Bus 370 CH 2

Incorrect Statements

- A highly liquid financial instrument with a maturity of 90 days would be traded in the capital market. - The loans of the business finance companies are never secured by accounts receivable or inventory but rather based on trust among the companies. - Money markets are global markets where long-term debt instruments, which have maturities of greater than one year, are traded. - Dow Jones Industrial average (DJIA. is a price index that measures the change in prices of a market basket of goods and services that a typical consumer purchases. - The FED is responsible for overseeing the securities industry and regulating all primary and secondary markets in which securities are traded. - Private markets are organized financial markets where the general public buys and sells initial public offerings (IPOs) through their stockbrokers, and the NYSE, for example, is a private market. -The secondary markets are not well known to the general public because they are wholesale markets and the sales take place outside of the public view. -In an informationally efficient market, market prices adjust slowly to new or old information as it becomes available through postal mailing and the fliers in the mail. - The Fed manages a key component of the nation's economy by conducting fiscal policy, which affects how much of the individual and corporate taxes are collected.

Future and Option Markets

- Contracts for FUTURE delivery of assets - Call for one party to perform specific act if called upon to do so by OPTION buyer -Both reduce risk

Correct Statements

- Money market instruments are generally issued by firms of the highest credit rating. - Equities with maturities greater than one year generally are traded in the capital market. - Secondary markets are like used-car markets in that they allow investors to buy or sell previously owned securities for cash. - Capital markets are markets where equity and debt instruments with maturities of greater than one year are traded. - Secondary markets are where the owners of outstanding securities can resell them to other investors and the secondary markets provide the means for investors to convert their securities into cash. - Investment funds, such as mutual funds, sell shares to investors and use the funds to purchase securities. - In a weak-form efficient market, it would not be possible to earn abnormally high returns by looking for patterns in security prices. - If a security market were strong-form efficient, then it would not be possible to earn abnormally high returns (returns greater than those justified by the risks) by trading on private information, information unavailable to other investors, because there would be no such information.

Money and Capital Markets

-Money markets deal in short-term debt instruments, less than one year maturity, wholesale, low risk, high liquidity -Capital markets deal in longer-term debt and equity instruments, over one year maturity, less marketable, more risk

Brokers and Dealers

Brokers bring buyers and sellers together when a sale takes place; no risk; execute transaction for client; work for investors Dealers create market for security by buying and selling from inventory of securities they own; risk

Secondary Market

Market where owners of outstanding securities sell to other investors; no new money into firm

Primary Market

Wholesale markets where companies sell new security issues; not known to general public; new money going into firm

Investment Dealers

brokers who make money by buying and selling securities at bid prices to make profits from the difference.

Investment Banks

helping companies sell new debt or equity issues in the security markets.

Initial Public Offering (IPO)

the first time a company issues stock that may be bought by the general public

Underwriting

the process by which investment bankers purchase new securities directly from the issuing company and resell them to the public