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Questions and Answers
What is a repurchase agreement primarily used for in the money market?
What is a repurchase agreement primarily used for in the money market?
Which type of option can only be exercised on its expiration date?
Which type of option can only be exercised on its expiration date?
What characteristic distinguishes Eurodollars from other deposits?
What characteristic distinguishes Eurodollars from other deposits?
What is the primary purpose of the bond market?
What is the primary purpose of the bond market?
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In which of the following ways does the Federal Reserve use repurchase agreements?
In which of the following ways does the Federal Reserve use repurchase agreements?
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What is a defining characteristic of perfect competition?
What is a defining characteristic of perfect competition?
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What is one of the functions of financial markets?
What is one of the functions of financial markets?
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Which market structure involves strategic planning, as firms are dependent on each other's actions?
Which market structure involves strategic planning, as firms are dependent on each other's actions?
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How does the interaction between investors, industries, and market forces help in financial markets?
How does the interaction between investors, industries, and market forces help in financial markets?
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What does liquidity in financial markets refer to?
What does liquidity in financial markets refer to?
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Which of the following best describes a market structure characterized by many sellers of homogeneous products?
Which of the following best describes a market structure characterized by many sellers of homogeneous products?
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What advantage do financial markets provide by connecting buyers and sellers?
What advantage do financial markets provide by connecting buyers and sellers?
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What is NOT a feature of oligopoly market structure?
What is NOT a feature of oligopoly market structure?
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What is the primary characteristic of the over-the-counter market?
What is the primary characteristic of the over-the-counter market?
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Which of the following assets is typically traded in the money market?
Which of the following assets is typically traded in the money market?
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What distinguishes the primary market from the secondary market?
What distinguishes the primary market from the secondary market?
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What is true regarding commercial paper?
What is true regarding commercial paper?
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Which statement best describes the characteristics of a banker’s acceptance?
Which statement best describes the characteristics of a banker’s acceptance?
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What is a typical maturity period for assets traded in the money market?
What is a typical maturity period for assets traded in the money market?
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What is true about the secondary market?
What is true about the secondary market?
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In the capital market, which of the following assets is typically included?
In the capital market, which of the following assets is typically included?
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What does the equity market primarily provide to companies?
What does the equity market primarily provide to companies?
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Which statement best describes a derivative contract?
Which statement best describes a derivative contract?
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What does 'In-The-Money' (ITM) mean in relation to options?
What does 'In-The-Money' (ITM) mean in relation to options?
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What is the strike price in options trading?
What is the strike price in options trading?
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Which term refers to a situation where an option's strike price is the same as the market rate?
Which term refers to a situation where an option's strike price is the same as the market rate?
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What does the term 'Option Premium' refer to?
What does the term 'Option Premium' refer to?
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What would indicate that an option is 'Out-Of-The-Money' (OTM)?
What would indicate that an option is 'Out-Of-The-Money' (OTM)?
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Which of the following is a characteristic of futures contracts?
Which of the following is a characteristic of futures contracts?
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What does a two-way quote indicate in foreign exchange trading?
What does a two-way quote indicate in foreign exchange trading?
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Which party is described as a professional trader who offers prices for buy and sell transactions?
Which party is described as a professional trader who offers prices for buy and sell transactions?
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Which of the following describes a reciprocal currency?
Which of the following describes a reciprocal currency?
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What is the purpose of the 'three golden rules' in Forex trade execution?
What is the purpose of the 'three golden rules' in Forex trade execution?
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What does 'K.A.P.E.' stand for in the context of reciprocal currency?
What does 'K.A.P.E.' stand for in the context of reciprocal currency?
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What scenario occurs when a price taker wants to sell in a foreign exchange transaction?
What scenario occurs when a price taker wants to sell in a foreign exchange transaction?
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When is the spot value date typically set in Forex trading?
When is the spot value date typically set in Forex trading?
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What is a key characteristic of a bilateral agreement in foreign exchange?
What is a key characteristic of a bilateral agreement in foreign exchange?
