21 Questions
What is the primary obligation of the issuer in a bond investment?
To repay the principal at its face value on the maturity date
Which of the following markets is primarily concerned with the exchange of currencies?
Foreign Exchange Market
What is a common feature of financial securities traded in the Derivatives Market?
Their payoffs are linked to other underlying securities or indexes
What are the two main sources of return from bond investments?
Interest income and capital appreciation
What is the nature of a bond investment?
A long-term debt investment
What is the primary characteristic of a Treasury bill that makes it a risk-free investment?
Its payment is guaranteed by the government
What is the typical maturity period of a repurchase agreement?
1 to 2 weeks
What is the purpose of issuing commercial paper?
To meet short-term obligations
What is a common characteristic of commercial paper and negotiable certificates of deposit?
They are both money market securities
What is the primary difference between a Treasury bill and a commercial paper?
Issuing entity
What is the characteristic of a repurchase agreement that distinguishes it from a traditional sale?
It involves a commitment to repurchase
What is the primary function of financial intermediaries?
To reconcile conflicting interests of users and providers of funds
What is the main advantage of financial intermediaries?
They have cost advantages or economies of scale
What is the primary market involved in?
Issuing new securities by business firms, governmental bodies, or other organizations to raise new funds
What is the role of an investment banker?
To originate securities issues and negotiate between the officers of the issuing firm and officers of the investment bank
What is the function of financial markets?
To facilitate the smooth flow of capital from providers of funds to the users of capital
What is the role of financial intermediaries in diversification?
They diversify investments by spreading money/funds to different investments
What is the difference between primary and secondary markets?
Primary markets deal with new securities, while secondary markets deal with existing securities
What is the role of financial intermediaries in providing liquidity?
They provide liquidity to providers of funds
What is the characteristic of the money market?
It deals with short-term securities with a maturity of less than one year
What is the role of financial intermediaries in risk management?
They hire highly qualified people to assess risky investments
Learn about the basics of financial markets, including the definition and importance of financial markets in promoting economic growth.
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