FINM2003 Study Guide - Final Guide: Market Maker, Algorithmic Trading, Australian Securities Exchange

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30 Jun 2018

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WHAT IS INVESTMENT?

Investment Portfolio

Two decisions for constructing a portfolio

1. Asset allocation decision: choose asset classes

2. Security selection decision: choose specific securities to invest in within each asset

class.

Financial assets

Facilitate diversification and liquidity

Different to real assets to overcome consumption issues associated with real assets

Allow investment risk to be shared and

Allow a separation of ownership and control

Agency problems associated with assets, e.g. WorldCom

Financial markets and instruments

1. Money market: for short-term lending and borrowing

2. Capital market: for longer-term lending and borrowing

3. Derivative market: for transferrin risk between market participants

4. Foreign exchange market: for international trade

Security Issuance

1. Primary market: new securities issued via primary market and could be issued by

Public offering, may be underwritten in a firm commitment or best-

efforts arrangement or not at all or

Private placement, reduce disclosure requirements

2. Secondary market:

Direct search markets: buyers and sellers have to find each other

Brokered market: brokers search out buyers and sellers

Dealer market: dealers have inventories of assets which they buy and sell

Auction markets: traders converge either physically or electronically to trade

in one place

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Document Summary

Two decisions for constructing a portfolio: asset allocation decision: choose asset classes, security selection decision: choose specific securities to invest in within each asset class. Different to real assets to overcome consumption issues associated with real assets. Allow investment risk to be shared and. Allow a separation of ownership and control. Agency problems associated with assets, e. g. worldcom. Financial markets and instruments: money market: for short-term lending and borrowing, capital market: for longer-term lending and borrowing, derivative market: for transferrin risk between market participants, foreign exchange market: for international trade. Security issuance: primary market: new securities issued via primary market and could be issued by. Public offering, may be underwritten in a firm commitment or best- efforts arrangement or not at all or. Private placement, reduce disclosure requirements: secondary market: Direct search markets: buyers and sellers have to find each other. Brokered market: brokers search out buyers and sellers.

Related Questions

1.Which one of the following is NOT involved in the process of issuing new finanial securities?

a) Securities and Exchange Commission(SEC)

b) Investos in the secondary markets

c) underwriting investment bank or syndicate

d) The firm

2. Which of the following statement is FALSE?

a) Bank requires the possibility of atleast one outcome less favorable than the expected value

b) probability distribution is described by a list of favorable and unfavorable events and their likelihood

c) Preferred stocks are less risky than common stocks because prefferes dividends are generally fixed

d) Standard deviation is a measure of market risk and, therefore is useful in evaluating the risk of a portofolio

3. Which one of the following statements is FALSE?

a) future value of an investment increases as the number of compund periods per year increases.

b) if you only earned interest on your initial investment, and not onpreviously earned interest, it would be called simple interest

c) present value of a future cash flow increases as the rate of return increases

d) time value of money is the opportunity cost of passing up he earning potential of a dollar today

4. Which of the following is NOT an example of an annuity?

a) interest received on a bond

b) monthly payments paid on a car loan

c) mortgage payments on a fixed-rate mortgage

d) dividend on a commo stock

5. All of the following are financial assets EXCEPT___________

a) Bankerâs acceptance

b) Preferred stock

c) Mortgage back security

d) Brand name

6. Which of the following statements is FALSE?

a) The value of a firm depends o the cash flows is expected to generate in the future

b) Current cash is more valuable than cash in the future

c) All else equal, certain cash flows are preferred to uncertain cash flows

d) The primay goal of a publicly-owed corporation is to maaximize dividend payments.

7. All of the following are the primary tools of the Federal Reserve âmonetary policyâ EXCEPT

a) The income tax rate

b) Open market operations

c) The required reserves

d) The short-term interest rate

8.Which of the following is NOT an advantage of going public or an initial public offering(IPO)?

a) Establish value for firm

b) Possible loss of control

c) Ease of raising funds later

d) Diversification for owners

9. All of the following ae an example of a financial intermediary,EXCEPT____________

a) Associated Credit Union of Texas

b) Canada Pension Plan(CPP)

c) Morgan Stanley investment bank

d)American Funds New Perspective Fund

ceriselizard402

1). All of the following statements are false except

an investment bank is a financial firm that assists organizations in raising funds.

a corporation often deposits excess cash in an investment bank.

an investment bank provides checking services for large corporations.

most investment banks help investors buy and sell a corporation's stock.

under current laws, an investment bank provides services to individuals but cannot provide banking services to corporations.

2). (TCO 5) Dave Harris has just purchased a bond with a face value of $1,000 that pays 6%. The purchase price of the bond was $900, and the bond will mature in 5 years. What is the yield to maturity for this bond?

9.8%

3) (TCO 5) A characteristic of serial bonds is that they

will pay no interest payments.

will have varying issue dates.

will have a series of maturity dates.

cannot be called.

will all mature 10 years from the date of issue.

4).

(TCO 3) All of the following are disadvantages of leasing a vehicle except

automatic ownership interest in the car.

unlimited mileage on the car.

no need to meet credit requirements.

lease payments are likely to be lower than loan payments.

All of the other answers are advantages.

5). (TCO 4) John Brown owns a home in Oakland, California and because of the risk of earthquakes, he decides to purchase _____ to cover potential losses.

building and other structures

additional living expenses

personal property

personal liability

specialized coverage

6). (TCO 4) If Mark Wright obtains a permanent disability as a result of an injury on the job, most likely he will receive _____ as a source of disability income.

his employer

Social Security

worker's compensation

an individual insurance policy

his health insurance policy

7). (TCO 4) A(n) _____ is a document attached to an insurance policy that modifies coverage by adding or deleting a specified condition.

rider

waiver of premium

automatic premium loan

beneficiary

incontestability clause

8). (TCO 6) The Capitalist Mutual Fund's net asset value is $28.25. The fund has liabilities of $3 million and 1,600,000 shares have been issued. What is the value of the fund's portfolio?

9). (TCO 6) A benefit associated with an investment in a real estate limited partnership is that the investor

does not have to worry about capital gains tax.

does not have to pay federal income tax.

does not have to pay state income tax.

can invest in a shopping center or large building by investing as little as $5,000.

faces an investment that is very liquid.

10) (TCO 6) Chuck owns a home worth $140,000, a car valued at $30,000, and miscellaneous assets worth $7,500. He owes $75,000 on the home and $12,000 on the car, and has no other debts. His retirement account, in which he is fully vested, contains $17,500 in mutual funds. He is insured with a $250,000 term life insurance policy. What is his net worth?

11). (TCO 7) Brenda wants to leave a message of encouragement to her grandchildren just in case something happens to her in the near future. She would be interested in preparing a(n)

ethical will.

durable power of attorney.

letter of last instruction.

codicil.

formal will.

12). (TCO 7) Marion would be acting in the capacity of a(n) _____ if she is selected to manage the assets of her 16-year-old niece until the niece reaches the age of 21.

FINM2003 Study Guide - Final Guide: Market Maker, Algorithmic Trading, Australian Securities Exchange

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