Financial Markets Overview Quiz
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Questions and Answers

What is the primary difference between primary and secondary markets?

  • Primary markets are more risky, while secondary markets are safer.
  • Primary markets involve the initial sale of financial instruments, while secondary markets involve the subsequent trading of those instruments. (correct)
  • Primary markets are regulated by the government, while secondary markets are not.
  • Primary markets are only for debt securities, while secondary markets are for all types of financial instruments.

    • Secondary markets benefit only investors, not issuing corporations.

    False (B)

    What is meant by 'liquidity' in the context of financial markets?

    Liquidity refers to the ability to quickly convert an asset into cash at its fair market value.

    The ______ market trades debt securities with maturities of one year or less.

    <p>money</p> Signup and view all the answers

    Which of these is NOT an example of a financial instrument traded on a secondary market?

    <p>Commodity futures (A)</p> Signup and view all the answers

    Money markets in the United States operate in a centralized, physical location like a stock exchange.

    <p>False (B)</p> Signup and view all the answers

    Match the following money market instruments with their respective issuers:

    <p>Treasury bills = The U.S. government Commercial paper = Corporations Repurchase agreements = Financial institutions Certificates of deposit = Banks and financial institutions</p> Signup and view all the answers

    Which of the following is NOT a function of financial markets?

    <p>Setting prices for goods and services (D)</p> Signup and view all the answers

    Financial markets are only relevant for large corporations and institutional investors.

    <p>False (B)</p> Signup and view all the answers

    The ______ market deals with debt securities or instruments that mature in less than one year.

    <p>money</p> Signup and view all the answers

    Which of the following is an example of a primary market activity?

    <p>A company issuing new bonds to raise capital for expansion (B)</p> Signup and view all the answers

    Match the following market types with their corresponding descriptions:

    <p>Primary Markets = Markets in which users of funds raise capital through new issues of securities. Secondary Markets = Markets in which financial instruments trade after their initial issuance. Money Markets = Markets that trade debt securities with maturities of less than one year. Capital Markets = Markets that trade debt and equity instruments with maturities of more than one year.</p> Signup and view all the answers

    The foreign exchange market is a type of capital market.

    <p>False (B)</p> Signup and view all the answers

    Why are financial markets described as 'organized institutional structures'?

    <p>Financial markets have established rules, regulations, and institutions that facilitate the trading of financial instruments, ensuring transparency, fairness, and efficiency.</p> Signup and view all the answers

    Treasury bills (TBs) are issued in denominations of 1,000, 5,000, 10,000, 25,000, 50,000, 100,000, and 1,000,000.

    <p>True (A)</p> Signup and view all the answers

    Which of the following is NOT a characteristic of Treasury Bills (TBs)?

    <p>They offer a fixed rate of return throughout their maturity period. (D)</p> Signup and view all the answers

    What is the primary role of a portfolio manager in a mutual fund?

    <p>A portfolio manager manages the investments within a mutual fund. They make decisions on buying and selling securities to achieve the fund's investment objectives.</p> Signup and view all the answers

    A ______ is a short-term, unsecured promissory note issued by a company to raise short-term cash.

    <p>commercial paper</p> Signup and view all the answers

    Match the following financial instruments with their descriptions:

    <p>Treasury Bills = Short-term debt securities issued by the government. Repurchase agreements = Agreements to sell and then repurchase securities at a later date. Mutual funds = Investment vehicles that pool money from multiple investors to buy a diversified portfolio of securities. Negotiable certificates of deposit = Bank-issued time deposits that can be traded in the market. Banker's acceptances = Time drafts guaranteed by a bank for payment.</p> Signup and view all the answers

    Which of the following is a characteristic of capital markets?

    <p>They are primarily used for raising capital for businesses and governments. (A)</p> Signup and view all the answers

    What is the net asset value (NAV) of a mutual fund?

    <p>The net asset value (NAV) is the value per share of a mutual fund. It is calculated daily by dividing the total value of the fund's assets by the number of shares issued and outstanding.</p> Signup and view all the answers

    Banker's acceptances are a type of unsecured time draft.

    <p>False (B)</p> Signup and view all the answers

    The value of a derivative security remains constant regardless of changes in the underlying asset.

    <p>False (B)</p> Signup and view all the answers

    Which regulatory agency in the Philippines is primarily responsible for overseeing the securities market?

    <p>Securities and Exchange Commission (SEC) (B)</p> Signup and view all the answers

    The ____ Act, also known as Republic Act 8799, aims to strengthen investor protection and promote good corporate governance in the Philippine capital market.

    <p>Securities Regulation</p> Signup and view all the answers

    What are the two main roles of financial institutions in the economy?

    <p>Financial institutions act as intermediaries, channeling funds from those with surplus funds to those with shortages of funds, and they create financial products that facilitate economic activities.</p> Signup and view all the answers

    Which of the following is NOT a characteristic of commercial banks?

    <p>Offer a narrow range of loan products (C)</p> Signup and view all the answers

    Match the following financial institutions with their primary functions:

    <p>Commercial banks = Depository institutions that provide a broad range of financial services, including loans, deposits, and investment products. Savings banks = Depository institutions that primarily focus on accepting deposits and providing mortgage loans. Credit unions = Member-owned financial cooperatives that provide a range of savings and loan services to their members. Insurance companies = Provide financial protection against risks such as death, illness, and property damage. Mutual funds = Pool money from multiple investors to invest in a diversified portfolio of securities.</p> Signup and view all the answers

    Explain how derivative securities work.

