financing and investing Signup and view all the answers

What is the main difference between the primary and secondary markets?

The primary market involves the transfer of funds from investors to the issuing entity, while the secondary market provides liquidity for investors. Signup and view all the answers

What is the key difference between debt and equity?

Debt has to be repaid with interest, while equity represents ownership and does not have to be repaid. Signup and view all the answers

What are the main types of instruments traded in the Philippine Stock Exchange (PSE)?

Common stocks, preferred stocks, warrants, and bonds. Signup and view all the answers

What is the main characteristic of the Philippines' foreign exchange (forex) market?

The Philippines maintains a floating exchange rate, where market forces primarily determine the rate of exchange. Signup and view all the answers

What is the main purpose of the derivatives market?

The derivatives market is used to provide a risk management tool in the financial system. Signup and view all the answers

Who are the main investors in the Philippine stock market?

Trust departments, insurance firms, and other institutional investors both local and foreign. Signup and view all the answers

Study Notes

Main Purpose of Financial Markets

Facilitate the allocation of resources by connecting savers with borrowers.
Promote liquidity, allowing participants to buy and sell financial assets easily.
Help in price discovery for assets through supply and demand dynamics.

Money Market Instrument

Treasury bills are commonly recognized as a money market instrument.
Money market instruments typically have maturities of one year or less.

Major Investor in the Domestic Money Market

Banks are considered major investors in the domestic money market, chiefly through short-term borrowing and lending transactions.

Distinction Between Money Market and Capital Market

Money markets deal with short-term financing, usually maturing within a year, while capital markets focus on long-term investments with maturities extending beyond a year.

Primary Market vs. Secondary Market in Capital Market

The primary market involves the issuance of new securities directly from issuers to investors, while the secondary market involves the buying and selling of existing securities among investors.

Main Function of the Capital Market

To raise long-term funds for businesses and governments, thereby facilitating investment in productive assets.

Primary vs. Secondary Markets

Primary markets allow companies to raise new capital, whereas secondary markets provide liquidity and the opportunity for investors to sell their previously purchased securities.

Key Difference Between Debt and Equity

Debt represents a loan made by an investor to a borrower, obligating the borrower to repay the principal plus interest, whereas equity represents ownership in a company with potential for dividends and capital appreciation.

Instruments Traded in the Philippine Stock Exchange (PSE)

Common stocks, preferred stocks, bonds, and exchange-traded funds (ETFs) are the main types of instruments traded.

Characteristic of the Philippines' Foreign Exchange Market

The forex market in the Philippines operates with a managed float system, allowing the currency value to fluctuate based on market forces, while still being influenced by the government.

Purpose of the Derivatives Market

To manage risk by allowing market participants to hedge against price fluctuations in an underlying asset.

Main Investors in the Philippine Stock Market

Institutional investors, like mutual funds, insurance companies, and pension funds, play a significant role alongside retail investors in the Philippine stock market.

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Description

Test your knowledge on financial markets, where assets like stocks and bonds are bought and sold, and the money market, which deals with short-term financial contracts. Learn about fund transfers, financing, and investing in different types of markets.