Podcast
Questions and Answers
Which statement best describes the primary function of financial markets?
Which statement best describes the primary function of financial markets?
- To eliminate the risks associated with economic development.
- To provide channels for allocating savings to productive investments. (correct)
- To ensure that all investors achieve the highest possible returns.
- To directly control the saving and investment decisions of individuals.
How do financial markets contribute to economic development, according to the content?
How do financial markets contribute to economic development, according to the content?
- By promoting savings and investment. (correct)
- By ensuring savers are constrained by their individual abilities.
- By ensuring investors are constrained by the economy's abilities.
- By decoupling savings and investment and depending on the investors.
A company requires short-term financing for its day-to-day operations. Which type of market would be most suitable for raising these funds?
A company requires short-term financing for its day-to-day operations. Which type of market would be most suitable for raising these funds?
- The money market, specializing in short-term debt instruments. (correct)
- The derivatives market, focusing on complex financial contracts.
- The capital market, focusing on long-term investments.
- The cryptocurrency market, focusing on decentralized digital assets.
Which of the following is a typical characteristic of money market instruments?
Which of the following is a typical characteristic of money market instruments?
Which of the following financial instruments is commonly traded in the money market?
Which of the following financial instruments is commonly traded in the money market?
An investor purchases a Treasury bill (T-bill) for $9,800 and holds it until maturity, at which point they receive $10,000. How did the investor realize a return on this investment?
An investor purchases a Treasury bill (T-bill) for $9,800 and holds it until maturity, at which point they receive $10,000. How did the investor realize a return on this investment?
What is the primary characteristic of commercial paper that makes it an attractive money market instrument?
What is the primary characteristic of commercial paper that makes it an attractive money market instrument?
Which of the following best describes the role of savers and investors in financial markets?
Which of the following best describes the role of savers and investors in financial markets?
What is a key distinction between the money market and the capital market?
What is a key distinction between the money market and the capital market?
A municipality seeks to finance a new infrastructure project with a financial instrument promising to pay the holder a specified amount on a specific date. Which money market instrument could they utilize?
A municipality seeks to finance a new infrastructure project with a financial instrument promising to pay the holder a specified amount on a specific date. Which money market instrument could they utilize?
Flashcards
Financial Markets
Financial Markets
Markets that channel savings into investment, providing assets for savers and enabling investors to raise funds.
Money Market
Money Market
Financial market sector for instruments maturing in one year or less from issuance. Includes Treasury bills and commercial paper.
Treasury Bills (T-Bills)
Treasury Bills (T-Bills)
Financial instruments issued by governments, maturing in weeks or months. Return is realized by buying at a discount and receiving maturity value.
Commercial Papers
Commercial Papers
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Capital Market
Capital Market
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Equity
Equity
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Study Notes
- Financial markets provide channels for allocation of savings to investment
- Financial markets provide a variety of assets to savers, this allows investors to raise funds and decouple saving and investment
- Savers and investors are constrained by the economy's ability to invest and save
- Financial markets contribute to economic development based on rates of savings and investment
Financial Markets Components
- Money market
- Capital market
Money Market
- According to Drake & Fabozzi (2010), the money market is the sector of the financial market that includes financial instruments with a maturity date of one year or less at the time of issuance
- Money market instruments include:
- Treasury bills
- Commercial papers
- Negotiable certificates of deposit
- Repurchase agreements
- Bankers' acceptances
Treasury Bills
- Treasury Bills are financial instruments issued by governments with maturity dates of three weeks, one month, three months, or six months
- The holder of a T-Bill realizes a return by buying these securities for less than the maturity value, and then receives the maturity value at maturity
Commercial Papers
- Commercial papers are promissory notes, written promises to pay issued by a large, creditworthy corporation or a municipality having an original
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