    <p>Derivative securities represent a contract between two parties to exchange a specific asset or cash flow at a predetermined price and date in the future. Their value fluctuates based on the changes in the value of the underlying asset.</p> Signup and view all the answers

    The Philippine Dealing and Exchange Corporation (PDEx) is a Self-Regulatory Organization (SRO) under the supervision of the SEC.

    <p>True (A)</p> Signup and view all the answers

    Which of these financial institutions primarily focus on lending activities but do not accept deposits?

    <p>Finance companies (C)</p> Signup and view all the answers

    Thrifts usually concentrate their loans in a single segment, such as real estate or consumer loans, rather than offering a wide range of loan products.

    <p>True (A)</p> Signup and view all the answers

    What is the primary function of insurance companies in the financial system?

    <p>Insurance companies protect individuals and corporations from financial losses caused by unexpected events, such as accidents, death, and property damage.</p> Signup and view all the answers

    Financial institutions that help firms issue securities and engage in activities like brokerage and trading are known as ______.

    <p>securities firms and investment banks</p> Signup and view all the answers

    Match the following financial institutions with their primary focus:

    <p>Thrifts = Offer savings plans and manage retirement funds Pension funds = Provide protection against unexpected events Insurance companies = Provide loans primarily to individuals and businesses Finance companies = Focus on real estate loans or consumer loans Investment funds = Pool resources for diversified investment portfolios</p> Signup and view all the answers

    Which of the following is NOT a reason why the level of funds flowing between suppliers and users of funds would be low without financial institutions?

    <p>Financial institutions offer guarantees to reduce risk for fund suppliers. (A)</p> Signup and view all the answers

    Pension funds exempt accumulated savings from taxation during the working years.

    <p>False (B)</p> Signup and view all the answers

    How do financial institutions help to reduce monitoring costs for suppliers of funds?

    <p>Financial institutions aggregate funds from multiple suppliers, providing them with greater resources and incentives to collect information and monitor the activities of borrowers.</p> Signup and view all the answers

    Which of the following services provided by financial institutions (FIs) helps small investors overcome the constraint of large minimum denomination sizes for certain investments?

    <p>Denomination intermediation (C)</p> Signup and view all the answers

    Financial institutions can better manage the risk of mismatched maturities between their assets and liabilities through maturity intermediation.

    <p>True (A)</p> Signup and view all the answers

    What is the primary role of the BSP (Bangko Sentral ng Pilipinas) in regulating the financial services industry in the Philippines?

    <p>The BSP supervises banks, quasi-banks, their financial allied subsidiaries and affiliates (except insurance companies); nonstock savings and loan associations; and pawnshops.</p> Signup and view all the answers

    The _______ oversees investment houses, financing companies, securities dealers/brokers, and investment companies in the Philippines.

    <p>Securities and Exchange Commission (SEC)</p> Signup and view all the answers

    Match the following regulatory agencies in the Philippines with their respective areas of supervision:

    <p>BSP = Banks, quasi-banks, their financial allied subsidiaries and affiliates (except insurance companies); nonstock savings and loan associations; and pawnshops SEC = Investment houses, financing companies, securities dealers/brokers, and investment companies IC = Insurance and reinsurance companies, insurance brokers, mutual benefit associations, and pre-need companies</p> Signup and view all the answers

    The law of one price in global markets indicates that the price of a product should differ depending on the geographical location and local circumstances.

    <p>False (B)</p> Signup and view all the answers

    Which of the following is NOT a key way in which financial institutions contribute to the overall economy?

    <p>Regulating the supply of money (D)</p> Signup and view all the answers

    Explain how financial institutions can help with the transmission of monetary policy to the rest of the economy.

    <p>Depository institutions act as a conduit for monetary policy actions, influencing interest rates, lending activities, and ultimately the overall money supply in the economy.</p> Signup and view all the answers

    Study Notes

    Financial Markets Overview

    • Financial markets are structures facilitating funds flow, organized institutions for exchanging financial assets
    • Market economies rely on interactions between buyers and sellers for resource allocation
    • Financial markets encompass domestic and international transactions aiding investor and business growth.

    Functions of Financial Markets

    • Capital market raises funds through issuing securities
    • Derivative markets manage and transfer risk
    • Currency markets facilitate international transactions

    Types of Financial Markets

    • Primary markets: corporations raise funds through issuing new securities
    • Secondary markets: trading financial instruments after initial issuance.
    • Money markets: trade debt securities with maturities under one year
    • Capital markets: trade debt/equity instruments with maturities over one year.
    • Foreign exchange markets: transactions in foreign currencies
    • Derivative markets: derivative securities trading

    Primary vs Secondary Markets

    • Primary markets: where users of funds (corporations) raise funds through new financial instruments, (e.g., stocks, bonds).
    • Secondary markets: markets for trading already issued financial instruments. Stocks and bonds trade in these markets.

    Money Markets vs Capital Markets

    • Money markets: trade debt instruments with maturities of a year or less (e.g., Treasury bills, commercial paper)
    • Capital markets: markets for trading debt and equity instruments with maturities longer than a year (e.g., bonds, stocks).

    Overview of Financial Institutions

    • Financial institutions channel surplus funds to those needing them.
    • Types of institutions:
      • Commercial banks
      • Thrifts (savings associations, savings banks, credit unions)
      • Insurance companies
      • Securities firms / Investment banks
      • Finance companies
      • Investment funds / Pension funds

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    Related Documents

    Financial Market Lesson 1 PDF

    Description

    This quiz covers the essential concepts of financial markets, including their functions and types. It explores the mechanisms through which funds flow, how market economies operate, and the roles of various market structures in facilitating transactions. Test your understanding of primary and secondary markets, money and capital markets, and foreign exchange transactions.

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