Chapter 1: Financial Systems and the Financial Market

Which of the following is not an economic function of financial market? Price Liquidity Reduced Transaction Cost All of the above

All of the above

The sector of the financial markets where financial instruments issued by governments and corporations that will mature beyond one year from issuance date (long-term) are traded. Long term Market Stock Market Debt Market Capital Market

Capital Market

Internal Market and External Market are classification of Financial Market based on ____________. Instrument traded Market type Country's Perspective financial intermediaries

Country's Perspective

In this route of fund flows, the borrower-spenders borrow and deal directly with lenders through selling financial instruments (or securities). Indirect Financing Direct Financing

Direct FInancing

This refers to the market where issuers who are considered residents in a country that issues securities and where these securities are traded afterwards. Internal/National Market Domestic Market Foreign Market Resident Market

Domestic Market

Primary and secondary markets can also be classified based on where the financial instruments are traded. Exchange and Over the Counter market Formalized and Informal Primary and Secondary either a or b

Exchange and Over the Counter market

Examples of _____________ includes international market, offshore market and Euromarkets. Internal Market External Market Foreign Market Non-Resident Market

External Market

Finance came from the French word "finens" which means "to end and settle a debt"

False, "finer"

Tap Issue is usually used for issuance of treasury bills, bonds and other securities issued by the government and are commonly executed exclusively with market makers. Auction is a method that occurs when issuers are open to receive bids for their securities at all times.

False, Auction; Tap Issue

In a dealer market, the buyer and the seller of the securities are brought together by a broker and the trade occurs at that point. In a broker market, the buyer and seller are not brought directly together by a third party.

False, Broker; Dealer

Money market is the sector of the financial markets where financial instruments issued by governments and corporations that will mature beyond one year from issuance date (long-term) are traded.

False, Capital market

Price Valuation refers to the interaction between buyers and sellers in the financial market in order to come up with price of the traded financial instrument.

False, Price Discovery

Transaction costs in the financial market can be classified into two types: Finder's fee and information costs.

False, Search cost

Primary market refers to the market wherein the securities issued in primary market are subsequently traded i.e. resold and repurchased (secondhand)

False, Secondary

All types of financial markets offer the similar degrees of liquidity.

False, different

In indirect financing, the borrower-spenders borrow and deal directly with lenders through selling financial instruments (or securities).

False, direct financing

In direct financing, the borrowing activity between both parties still happens though indirectly through the intervention og a financial intermediary.

False, indirect financing

Information symmetry occurs when one stakeholder to a transaction holds superior information than the other party.

False, information asymmetry

With the flow of financial instruments, price is created. Price is used to either be reinvested or earned out from the system flows.

False, money

Capital market is the sector of the financial system where financial instruments that will mature or be redeemed in one year or less from issuance date are traded.

False, money market

Lenders and Borrowers are also known as fund demanders and fund providers, respectively.

False, provides; demanders

Finder's fee are costs incurred to look for financial instruments that can be purchases or sold by a party.

False, search cost

This refers to the market where issuers who are not residents of a country can sell or issue securities and subsequently traded. Internal/National Market Domestic Market Foreign Market Non-Resident Market

Foreign Market

Which of the following is not an economic function of Secondary Market Price discovery Liquidity and reduction in borrowing costs Support to Primary market Implementation of fiscal policy

Implementation of fiscal policy

In this route of fund flows, the borrowing activity between both parties still happens through the intervention of a financial intermediary Indirect Financing Direct Financing

Indirect Financing

Private companies who will sell shares to the general public for the very first time is said to undergo an ____________. Public Market Offering Initial Public Offering New Market Issuance Primary Market Offering

Initial Public Offering

Money Market and Capital Market are classification of Financial Market based on ______________. Instrument traded Market type Country's Perspective financial intermediaries

Instrument traded

Primary Market and Secondary Market are classification of Financial Market based on ______________. Instrument traded Market type Country's Perspective financial intermediaries

Market type

The sector of the financial system where financial instruments that will mature or be redeemed in one year or less from issuance date are traded Current or Short-Term Market Debt Market Money Market Long term Market

Money Market

The market structure where the buyers and sellers propose their price through their brokers who conveys the bid in a centralized location. Secondary market Order Driven market Quote Driven market Auction

Order Driven market

Market wherein fund demanders such as corporation or a government agency raise funds through new issuances of financial instruments e.g. bonds and stocks. New Market Internal Market Initial Public Offering Market Primary Market

Primary Market

Also called as primary dealer markets, professional markets or market-made markets. Secondary market Order Driven market Quote Driven market Auction

Quote Driven market

The market structure (secondary market) where the market makers establish a price quote at which the market participants should trade with. Secondary market Order Driven market Quote Driven market Auction

Quote Driven market

Which of the following is not an element of the Financial System? Financial Market Financial Intermediaries Financial Instruments Regulatory Compliance

Regulatory Compliance [correct - Regulatory Environment]

This refers to the market wherein the securities issued in primary market are subsequently traded Primary market Secondary market Consequent Market Trading Market

Secondary Market

Which of the following is not a classification of financial market a. Based on Instrument traded: Stock and Debt Market b. Based on Market type: Primary and Secondary Market c. Based on Country's Perspective: National and External Market d. Based on Manner of Financial Intermediaries: Broker and Dealer Market

Stock and Debt Market

This method occurs when issuers are open to receive bids for their securities at all times. Tap issue government bidding auction money market placement

Tap issue

Capital market securities are classified into two: equity (which represent ownership interest) and debt

True

Financial Markets is same with the other economic markets where suppliers and buyers of financial instrumens meet.

