Principles of Finance · free preview
Markets, Participants, and Instruments
Primary markets sell new securities while secondary markets trade existing ones, dealers quote bid and ask prices from their own portfolios while brokers match buyers and sellers, intermediaries channel funds, and financial instruments span money market and capital market claims.
1. Primary and secondary markets
Primary and secondary markets
2. Dealers and brokers
Dealers and brokers
3. Financial intermediaries and why they exist
Financial intermediaries and why they exist
4. Financial instruments from money market to capital market
Financial instruments from money market to capital market
5. New versus used securities
A technology firm sells shares to the public for the first time and receives the proceeds. Which market is this transaction occurring in?
6. Dealer versus broker
Which statement correctly distinguishes a dealer from a broker?
7. The bid-ask spread
A dealer quotes a bid price of 49 dollars and an ask price of 50 dollars for a security. What does the spread represent?
8. Maturity transformation
Which example best illustrates maturity transformation by a financial intermediary?
9. Classifying the instrument
A large corporation needs cash for ninety days to cover a seasonal inventory buildup. Which instrument fits the need, and in which market does it trade?
10. Derivatives defined
What defines a derivative financial instrument?
11. The two segments of the secondary market
Secondary markets are divided into two segments, one dominated by brokers and one by dealers. Name the dealer-dominated segment in lowercase.
12. The first public share sale
What three-letter acronym names the event when a firm sells shares to the public for the first time? Write the acronym.
13. The spread's two prices
A dealer's quote has two prices, the bid and the what? Answer with one word.
14. Short-term instrument market
What two-word term names the market for debt instruments maturing in one year or less? Write it in lowercase.
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