Podcast
Questions and Answers
Which of the following is NOT one of the three main types of financial markets?
Which of the following is NOT one of the three main types of financial markets?
- The bond market
- The foreign exchange market
- The real estate market (correct)
- The stock market
Financial market activities do not influence the wealth of individuals.
Financial market activities do not influence the wealth of individuals.
False (B)
What type of mutual fund invests in high-quality, short-term debt instruments?
What type of mutual fund invests in high-quality, short-term debt instruments?
money market mutual fund
In financial markets, sellers or savers have an excess of available funds while buyers or borrowers have a __________ of funds.
In financial markets, sellers or savers have an excess of available funds while buyers or borrowers have a __________ of funds.
Match the following financial market types with their descriptions:
Match the following financial market types with their descriptions:
What is the main purpose of deposit insurance?
What is the main purpose of deposit insurance?
Wealth and income refer to the same concept.
Wealth and income refer to the same concept.
What is the most liquid asset?
What is the most liquid asset?
The _____ economy is one in which goods and services are exchanged directly for other goods and services.
The _____ economy is one in which goods and services are exchanged directly for other goods and services.
Which of the following is NOT a characteristic of money?
Which of the following is NOT a characteristic of money?
Match the type of money with its description:
Match the type of money with its description:
Transaction costs are low in a barter economy.
Transaction costs are low in a barter economy.
What is the role of the Canada Deposit Insurance Corporation (CDIC)?
What is the role of the Canada Deposit Insurance Corporation (CDIC)?
The method of conducting transactions in an economy is referred to as the _____ system.
The method of conducting transactions in an economy is referred to as the _____ system.
Which characteristic lowers transaction costs by reducing the number of prices that need to be considered?
Which characteristic lowers transaction costs by reducing the number of prices that need to be considered?
Which of the following statements accurately describes equity holders?
Which of the following statements accurately describes equity holders?
In the primary market, securities are sold to initial buyers directly by the corporation.
In the primary market, securities are sold to initial buyers directly by the corporation.
What role do investment banks play in the primary market?
What role do investment banks play in the primary market?
The __________ market includes securities that have previously been issued and can be resold.
The __________ market includes securities that have previously been issued and can be resold.
Which of the following is NOT a characteristic of the money market?
Which of the following is NOT a characteristic of the money market?
Government of Canada Treasury Bills do not pay interest but are sold at a discount instead.
Government of Canada Treasury Bills do not pay interest but are sold at a discount instead.
What type of market is characterized by buyers and sellers meeting at a central location?
What type of market is characterized by buyers and sellers meeting at a central location?
Match the following money market instruments with their descriptions:
Match the following money market instruments with their descriptions:
In an __________ market, dealers operate independently and use their inventory to trade securities.
In an __________ market, dealers operate independently and use their inventory to trade securities.
What does the term 'residual claimant' mean in relation to equity holders?
What does the term 'residual claimant' mean in relation to equity holders?
Which of the following best describes E-money?
Which of the following best describes E-money?
M1+ includes non-chequable deposits like savings accounts.
M1+ includes non-chequable deposits like savings accounts.
What is the first form of E-money that was introduced?
What is the first form of E-money that was introduced?
M2 includes all elements of M1 plus ______ assets that are less liquid.
M2 includes all elements of M1 plus ______ assets that are less liquid.
Match the following monetary aggregates with their definitions:
Match the following monetary aggregates with their definitions:
Which of the following is considered a flow variable?
Which of the following is considered a flow variable?
E-cash can only be used for physical purchases.
E-cash can only be used for physical purchases.
What is the primary feature of a smart card?
What is the primary feature of a smart card?
M2++ includes M2+ and adds ____________ contracts.
M2++ includes M2+ and adds ____________ contracts.
Which monetary aggregate is the least broad measure?
Which monetary aggregate is the least broad measure?
M3 includes all types of institutional deposits.
M3 includes all types of institutional deposits.
Define the term 'present value' in finance.
Define the term 'present value' in finance.
Most liquid assets are represented in ______.
Most liquid assets are represented in ______.
Match the following definitions with the correct monetary aggregates:
Match the following definitions with the correct monetary aggregates:
What effect does a strong Canadian dollar have on Canadian goods exported abroad?
What effect does a strong Canadian dollar have on Canadian goods exported abroad?
Depository institutions include only banks.
Depository institutions include only banks.
