AFM 121 MIDTERM WITH CORRECT
ANSWERS
What is the vital function of financial markets? ANSWER Help
facilitate transfer of capital
What are the three components of the wealth transfer process?
ANSWER Financial instruments (what is actually bought / sold)
Financial markets (facilitati...
Financial intermediaries (people / companies involved in
financial instruments and markets)
What is capital made up of? ANSWER Capital is made up of
governments, corporations and individuals
How is capital transferred? ANSWER Direct investment (land,
real estate)
Indirect investment (stocks, bonds, t-bills)
When will people transfer capital? ANSWER When it is easy,
cheap, and generates a good return
What does capital flow depend on? ANSWER Political
environment
Economic trends
Fiscal and Monetary policy
Investment opportunities
Labour force (highly educated / laws governing rights of labour
force)
, Who provides capital? ANSWER Retail investors (individuals
that buy retail)
Institutional Investors (pension funds and mutual funds)
Foreign investors (can include foreign retail, institutional and
government investors)
Who uses capital? ANSWER Companies and businesses (earn
money through internally through existing operations and
reinvest the money) (raise money by issuing stocks/bonds)
Government (t bills, longer term debt) (spend on all forms of
government spending that aren't covered by tax and other
revenues)
What are the different kinds of financial instruments? ANSWER
Debt
Equity
Investment Funds
Derivatives
Private equity
What makes a market efficient? ANSWER Fast
Cheap
Liquid
What are primary markets? ANSWER Securities are sold by
issuers for the first time
Issuer receives money from this sale
What are secondary markets? ANSWER Where securities
previously issued are bought and sold
Funds do not go to issuer
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Solutionsgrade1. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $12.99. You're not tied to anything after your purchase.