Podcast
Questions and Answers
What is the primary purpose of a listing agreement for a company on the stock exchange?
What is the primary purpose of a listing agreement for a company on the stock exchange?
- To ensure the company discloses relevant information regularly (correct)
- To limit the number of shares available for trading
- To determine the stock price fluctuations
- To provide tax benefits to the company
Which of the following contributes to the high trading volumes in stock markets?
Which of the following contributes to the high trading volumes in stock markets?
- Ownership of physical stock certificates
- Government intervention in stock prices
- Limiting the number of trades per day
- Ease of settlements and guarantee of trades (correct)
What does the PSE Composite Index (PSEi) represent?
What does the PSE Composite Index (PSEi) represent?
- A measure of the stock prices of all companies in the Philippines
- The overall profit margins of companies in the Philippines
- The total number of companies listed on the Philippine Stock Exchange
- A benchmark consisting of thirty selected listed companies (correct)
Who oversees the operations of the Philippine Stock Exchange?
Who oversees the operations of the Philippine Stock Exchange?
When was the Philippine Stock Exchange officially created?
When was the Philippine Stock Exchange officially created?
What role does the stock market play in relation to a company's economy?
What role does the stock market play in relation to a company's economy?
What was the structure from which the Philippine Stock Exchange was formed?
What was the structure from which the Philippine Stock Exchange was formed?
Which of the following aspects does NOT directly relate to the stock exchange?
Which of the following aspects does NOT directly relate to the stock exchange?
What do financial markets primarily facilitate?
What do financial markets primarily facilitate?
How do financial markets contribute to asset valuation?
How do financial markets contribute to asset valuation?
What is one of the roles of financial markets in raising capital for firms?
What is one of the roles of financial markets in raising capital for firms?
What effect does a well-functioning financial system have on the economy?
What effect does a well-functioning financial system have on the economy?
How do markets assist in price setting for assets?
How do markets assist in price setting for assets?
What is a key benefit of investing in financial markets?
What is a key benefit of investing in financial markets?
What role does arbitrage play in financial markets?
What role does arbitrage play in financial markets?
How do financial markets support commercial transactions?
How do financial markets support commercial transactions?
What is a primary reason for investors to prefer formal financial markets over informal trading?
What is a primary reason for investors to prefer formal financial markets over informal trading?
Which factor can deter trading in financial markets according to the content?
Which factor can deter trading in financial markets according to the content?
What is a key feature of successful financial markets compared to less utilized markets?
What is a key feature of successful financial markets compared to less utilized markets?
What is primarily facilitated by the money market?
What is primarily facilitated by the money market?
What has led to the expansion of the money market in recent years?
What has led to the expansion of the money market in recent years?
What do banks typically seek from the money market?
What do banks typically seek from the money market?
Which of the following is not a characteristic of effective trading markets?
Which of the following is not a characteristic of effective trading markets?
Which statement best describes short-term liquidity management?
Which statement best describes short-term liquidity management?
What is the primary purpose of money markets for borrowers?
What is the primary purpose of money markets for borrowers?
Which instruments can companies issue in the money market for short-term financing?
Which instruments can companies issue in the money market for short-term financing?
How do money market interest rates affect longer-term financial instruments?
How do money market interest rates affect longer-term financial instruments?
What is a primary difference between money markets and bond markets?
What is a primary difference between money markets and bond markets?
Which of the following is a type of investment instrument in the money market?
Which of the following is a type of investment instrument in the money market?
What motivation might prompt banks to issue certificates of deposit?
What motivation might prompt banks to issue certificates of deposit?
What typically motivates individual investors to use money market funds?
What typically motivates individual investors to use money market funds?
Which statement about money markets is true?
Which statement about money markets is true?
What is the primary function of local governments in capital markets?
What is the primary function of local governments in capital markets?
What defines a primary market transaction?
What defines a primary market transaction?
What is an Initial Public Offering (IPO)?
What is an Initial Public Offering (IPO)?
Why do most investors participate in the secondary market?
Why do most investors participate in the secondary market?
Which of the following statements is true about corporations in capital markets?
Which of the following statements is true about corporations in capital markets?
What occurs in a secondary market?
What occurs in a secondary market?
What are the proceeds from securities sales used for in the primary market?
What are the proceeds from securities sales used for in the primary market?
What is primarily sold during a firm’s subsequent sales after an IPO?
What is primarily sold during a firm’s subsequent sales after an IPO?
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Study Notes
Price Fluctuation Factors
- Prices in financial markets fluctuate due to expectations about a corporation's prospects and its ownership dynamics.
- Feedback from financial managers about firm performance often comes through the issuance of common stock.
Functions of Financial Markets
- Financial markets facilitate the transfer of funds from surplus holders (like savers) to deficit holders (like borrowers), which is critical for economic stability.
- A robust financial system is essential; its failure can lead to severe economic crises.
Key Functions of Financial Markets
- Raising Capital: Firms use financial instruments such as shares and bonds to fund operations, expansions, and investments. This also supports individual purchases (homes, cars).
- Commercial Transactions: Financial markets aid in commercial transactions by providing long-term capital and ensuring funds are available for payments, especially during customer payment delays.
- Price Setting: Asset prices (e.g., stocks, gold) are determined by market demand, facilitating price discovery through trading activities.
- Asset Valuation: Market prices establish a firm's value and assets, critical for stakeholders including buyers, sellers, and regulators.
- Arbitrage: In less developed markets, price differences for commodities/currencies can exist; traders exploit these differences, driving prices toward equilibrium.
Investing in Financial Markets
- Investors can utilize stocks, bonds, and money markets to generate returns on surplus funds, thus building assets for future income.
Stock Exchange Regulations
- Stock exchanges regulate company operations via listing agreements, which require firms to disclose operational information, including significant events negatively impacting valuation.
Characteristics of Successful Markets
- Busy markets often have attributes like:
- Legal frameworks for dispute resolution and contract enforcement.
- Efficient investor protection and regulation, ensuring confidence.
- Low transaction costs, which attract more participants.
Money Markets Overview
- Money markets comprise entities dealing with short-term capital flow, crucial for liquidity.
- They support short-term cash needs for businesses and governments, facilitating quick funding without reliance on traditional bank loans.
Operation of Money Markets
- Money markets connect borrowers directly to investors, avoiding the higher costs of bank intermediation, and facilitating efficient management of cash flow.
Users of the Money Market
- Companies: Issue commercial paper to cover payroll and operational costs.
- Banks: May issue certificates of deposit when long-term loan demand exceeds deposit growth.
- Investors: Individuals and entities looking to invest in low-risk financial instruments, often through money market funds.
Importance of Money Markets
- Active money markets establish short-term interest rates, which serve as benchmarks for long-term instruments, enhancing market confidence.
Capital Markets Participants
- National and Local Governments: Issue long-term notes and bonds for financing national debts and local projects.
- Corporations: Use bonds and stocks to raise capital for investments and operational needs.
Capital Markets Segmentation
- Primary Market: Where new stock and bond issues are introduced; proceeds go directly to the issuer during initial public offerings (IPOs).
- Secondary Market: Platform for trading previously issued securities, allowing investors to sell their holdings efficiently.
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