What is the primary function of contractual savings institutions?
What is the primary function of contractual savings institutions?
A _________ is a bond-like debt instrument backed by a pool of mortgages.
A _________ is a bond-like debt instrument backed by a pool of mortgages.
Match the financial terms with their definitions:
Match the financial terms with their definitions:
What risk does moral hazard typically describe?
What risk does moral hazard typically describe?
As interest rates decrease, consumers are less likely to make large purchases.
As interest rates decrease, consumers are less likely to make large purchases.
What is the role of financial markets in the economy?
What is the role of financial markets in the economy?
__________ institutions include life insurance companies and pension funds.
__________ institutions include life insurance companies and pension funds.
Which term describes the process of borrowers obtaining funds directly from lenders?
Which term describes the process of borrowers obtaining funds directly from lenders?
Corporate bonds typically have lower interest rates compared to government securities.
Corporate bonds typically have lower interest rates compared to government securities.
Define what a security is.
Define what a security is.
What must be true for both strategies involving bonds to be equal?
What must be true for both strategies involving bonds to be equal?
A long-term debt instrument has a maturity term of _______ years or longer.
A long-term debt instrument has a maturity term of _______ years or longer.
Segregated Markets Theory adequately explains all observations about yield curves.
Segregated Markets Theory adequately explains all observations about yield curves.
What theory combines aspects of both Segmented Markets Theory and Liquidity Premium Theory?
What theory combines aspects of both Segmented Markets Theory and Liquidity Premium Theory?
What typically influences the movement of interest rates?
What typically influences the movement of interest rates?
How does a strong dollar affect the worth of bond holdings to foreign investors?
How does a strong dollar affect the worth of bond holdings to foreign investors?
The interest rate on an n-period bond is determined by the average of the _____ interest rates on shorter-term bonds.
The interest rate on an n-period bond is determined by the average of the _____ interest rates on shorter-term bonds.
Match the following theories with their primary characteristics:
Match the following theories with their primary characteristics:
What primarily characterizes the capital market?
What primarily characterizes the capital market?
Mortgage-backed securities serve as collateral for loans that are explicitly tied to real estate.
Mortgage-backed securities serve as collateral for loans that are explicitly tied to real estate.
Define the term 'adverse selection' in financial transactions.
Define the term 'adverse selection' in financial transactions.
The ________ provides mortgage-loan insurance to facilitate housing loans.
The ________ provides mortgage-loan insurance to facilitate housing loans.
What is a bond?
What is a bond?
Match the following financial instruments with their characteristics:
Match the following financial instruments with their characteristics:
Common stock represents a claim to partial ownership in a corporation.
Common stock represents a claim to partial ownership in a corporation.
Which of the following is a characteristic of corporate bonds?
Which of the following is a characteristic of corporate bonds?
What is the main difference between stock dividends and bond interest payments?
What is the main difference between stock dividends and bond interest payments?
Which type of financial institutions primarily raise funds through the issuance of chequable deposits?
Which type of financial institutions primarily raise funds through the issuance of chequable deposits?
Eurocurrencies refer specifically to U.S. dollars deposited in U.S. banks.
Eurocurrencies refer specifically to U.S. dollars deposited in U.S. banks.
What is the primary function of financial intermediation?
What is the primary function of financial intermediation?
Credit unions can be considered large financial institutions compared to banks.
Credit unions can be considered large financial institutions compared to banks.
The ______ is responsible for managing the money supply and interest rates in Canada.
The ______ is responsible for managing the money supply and interest rates in Canada.
Match the financial instruments with their characteristics:
Match the financial instruments with their characteristics:
What are the primary investment strategies of life insurance companies?
What are the primary investment strategies of life insurance companies?
The ________ market involves bonds sold in a foreign country, denominated in that country's currency.
The ________ market involves bonds sold in a foreign country, denominated in that country's currency.
Match the following types of bonds with their issuers:
Match the following types of bonds with their issuers:
Which phase of the business cycle indicates a low turning point?
Which phase of the business cycle indicates a low turning point?
Pension funds acquire funds primarily from employers and __________.
Pension funds acquire funds primarily from employers and __________.
What is the main function of investment banks?
What is the main function of investment banks?
Which of the following is NOT a reason why capital markets are considered riskier?
Which of the following is NOT a reason why capital markets are considered riskier?
Economic expansion is characterized by at least two quarters of negative output growth.