True

Financial System is a set of arrangements or conventions embracing the lending and borrowing of funds by non-financial economic units and the intermediation of this function by financial intermediaries in order to facilitate the transfer of funds, to create additional money when required, and to create markets in debt and equity instruments including their derivative so that the price and allocation of funds are determined efficiently.

True

Financial instruments are medium of exchange of contractual obligation of a party, where such contract can be traded

True

Financial intermediary are special type of financial entity that acts as a third party to facilitate the borrowing activity between lenders and borrowers

True

Financial market refers to channels or places where funds and financial instruments such as stocks, bonds and other securities are exchanged between willing individuals an/or entities.

True

Financial system is composed of network of inter-related systems of financial markets, intermediaries and services.

True

Funds can flow from lender-savers to the borrower-spenders in two routes: via direct financing or indirect financing

True

Information costs are costs related in evaluating investment characteristics of a financial instrument

True

Internal or National market refers to the financial market operating in a certain country

True

Primary market is a type of financial market wherein fund demanders such as corporation or a government agency raise funds through new issuances of financial instruments e.g. bonds and stocks

True

Private placement occurs when the issuer looks for a single investor, an institutional buyer or group of buyers to purchase the whole securities issuance instead of offering it to the general public

True

Public offering occurs when securities are offered for sale to the general public.

True

Regulatory environment is the governance body o ensure that the transactions that occur within the financial systems complies with the laws and regulations imposed to the actors as well as the elements that plays within the system

True

The price is normally driven by the level of risk on how the issuer of the financial instruments

True

Financial Systems is a network of interrelated factors. Which of the following is not an element of financial system? Value Creation Regulatory Environment Financial Intermediary Financial Instruments

Value Creation

Which of the following is not a source of wealth Labor Capital Wages Entrepreneurship

Wages

Which of the following is not correct about Financial System? a. Financial system is a set of arrangements embracing the lending and borrowing of funds by non-financial economic units and the intermediation of this function by financial intermediaries in order to facilitate the transfer of funds, to create additional money when required, and to create markets in debt and equity instruments so that the price and valuation of funds are determined effectively. b. Financial system allows households, companies and the government who have available funds to invest these funds in more potentially productive vehicles that can result in faster growth in the economy. c, A properly functioning financial system also enhance welfare of individual consumers as they have immediate access to funds allowing them to purchase things as they prefer. d. The financial system encourages fund savings from its stakeholders and transform these savings efficiently into investment vehicles that help the economy grow faster.

a. Financial system is a set of arrangements embracing the lending and borrowing of funds by non-financial economic units and the intermediation of this function by financial intermediaries in order to facilitate the transfer of funds, to create additional money when required, and to create markets in debt and equity instruments so that the price and ALLOCATION of funds are determined EFFICIENTLY.

__________________ is usually used for issuance of treasury bills, bonds and other securities issued by the government and are commonly executed exclusively with market markers. This can be done in 3 methods. money market placement government bidding auction Tap issue

auction

Which of the following is not correct about Financial System? a. Financial markets help in creating more efficient allocation of capital which results in higher production and efficient that ultimately leads to economic growth. b. Financial market refers precisely to the physical value where funds and financial instruments such as stocks, bonds and other securities are exchanged between willing individuals and/or entities e.g. PSE an PDEx c. Participants in the financial markets include ultimate lenders and borrowers such as household, government and businesses, financial intermediaries, broker and dealers, regulators, fund managers and financial exchanges. d. The main economic function of the financial markets is to serve as a channel to transfer excess funds from fund providers to fund demanders.

b.

In a ________________, the buyer and the seller of the securities are brought together by a broker and the trade occurs at that point. broker market dealer market trading market Secondary market

broker market

Public offering can be _______________. Which is not correct? a. offer for subscription b. offer for sale c. acceptance of subscription and acceptance of sale d. both a and b

c. acceptance of subscription and acceptance of sale

In a ________________, the buyer and seller are not brought directly together by a third party. broker market dealer market trading market Secondary market

dealer market

Broker Market and Dealer Market are classification of Financial Market based on _____________. Instrument traded Market type Country's Perspective financial intermediaries

financial intermediaries.

This is also known as limited public offer private placement money market placement capital market placement public placement

private placement

Securities coursed through _____________ gives comfort to potential investors since ___________ are willing to take the risk of guaranteeing these securities. market maker underwriter financial intermediary guarantor

underwriter