fm quiz 1
a bank is solvent if
it is able to meet all demands by depositors payments
matching principal in banking
long term assets must be matched with long term liabilities and so on
the transaction cost of trading financial instruments in centralised markets is classified as
low transaction costs
mortgage loan rates tend to be
lower than other rates as they are longer term in comparison to credit cards
capital market
market in which financial capital is loaned and/or borrowed for more than one year
money market
market that trade debt and equity instruments for less than one year
forex market
market where the cash flow for a sale of a product or assets in a different currency are transacted
primary markets
markets in which corporations raise capital by issuing new securities (stocks are issued on market)
secondary markets
markets that trade financial instruments once they are issued (same stocks are then traded on market since already issued)
derivative market
markets where derivative securities are traded
the long run objective of financial management in public limited liability company is to
maximize the value of the firm's common stock
the money where securities are issued by government to obtain funds for short term is classified as:
money market instruments
A ___ would be an example of a principal, while a ____ would be an example of an agent.
shareholder, manager
market rate
aka YTM, rate of interest on a loan which is the common baseline rate on the market, borrower to lender
bonds
aka debt, a promise to pay money with interest
equity
aka stocks, carry ownership interest of a company
bank assets and liabilites:
asset: mortgage loans, credit card overdraft liabilities: deposits, savings, long term equity
callable bond
bond that can be called back by company before it matures
convertible bonds
bonds that allow bondholders to convert debt into equity shares before maturity
zero-coupon bonds
bonds that do not pay any interest rate
coupon bonds
bonds that make period payments based on the coupon rate
all financial intermiedary institutions
buy primary securities and sell secondary securities
federal funds
commercial bank deposits at Federal Reserve
in primary markets, the first time issued shares to be publicly traded is considered as:
initial public offering
if an investor has to sell a bond prior to maturity and interest rates have risen since the bond was purchased, the investor is exposed to:
interest rate risk
when maturities of liabilities and assets are mismatched, then risk is classified as:
interest rate risk
the market value size of outstanding instruments of capital markets depends on:
number of issued securities and market price of securities
YTM (market interest rate) and bond prices move in the same or opposite direction?
opposite direction
bonds valued at par, at a premium, at a discount
par means YTM (market rate) is equal to the coupon rate premium means YTM is less than the coupon rate discount means YTM is greater than coupon rate
the legal document providing information about a offering of securities is classified as:
prospectus
if instrinsic value is lower than actual value,
the bond is over valued and you should sell
if intrinsic value is higher than actual value,
the bond is undervalued and you should buy
in the equation D1/Po +g, g represents
the expected price appreciation yield from a common stock
coupon rate
the interest paid on a bond, expressed as a percentage of the bond's face value; the yield on fixed income security
if the intrinsic value of a stock is greater than its market value, is it over or under valuing the stock?
the market is undervaluing the stock
shareholder wealth in a firm is represented by:
the market price per share of the firm's common stock
interest bonds
type of bond whose intrinsic value is lesser than that of its face value