Economic expansion is characterized by at least two quarters of negative output growth.
Property and Casualty (P&C) insurance companies generally hold more liquid assets than life insurance companies.
Property and Casualty (P&C) insurance companies generally hold more liquid assets than life insurance companies.
Moral hazard arises when both parties to a transaction have equal access to information.
Moral hazard arises when both parties to a transaction have equal access to information.
What is the main function of financial intermediaries?
What is the main function of financial intermediaries?
A budget surplus occurs when ______ is greater than government spending.
A budget surplus occurs when ______ is greater than government spending.
Explain what 'risk sharing' means in financial terms.
Explain what 'risk sharing' means in financial terms.
Name one characteristic that distinguishes hedge funds from mutual funds.
Name one characteristic that distinguishes hedge funds from mutual funds.
What occurs when one party has more information than another in a transaction?
What occurs when one party has more information than another in a transaction?
The __________ of financial intermediation refers to the reduction of transaction costs per dollar as transaction size increases.
The __________ of financial intermediation refers to the reduction of transaction costs per dollar as transaction size increases.
The failure of financial intermediaries due to asymmetric information is referred to as a __________.
The failure of financial intermediaries due to asymmetric information is referred to as a __________.
Inflation is the average price level of goods and services in an economy.
Inflation is the average price level of goods and services in an economy.
Which type of financial institution primarily invests in long-term securities?
Which type of financial institution primarily invests in long-term securities?
Match the following institutions to their primary focus or service:
Match the following institutions to their primary focus or service:
What does the Foreign Exchange Market enable?
What does the Foreign Exchange Market enable?
The largest revenue source for the federal government is ______.
The largest revenue source for the federal government is ______.
Asymmetric information is beneficial for financial markets as it fosters transaction efficiency.
Asymmetric information is beneficial for financial markets as it fosters transaction efficiency.
Match the following monetary concepts with their definitions:
Match the following monetary concepts with their definitions:
What are the largest asset holdings of pension funds?
What are the largest asset holdings of pension funds?
Investment companies that raise money by selling shares to purchase safe and liquid assets are called __________.
Investment companies that raise money by selling shares to purchase safe and liquid assets are called __________.
What type of deposits do Trust and Loan Companies primarily use to obtain funds?
What type of deposits do Trust and Loan Companies primarily use to obtain funds?
Why do governments regulate financial markets?
Why do governments regulate financial markets?
What does YTM stand for in financial terms?
What does YTM stand for in financial terms?
An increase in an asset's risk relative to alternatives will increase the quantity demanded of that asset.
An increase in an asset's risk relative to alternatives will increase the quantity demanded of that asset.
What is the definition of liquidity?
What is the definition of liquidity?
The total resources owned by the individual, including all assets, is known as __________.
The total resources owned by the individual, including all assets, is known as __________.
Match the following terms with their definitions:
Match the following terms with their definitions:
When is the quantity demanded of an asset likely to rise?
When is the quantity demanded of an asset likely to rise?
A change in quantity supplied refers to a shift of the entire supply curve.
A change in quantity supplied refers to a shift of the entire supply curve.
What does the demand curve illustrate?
What does the demand curve illustrate?
The concept that explains how much of an asset people will want to hold in their portfolios is called __________.
The concept that explains how much of an asset people will want to hold in their portfolios is called __________.
What happens to the quantity demanded if the price of a good increases?
What happens to the quantity demanded if the price of a good increases?
Higher expected returns lead to a reduction in the quantity demanded for an asset.
Higher expected returns lead to a reduction in the quantity demanded for an asset.
Explain the relationship between the price of bonds and the quantity of bonds demanded.
Explain the relationship between the price of bonds and the quantity of bonds demanded.
When all other economic variables are held constant, quantity demanded changes due to a change in the __________ of the good.
When all other economic variables are held constant, quantity demanded changes due to a change in the __________ of the good.
Match the following terms with their corresponding effects on quantity demanded:
Match the following terms with their corresponding effects on quantity demanded:
What happens to the demand curve when expected inflation rises?
What happens to the demand curve when expected inflation rises?
An increase in supply of bonds causes the supply curve to shift left.
An increase in supply of bonds causes the supply curve to shift left.
What is the effect of a decrease in demand on the demand curve for bonds?
What is the effect of a decrease in demand on the demand curve for bonds?
In Keynes’s view, a higher level of ______ causes the demand for money to increase.
