Podcast
Questions and Answers
What is a primary characteristic of money market instruments?
What is a primary characteristic of money market instruments?
- They usually have maturities of less than 1 year. (correct)
- They involve a high risk of default.
- They have maturities longer than 5 years.
- They are typically less liquid than capital market instruments.
What role does the National Bank play in the money markets of Ethiopia?
What role does the National Bank play in the money markets of Ethiopia?
- It conducts monetary policy. (correct)
- It regulates commodity trading.
- It manages the stock exchange.
- It issues long-term capital instruments.
Which of the following is NOT typically considered a money market instrument?
Which of the following is NOT typically considered a money market instrument?
- Common stock (correct)
- Treasury bills
- Federal funds
- Negotiable certificates of deposit
How do capital market instruments generally differ from money market instruments?
How do capital market instruments generally differ from money market instruments?
What is one main purpose of firms operating in money markets?
What is one main purpose of firms operating in money markets?
Which of these statements correctly describes capital markets?
Which of these statements correctly describes capital markets?
What is the typical maturity range for capital market instruments?
What is the typical maturity range for capital market instruments?
Which of these is an implication of the lower marketability of capital assets?
Which of these is an implication of the lower marketability of capital assets?
What commonly influences a firm's decision to issue securities in capital markets?
What commonly influences a firm's decision to issue securities in capital markets?
Which of the following correctly describes the risk associated with capital market instruments?
Which of the following correctly describes the risk associated with capital market instruments?
Flashcards
Money Markets
Money Markets
Markets where companies adjust short-term cash needs by borrowing, lending, or investing. Instruments usually mature in less than a year.
Money Market Instruments
Money Market Instruments
Instruments traded in money markets, typically short-term, highly liquid, and with low default risk.
Monetary Policy in Money Markets
Monetary Policy in Money Markets
The central bank of a country manages the money supply and interest rates through actions in the money markets.
Capital Markets
Capital Markets
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Capital Market Instruments
Capital Market Instruments
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Motive of Firms in Money & Capital Markets
Motive of Firms in Money & Capital Markets
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Securities
Securities
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Issuing Securities
Issuing Securities
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Buying Securities
Buying Securities
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Goal of Firms in the Money Market
Goal of Firms in the Money Market
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Study Notes
Money Markets
- Markets where banks and businesses adjust liquidity by borrowing, lending, or investing short-term.
- Typical maturities are less than one year.
- Instruments are highly liquid and low-risk.
- No formal exchange exists.
- Dealers and brokers specialize in instruments like treasury bills, certificates of deposit, commercial paper, and federal funds.
- The central bank (in Ethiopia) conducts monetary policy in these markets.
Capital Markets
- Markets for financing capital goods (long-term assets).
- Financing using stocks or long-term debt.
- Less liquid than money market instruments; default risk varies between issuers; maturities are 5-30 years.
- Main instruments include common stock, corporate bonds, and mortgages.
- Capital assets are often less marketable.
- Firms finance capital with long-term debt or equity to lock in costs and avoid refinancing problems.
- Firm motives in capital markets differ from money markets. Money market firms warehouse funds or borrow temporarily. Capital market firms acquire assets (plant, equipment) to generate profit.
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Description
Explore the key concepts of money and capital markets through this comprehensive quiz. Understand the differences between short-term liquidity adjustments and long-term financing options using various financial instruments. Test your knowledge on the roles of banks, central banks, and financial instruments in these markets.
