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Questions and Answers
What is the main difference between the money market and the capital market?
Which of the following is NOT typically traded in the money market?
In what market do firms usually raise large sums of money through public offerings?
What type of investors have the opportunity to purchase securities in a public offering?
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Which of the following is a characteristic of short-term securities in the money market?
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What term is used to describe the market for long-term financial instruments?
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What is a private placement?
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In the primary market, what occurs?
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How does a company typically raise money in the primary market?
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What role does an investment bank play in a public offering?
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What differentiates the private placement market from the public market?
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When do securities become part of the secondary market?
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What type of financial market involves the trading of short-term debt instruments?
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Which financial institution serves as an intermediary in large financial transactions and helps with IPO launches and corporate mergers?
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Where are long-term securities like bonds and stocks primarily traded?
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Which entity typically accumulates contributions from employees to provide retirement income?
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What type of market serves as a forum for direct transactions between suppliers and demanders of funds?
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In Malaysia, which type of financial institution is established by the government to develop and promote key sectors?
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Study Notes
Money Market vs Capital Market
- Money market refers to transactions in short-term debt instruments with maturity periods of 1 year or less, involving high credit rated borrowers.
- Capital market refers to the market for long-term financial instruments with maturity periods beyond 1 year.
Money Market Instruments
- Major instruments issued and traded in the money market include:
- U.S. Treasury bills
- Various federal agency securities
- Banker's acceptances
- Negotiable certificates of deposit
- Commercial paper
Raising Money: Private Placements vs Public Offerings
- Private placements involve the sale of new securities directly to a limited number of investors, such as insurance companies or pension funds.
- Public offerings involve the sale of securities to the general public, usually through an investment bank, which specializes in helping firms raise money.
Primary Markets vs Secondary Markets
- Primary market is where new securities are traded, and the issuer receives cash in return.
- Secondary market is where outstanding securities are traded, and the issuer receives no additional money from subsequent transactions.
Financial Institutions
- Investment banks act as intermediaries in large and complex financial transactions, often involved in IPOs and corporate mergers.
- Development Financial Institutions (DFIs) are specialized financial institutions established by the government to develop and promote key sectors.
- Pension Funds obtain funds by issuing securities and lend to individuals and small businesses, accumulating payments from employees and employers to provide retirement income.
Financial Markets
- Financial markets are forums where suppliers and demanders of funds can transact business directly.
- The two key financial markets are the money market and the capital market.
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Description
Test your knowledge on the process of securities offerings by investment banks, including public offerings and private placements. Learn about how investment banks help companies raise money through securities sales.