In Keynes’s view, a higher level of ______ causes the demand for money to increase.
Match the factors with their impact on the demand curve for bonds:
Match the factors with their impact on the demand curve for bonds:
What effect does higher default risk have on interest rates?
What effect does higher default risk have on interest rates?
What does a rightward shift in the supply curve indicate?
What does a rightward shift in the supply curve indicate?
Less liquidity in corporate bonds leads to lower interest rates compared to more liquid bonds.
Less liquidity in corporate bonds leads to lower interest rates compared to more liquid bonds.
Movements along the demand curve occur due to changes in the price of bonds.
Movements along the demand curve occur due to changes in the price of bonds.
What is the term for the graphical representation showing the relationship between interest rates and different maturities of bonds?
What is the term for the graphical representation showing the relationship between interest rates and different maturities of bonds?
A bond with ________ risk will always have a positive risk premium.
A bond with ________ risk will always have a positive risk premium.
What is the relationship between the quantity of money demanded and interest rates, according to Keynes?
What is the relationship between the quantity of money demanded and interest rates, according to Keynes?
When expected inflation decreases, the supply of bonds shifts to the ______.
When expected inflation decreases, the supply of bonds shifts to the ______.
Match the following yield curve types with their descriptions:
Match the following yield curve types with their descriptions:
Which factor does NOT cause the demand curve for bonds to shift?
Which factor does NOT cause the demand curve for bonds to shift?
What is the effect of favorable tax treatment on certain bonds, such as municipal bonds?
What is the effect of favorable tax treatment on certain bonds, such as municipal bonds?
According to the Expectations Theory, long-term bond rates are influenced by current short-term rates.
According to the Expectations Theory, long-term bond rates are influenced by current short-term rates.
An increase in the equilibrium interest rate signifies a rightward shift of the demand curve for bonds.
An increase in the equilibrium interest rate signifies a rightward shift of the demand curve for bonds.
What is the term that describes a premium required for holding less liquid long-term bonds?
What is the term that describes a premium required for holding less liquid long-term bonds?
What two effects cause the demand curve for money to shift in Keynes's liquidity preference analysis?
What two effects cause the demand curve for money to shift in Keynes's liquidity preference analysis?
Higher government budget deficits lead to an increase in the ______ of bonds.
Higher government budget deficits lead to an increase in the ______ of bonds.
When short-term rates are high, yield curves are more likely to slope ________.
When short-term rates are high, yield curves are more likely to slope ________.
What is one of the main assumptions of the Segmented Markets Theory?
What is one of the main assumptions of the Segmented Markets Theory?
Match the following terms with their correct definitions:
Match the following terms with their correct definitions:
What is the defining characteristic of a perpetuity?
What is the defining characteristic of a perpetuity?
The return on a bond will always equal the yield to maturity on that bond.
The return on a bond will always equal the yield to maturity on that bond.
What is the formula to calculate the current yield of a bond?
What is the formula to calculate the current yield of a bond?
When interest rates rise, the price of a bond typically __________.
When interest rates rise, the price of a bond typically __________.
Match the types of risks with their descriptions:
Match the types of risks with their descriptions:
What does the term 'rate of capital gain' refer to?
What does the term 'rate of capital gain' refer to?
Long-term bonds are generally less volatile than short-term bonds.
Long-term bonds are generally less volatile than short-term bonds.
What is the Fisher equation used for?
What is the Fisher equation used for?
Which of the following statements about a simple loan is true?
Which of the following statements about a simple loan is true?
The true cost of borrowing is measured by the __________ interest rate.
The true cost of borrowing is measured by the __________ interest rate.
Match the terms related to bonds with their definitions:
Match the terms related to bonds with their definitions:
The yield to maturity on a discount bond is less than its coupon rate.
The yield to maturity on a discount bond is less than its coupon rate.
Which of the following statements about bond returns is correct?
Which of the following statements about bond returns is correct?
What is the term for the interest rate that equates the present value of payments from a credit market instrument with its value today?
What is the term for the interest rate that equates the present value of payments from a credit market instrument with its value today?
A bond's price and interest rates have a directly proportional relationship.
A bond's price and interest rates have a directly proportional relationship.
In a coupon bond, the _____ is the fixed interest payment made to the bondholder annually.
In a coupon bond, the _____ is the fixed interest payment made to the bondholder annually.
What is the impact of a lower real interest rate on borrowing and lending incentives?
