Risks of Investing - answer-Recession, Floating Interest Rate, Inflation/Deflation, Fx exposure (exchange rate), maturity risk, liquidity risk, new product, taxes
Money Market vs. Capital Market Securities - answer-Money Market: <1 year, T-bills, currencies, short term bonds
Capital Market: ...
, FINANCIAL RISK MANAGEMENT MIDTERM
Risks of Investing - answer-Recession, Floating Interest Rate, Inflation/Deflation, Fx exposure (exchange
rate), maturity risk, liquidity risk, new product, taxes
Money Market vs. Capital Market Securities - answer-Money Market: <1 year, T-bills, currencies, short
term bonds
Capital Market: >1 year, stocks, 10 year government bonds
Primary vs. Secondary Markets - answer-Primary Market: IPO, Investment Bank, Corporate Value, Brand
Equity
Secondary Market: NYSE, Nasdaq, All investors can buy and sell shares
Liber - answer-Interest rate reference that the bank uses as a benchmark
Beta - answer-A factor to estimate risk belonging to the CAPM model
Covarience - answer-is the same as correlation
An asset is a possession that has value in an exchange and can be classified as - answer-tangible or
intangible
The financial asset is referred to as a ________ if the claim is a fixed dollar. - answer-debt instrument.
Asset management firms receive their compensation ________ from
management fees charged based on the market value of the assets managed
for clients. - answer-primarily
There are two extreme views of financial innovation. Which of the below is ONE of these? - answer-
Some hold that the essence of innovation is the introduction of financial instruments that are more
efficient for redistributing risks among market participants.
T/F: Financial assets have two principal economic functions. One function is to transfer funds from those
who have surplus funds to invest to those who need funds to invest in tangible assets. - answer-TRUE
Common stock is considered a short-term security because it has no
maturity date and a long-term security is one with a maturity date of more than one year. - answer-
FALSE, Common stock is not a short term security
Financial markets and institutions - answer-involve the movement of huge quantities of money & affect
the profits of businesses & DO NOT affect the types of goods and services produced in an economy.
Markets in which funds are transferred from those who have excess funds available to those who have a
shortage of available funds are called - answer-Financial Markets
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