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What is the status of the USD Put at USD/IDR 9,200.00 option?
What is the status of the USD Put at USD/IDR 9,200.00 option?
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Which USD Call option is identified as OTM?
Which USD Call option is identified as OTM?
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What does ATM stand for in options trading?
What does ATM stand for in options trading?
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Which of the following is true about forwards?
Which of the following is true about forwards?
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What is a defining characteristic of swaps?
What is a defining characteristic of swaps?
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In the context of market makers and price takers, which statement is correct?
In the context of market makers and price takers, which statement is correct?
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What does it mean for an option to be OTM?
What does it mean for an option to be OTM?
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Which option is considered ATM?
Which option is considered ATM?
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Study Notes
Financial Markets Overview
- A market is a place where buyers and sellers meet to exchange goods and services.
- Market structure describes how industries are categorized based on competition levels.
- Perfect competition has many small companies selling similar products, with no price influence and free entry/exit. Examples include meat, fruit, and vegetable markets.
- Oligopoly involves a few large companies selling differentiated or identical products, where companies strategically plan. Examples include Smart, Globe, and Sun.
- Monopoly is when a single company dominates an industry and controls prices, restricting competition. Examples include Meralco (electricity) and Maynilad (water).
- Monopolistic competition combines traits of monopoly and competition, with sellers differentiating products. Examples include P&G, Jack & Jill, and Unilever.
- Financial markets facilitate trades between savers and investors or businesses seeking capital.
- Financial markets are transparent, regulated, and structured with clear guidelines for pricing and transactions.
Functions of Financial Markets
- Price determination results from interactions of investors, industries, and market forces.
- Mobilization of savings helps connect those with money with those who need it.
- Ensures liquidity allows for easy conversion of assets into cash on demand.
- Saves cost and time by streamlining transactions between buyers and sellers.
Structures of Financial Markets
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Markets by Nature of Claim:
- Debt market: Trading of debt instruments like bonds and debentures.
- Equity market: Trading of equity instruments.
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Markets by Maturity of Claim:
- Money market: Trading of assets with maturity in a year or less.
- Capital market: Trading of assets with maturity over a year.
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Markets by Timing of Delivery:
- Cash market: Immediate transaction fulfillment.
- Futures market: Agreement for future delivery of assets.
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Markets by Organizational Structure:
- Exchange-traded markets: Centralized trading platforms.
- Over-the-counter (OTC) markets: Decentralized trading with customized procedures.
Types of Financial Instruments & Markets
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Money market instruments: Examples include commercial paper, certificates of deposit, and treasury bills, and usually mature in under a year.
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Capital market instruments: Examples include stocks and bonds, and usually mature in over a year.
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Derivative market instruments: Financial contracts with values derived from underlying assets. This includes futures and options.
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Options: give the buyer a right, but not an obligation, to buy or sell an asset at a specified price.
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Currency options: Options to buy or sell a currency pair.
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Treasury Bills: Short-term securities, issued by government, at a discount.
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Certificates of Deposit (CDs): Time deposits with fixed maturity dates, issued by banks.
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Commercial papers: Short-term unsecured debt issued to finance short-term needs, issued by institutions with high creditworthiness.
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Banker's acceptances: Short-term debt, guaranteed by a bank.
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Foreign exchange market (FX): Currency trading.
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Bonds market: Trading of debt securities, issued by corporations or governments.
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Equity market: Trading of shares or ownership in companies.
Additional Market Concepts
- Bid-Ask Spread: Difference between the best selling price and best buying price for a security.
- Pip: A unit of measurement for currency trading that represents a small change in exchange rates.
- Value Terms (ITM/ATM/OTM): In-the-money, At-the-money, Out-of-the-money, used in option pricing.
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Description
Explore the fundamental concepts of financial markets including various market structures such as perfect competition, oligopoly, monopoly, and monopolistic competition. This quiz delves into how buyers and sellers interact and the roles financial markets play in the economy. Assess your understanding of these crucial economic principles.