What is the impact of a lower real interest rate on borrowing and lending incentives?
Match the following credit market instruments with their definitions:
Match the following credit market instruments with their definitions:
What is the main characteristic of a coupon rate?
What is the main characteristic of a coupon rate?
The __________ rate is the interest rate adjusted for expected changes in the price level.
The __________ rate is the interest rate adjusted for expected changes in the price level.
What is the effect of a rise in interest rates on long-term bonds?
What is the effect of a rise in interest rates on long-term bonds?
All bonds pay interest through regular payments to the bondholders.
All bonds pay interest through regular payments to the bondholders.
What type of loan requires fixed periodic payments and fully amortizes over time?
What type of loan requires fixed periodic payments and fully amortizes over time?
The present value of a bond consists of the present value of both the _____ payments and the final payment of the face value.
The present value of a bond consists of the present value of both the _____ payments and the final payment of the face value.
What happens to the price of a bond when the yield to maturity increases?
What happens to the price of a bond when the yield to maturity increases?
The face value of a coupon bond is paid back in full at maturity, regardless of interest payments.
The face value of a coupon bond is paid back in full at maturity, regardless of interest payments.
What is the formula for calculating the simple interest rate?
What is the formula for calculating the simple interest rate?
Match the following types of loans with their definitions:
Match the following types of loans with their definitions:
The _____ of a bond indicates how much interest is paid relative to its face value.
The _____ of a bond indicates how much interest is paid relative to its face value.
What is a unique feature of a discount bond?
What is a unique feature of a discount bond?
What is the Fisher effect primarily associated with?
What is the Fisher effect primarily associated with?
An increase in the money supply will shift the supply curve for money to the left.
An increase in the money supply will shift the supply curve for money to the left.
What happens to the demand for money when the price level rises?
What happens to the demand for money when the price level rises?
The amount of interest sacrificed by not holding an alternative asset is known as the _____ cost.
The amount of interest sacrificed by not holding an alternative asset is known as the _____ cost.
Match each type of bond to its corresponding risk category:
Match each type of bond to its corresponding risk category:
What effect does an increase in default risk have on corporate bonds?
What effect does an increase in default risk have on corporate bonds?
Default-free bonds have no associated default risk.
Default-free bonds have no associated default risk.
What is the risk premium in bond markets?
What is the risk premium in bond markets?
During recessions, the risk of _____ increases, leading to higher risk premiums for corporate bonds.
During recessions, the risk of _____ increases, leading to higher risk premiums for corporate bonds.
What is a characteristic of investment-grade securities?
What is a characteristic of investment-grade securities?
Liquidity refers to how easily a bond can be converted into cash.
Liquidity refers to how easily a bond can be converted into cash.
What happens to U.S. Treasury bonds when municipal bonds gain tax-free status?
What happens to U.S. Treasury bonds when municipal bonds gain tax-free status?
As income rises and the economy expands, people tend to hold _____ money.
As income rises and the economy expands, people tend to hold _____ money.
Match the following credit ratings with their risk levels:
Match the following credit ratings with their risk levels:
Which factor can shift the demand for bonds to the right?
Which factor can shift the demand for bonds to the right?
Tax-exempt municipal bonds typically have higher interest rates than taxable bonds.
Tax-exempt municipal bonds typically have higher interest rates than taxable bonds.
Flashcards
Financial Markets
Financial Markets
Places where lenders (savers with excess funds) transfer funds to borrowers (with a shortage of funds).
How do financial markets impact wealth?
How do financial markets impact wealth?
Financial market activities influence an individual's wealth by affecting the value of their assets and liabilities (net worth).
Impact on Businesses
Impact on Businesses
Activities in financial markets influence business decisions by affecting access to funds (loans, investments) and influencing investor confidence.
