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Questions and Answers
What is one of the primary functions of the foreign exchange market?
What is one of the primary functions of the foreign exchange market?
Which group primarily benefits from the liquidity and safety of money market investments?
Which group primarily benefits from the liquidity and safety of money market investments?
What distinguishes money market accounts from traditional savings accounts?
What distinguishes money market accounts from traditional savings accounts?
What is one characteristic of the bond market?
What is one characteristic of the bond market?
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Which statement accurately describes the risks associated with bonds?
Which statement accurately describes the risks associated with bonds?
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What is the primary function of financial markets?
What is the primary function of financial markets?
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Which example correctly represents a capital market?
Which example correctly represents a capital market?
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Which type of financial market is characterized by short-term loans and high-quality debt securities?
Which type of financial market is characterized by short-term loans and high-quality debt securities?
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Who are the primary participants in the foreign exchange (forex) market?
Who are the primary participants in the foreign exchange (forex) market?
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What distinguishes a money market from a capital market?
What distinguishes a money market from a capital market?
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What is the typical investment period for money market instruments?
What is the typical investment period for money market instruments?
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Which option represents a key characteristic of capital markets?
Which option represents a key characteristic of capital markets?
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What type of financial product is typically issued in the money market?
What type of financial product is typically issued in the money market?
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Study Notes
Financial Markets Overview
- Financial markets connect buyers and sellers of financial instruments like bonds, equities, currencies, and derivatives.
- They facilitate the exchange of capital between those needing it and those with it.
- Examples include banks, credit unions (for loans/savings), securities markets (like the New York Stock Exchange), mutual funds, and bonds.
Importance of Financial Markets
- Financial markets play a vital role in a nation's economy, facilitating the flow of funds and financial instruments globally.
- This contributes to economic growth and development.
Role of Financial Markets in the Philippines
- Financial markets facilitate the buying and selling of stocks and other securities.
- Investors can trade securities after they are offered in the primary market.
Types of Financial Markets
- Capital Markets: For medium and long-term funding.
- Money Markets: An organized marketplace for short-term, high-quality debt securities (usually under a year).
Forex Market
- Also known as the foreign exchange market (forex, FX).
- A global over-the-counter (OTC) marketplace for exchanging currencies.
- Determines exchange rates between currencies worldwide.
- Primary functions: currency conversion and managing foreign exchange risk.
- Major participants include financial institutions (commercial banks, central banks), money managers, and hedge funds.
- Global corporations use the forex market to manage currency risks in international transactions.
Example of Money Market Placements
- Time deposits (TDs)
- Treasury Bills (T-bills)
- Pooled funds invested in money market instruments.
- Money in TDs earns interest from the issuing bank.
Who Uses Money Markets?
- Banks, money managers, retail investors (who can engage in safe, liquid, and short-term investments), and borrowers utilize money markets.
- Broker-dealers, hedge funds, and non-financial corporations benefit from money market access to low-cost funding.
Money Market vs. Traditional Savings
- Money market accounts may offer higher interest rates because banks invest the funds in short-term, high-liquidity, low-risk assets.
- However, they often come with minimum balance requirements.
- These accounts outperform traditional savings accounts, which usually invest in less liquid assets.
Bond Market
- The bond market encompasses all trades and issuances of debt securities (corporate, government, and municipal bonds).
- The Philippine domestic bond market primarily consists of bonds issued by the national government (short- and long-term).
Bonds as Investments
- Bonds generally offer safer investments compared to other options.
- Nevertheless, they contain certain inherent risks.
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Description
This quiz provides an overview of financial markets, their importance, and their role in the Philippine economy. It covers various types of financial markets and their functions in connecting buyers and sellers of financial instruments. Test your knowledge on how these markets facilitate capital flow and contribute to economic growth.