Financial Market & the Economy
Financial Market & the Economy
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Money Market Mutual Fund
Money Market Mutual Fund
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Security (financial instrument)
Security (financial instrument)
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Bond
Bond
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The Bond Market
The Bond Market
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Common Stock
Common Stock
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Equity Finance
Equity Finance
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IPO (Initial Public Offering)
IPO (Initial Public Offering)
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Key Difference: Stock vs. Bond
Key Difference: Stock vs. Bond
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Financial Intermediary
Financial Intermediary
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Financial Innovation
Financial Innovation
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Aggregate Output
Aggregate Output
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Aggregate Price Level
Aggregate Price Level
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Inflation Rate
Inflation Rate
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Unemployment Rate
Unemployment Rate
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Monetary Theory
Monetary Theory
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Business Cycle
Business Cycle
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Strong Canadian Dollar
Strong Canadian Dollar
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Depository Institution
Depository Institution
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Contractual Savings Institution
Contractual Savings Institution
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Investment Intermediary
Investment Intermediary
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Mortgage
Mortgage
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Mortgage-Backed Security
Mortgage-Backed Security
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Municipal Bonds
Municipal Bonds
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Government Bonds
Government Bonds
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Corporate Bonds
Corporate Bonds
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CDIC
CDIC
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OSFI
OSFI
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Moral Hazard
Moral Hazard
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Direct Finance
Direct Finance
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Securities
Securities
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Debt Market
Debt Market
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Equity Market
Equity Market
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Dividends
Dividends
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Residual Claimant
Residual Claimant
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Primary Market
Primary Market
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Investment Bank
Investment Bank
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Underwriting Securities
Underwriting Securities
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Secondary Market
Secondary Market
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Securities Broker
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Securities Dealer
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Money Market
Money Market
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Charter
Charter
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Bookkeeping Restrictions
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Deposit Insurance
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Barter Economy
Barter Economy
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Transaction Cost
Transaction Cost
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Unit of Account
Unit of Account
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Store of Value
Store of Value
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Liquidity
Liquidity
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Overnight Interest Rate
Overnight Interest Rate
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Capital Market
Capital Market
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Stocks
Stocks
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Government of Canada Bonds
Government of Canada Bonds
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Provincial Bonds
Provincial Bonds
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Eurobond
Eurobond
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Eurocurrencies
Eurocurrencies
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Economies of Scale
Economies of Scale
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Liquidity Services
Liquidity Services
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Risk Sharing
Risk Sharing
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Electronic Payment
Electronic Payment
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Electronic Money (E-money)
Electronic Money (E-money)
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Smart Card
Smart Card
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E-cash
E-cash
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Monetary Aggregates
Monetary Aggregates
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M1+
M1+
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M2
M2
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M2+
M2+
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M2++
M2++
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M3
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Cash Flows
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Present Value
Present Value
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Stock Variable
Stock Variable
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Flow Variable
Flow Variable
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Most Liquid Asset
Most Liquid Asset
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Conflict of Interest (Financial Institutions)
Conflict of Interest (Financial Institutions)
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Chartered Banks
Chartered Banks
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Trust & Loan Companies
Trust & Loan Companies
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Credit Unions & Caisses Populaires
Credit Unions & Caisses Populaires
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Life Insurance Companies
Life Insurance Companies
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Property & Casualty (P&C) Insurance Companies
Property & Casualty (P&C) Insurance Companies
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Pension Funds & Government Retirement Funds
Pension Funds & Government Retirement Funds
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Finance Companies
Finance Companies
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Mutual Funds
Mutual Funds
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Hedge Funds
Hedge Funds
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Financial System Regulation
Financial System Regulation
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Yield to Maturity (YTM)
Yield to Maturity (YTM)
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Expected Return
Expected Return
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Risk (Financial)
Risk (Financial)
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Theory of Portfolio Choice
Theory of Portfolio Choice
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Demand Curve
Demand Curve
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Ceteris Paribus
Ceteris Paribus
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Quantity Demanded
Quantity Demanded
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Negative Relationship Between Price and Quantity Demanded
Negative Relationship Between Price and Quantity Demanded
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Supply Curve
Supply Curve
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Market Mechanism
Market Mechanism
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Equilibrium
Equilibrium
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Expected Return on Discount Bonds
Expected Return on Discount Bonds
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Impact of Expected Return on Bond Prices
Impact of Expected Return on Bond Prices
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Demand Curve Shift: Increase
Demand Curve Shift: Increase
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Demand Curve Shift: Decrease
Demand Curve Shift: Decrease
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Supply Curve Shift: Increase
Supply Curve Shift: Increase
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Supply Curve Shift: Decrease
Supply Curve Shift: Decrease
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Expected Inflation Impact on Bonds
Expected Inflation Impact on Bonds
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Liquidity Preference Theory: Income Effect
Liquidity Preference Theory: Income Effect
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Liquidity Preference Theory: Price Level Effect
Liquidity Preference Theory: Price Level Effect
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Asset Market Approach
Asset Market Approach
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Movement Along the Curve
Movement Along the Curve
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Shift of the Curve
Shift of the Curve
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Factors Shifting Bond Demand: Wealth
Factors Shifting Bond Demand: Wealth
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Factors Shifting Bond Demand: Expected Returns
Factors Shifting Bond Demand: Expected Returns
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Factors Shifting Bond Demand: Risk
Factors Shifting Bond Demand: Risk
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Factors Shifting Bond Demand: Liquidity
Factors Shifting Bond Demand: Liquidity
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Factors Shifting Bond Supply: Profitability
Factors Shifting Bond Supply: Profitability
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Perpetuity Bond
Perpetuity Bond
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Consol
Consol
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Perpetuity Bond Price Formula
Perpetuity Bond Price Formula
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Current Yield
Current Yield
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Relationship Between Bond Prices and Interest Rates
Relationship Between Bond Prices and Interest Rates
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Bond Return
Bond Return
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Rate of Capital Gain (Bond)
Rate of Capital Gain (Bond)
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Interest Rate Risk
Interest Rate Risk
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Reinvestment Risk
Reinvestment Risk
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Nominal Interest Rate
Nominal Interest Rate
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Real Interest Rate
Real Interest Rate
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Real Terms
Real Terms
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Fisher Equation
Fisher Equation
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Impact of Low Real Interest Rates
Impact of Low Real Interest Rates
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Bank Rate
Bank Rate
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Capital Gain (Bond)
Capital Gain (Bond)
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Present Discounted Value
Present Discounted Value
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Simple Loan
Simple Loan
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Simple Interest Rate Calculation
Simple Interest Rate Calculation
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Discounting the Future
Discounting the Future
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Fixed Payment Loan (Fully Amortized Loan)
Fixed Payment Loan (Fully Amortized Loan)
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Coupon Bond
Coupon Bond
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Coupon Rate
Coupon Rate
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Present Value of a Coupon Bond
Present Value of a Coupon Bond
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Bond Price and Yield to Maturity Relationship
Bond Price and Yield to Maturity Relationship
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Discount Bond (Zero-Coupon Bond)
Discount Bond (Zero-Coupon Bond)
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Yield to Maturity (YTM) for a Discount Bond
Yield to Maturity (YTM) for a Discount Bond
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Yield to Maturity (YTM) - General Definition
Yield to Maturity (YTM) - General Definition
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Yield to Maturity for Simple Loans
Yield to Maturity for Simple Loans
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Yield to Maturity for Fixed Payment Loans
Yield to Maturity for Fixed Payment Loans
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Yield to Maturity and Bond Price (Coupon Bond)
Yield to Maturity and Bond Price (Coupon Bond)
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Expected Return Equality
Expected Return Equality
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Two-Period Bond Interest Rate
Two-Period Bond Interest Rate
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n-Period Bond Interest Rate
n-Period Bond Interest Rate
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Yield Curve
Yield Curve
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Liquidity Premium Theory
Liquidity Premium Theory
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Default Risk and Interest Rates
Default Risk and Interest Rates
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Liquidity and Interest Rates
Liquidity and Interest Rates
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Tax Treatment and Interest Rates
Tax Treatment and Interest Rates
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Risk Premium
Risk Premium
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Upward-Sloping Yield Curve
Upward-Sloping Yield Curve
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Flat Yield Curve
Flat Yield Curve
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Inverted Yield Curve
Inverted Yield Curve
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Expectations Theory of Interest Rates
Expectations Theory of Interest Rates
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Segmented Markets Theory of Interest Rates
Segmented Markets Theory of Interest Rates
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Liquidity Premium Theory of Interest Rates
Liquidity Premium Theory of Interest Rates
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Fisher Effect
Fisher Effect
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Liquidity Preference Framework
Liquidity Preference Framework
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Opportunity Cost of Holding Money
Opportunity Cost of Holding Money
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Income Effect on Money Demand
Income Effect on Money Demand
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Price Level Effect on Money Demand
Price Level Effect on Money Demand
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Default Risk
Default Risk
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Credit Ratings
Credit Ratings
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Junk Bonds
Junk Bonds
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Term Structure of Interest Rates
Term Structure of Interest Rates
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Tax Considerations for Bonds
Tax Considerations for Bonds
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Government Surpluses and Bond Supply
Government Surpluses and Bond Supply
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Increase in the Money Supply
Increase in the Money Supply
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Study Notes
Market Overview
- Markets facilitate the exchange of goods and services between buyers and sellers.
- Financial markets transfer funds from surplus to deficit units.
- Sellers/savers have excess funds; buyers/borrowers have a shortage.
- Financial market activity impacts individual wealth (net worth), business behaviour, and economic performance.
- Key financial markets: bond market, stock market, and foreign exchange market.
Financial Instruments
- Securities represent claims on future income or assets.
- Bonds are debt securities; they promise periodic payments for a fixed time.
- The bond market facilitates borrowing for corporations and governments.
- Stocks represent ownership shares in corporations.
- Equity finance transactions on stock markets entail ownership claims in companies.
- Initial Public Offerings (IPOs) are the first sale of a company's stock.
Stock vs. Bond
- Stocks represent partial ownership; bonds represent debt.
- Stocks pay dividends; bonds pay interest.
- Stocks have no maturity; bonds have a fixed maturity date.
- Bondholders get paid before stockholders in the event of default.
Financial Intermediaries
- Financial intermediaries (banks, insurance companies) borrow from savers and lend to borrowers.
- Financial innovation introduces new financial products.
- Economies of scope arise from offering multiple financial services.
Aggregate Economic Measures
- Aggregate output represents total final goods and services production.
- Aggregate price level is the average price of goods and services.
- Inflation rate measures price level changes.
- Unemployment rate reflects the proportion of the labor force without jobs.
- Monetary theory connects money supply, monetary policy, inflation, and economic activity.
Business Cycle
- The business cycle involves recurrent expansion and contraction in economic activity.
- Phases: peak, recession, trough, expansion.
Adverse Selection and Moral Hazard
- Adverse selection occurs when one party has more information than another.
- Moral hazard is when a party takes extra risk with less consequence.
Barter System
- A barter system directly exchanges goods and services.
Monetary Policy
- Monetary policy manages money supply and interest rates.
- The Bank of Canada manages Canada’s monetary policy.
Fiscal Policy
- Fiscal policy involves government spending and taxation.
- A budget surplus occurs when tax revenue exceeds government spending.
- A budget deficit occurs when government spending exceeds tax revenue.
Gross Domestic Product (GDP)
- GDP measures the value of final goods and services produced within an economy in a year.
Foreign Exchange Market
- Foreign exchange rates represent the value of one currency relative to another.
- A strong Canadian dollar means Canadian exports are more expensive abroad.
Financial Intermediaries (Continued)
- Depository institutions accept deposits and make loans (e.g., banks, credit unions).
- Contractual savings institutions (insurance companies, pension funds) pool savings for long-term investments.
- Investment intermediaries (mutual funds, investment banks) manage investment portfolios and facilitate security issuances
Regulation of Financial System
- Government regulates financial markets to improve information and ensure soundness.
- Regulation often includes restrictions on entry, disclosure requirements, asset restrictions, and deposit insurance.
- Asymmetric information leads to adverse selection and moral hazard.
Money
- Money functions as a medium of exchange, unit of account, and store of value.
- Barter systems have high transaction costs compared to monetary systems.
- Money evolves from commodity money to fiat money to electronic forms.
Monetary Aggregates
- Monetary aggregates (M1+, M2, M3) measure different components of the money supply.
- Each aggregate includes increasingly less liquid assets.
Interest Rates
- Interest rates represent the cost of borrowing money.
- Present value calculates today's worth of future cash flows.
- Different types of loans (simple, fully amortized, discount) have distinct interest rate structures.
- Yield to maturity equates the present value of payments with the bond's price.
- Current yield is an approximation of the yield to maturity.
Portfolio Choice
- Factors influencing asset demand: wealth, expected return, risk, liquidity.
- Equilibrium interest rates result from shifts in demand and supply.
Term Structure of Interest Rates
- The term structure of interest rates examines the relationship across various bond maturities.
- Default risk, liquidity, and tax considerations affect bond interest rates (risk-free bonds, default-risk bonds).
Yield Curves
- Yield curves display the relationship between interest rates and maturity lengths.
- Theories explaining yield curves: expectations, segmented markets, liquidity premium.
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Description
Test your knowledge on the fundamentals of financial markets, including types of markets, mutual funds, and the roles of institutions like the Canada Deposit Insurance Corporation. This quiz covers essential concepts related to financial activities and their impact on individual wealth.
