Topic 6 - Financial Markets

Why do financial markets exist?

• To regulate corporate taxes

• To allocate assets efficiently and support economic growth

• To create inflation

• To reduce risk in investments

Which of the following is a type of financial market?

• Currency market

• Consumer market

• Derivatives market

• Retail market

What is a financial instrument?

• A legal document that obligates a party to transfer value at a future date

• A type of stock exchange

• A tool used for financial analysis

• A software used for trading

Debt instruments include:

• Equity shares

• Government bonds

• Common stock

• Dividends

The difference between the primary and secondary markets is:

• Primary market trades long-term securities, secondary market trades short-term

• Securities are issued in the primary market, and resold in the secondary market

• There is no difference

• Secondary market is more regulated than the primary market

Which type of market deals with short-term instruments like Treasury bills?

• Capital market

• Money market

• Derivatives market

• Stock market

Which of the following is NOT a characteristic of equity instruments?

• Ownership interest in an asset

• Residual claim on earnings and assets

• Fixed income at regular intervals

• Dividends

A Treasury bill is an example of:

• A long-term investment

• A money market instrument

• An equity instrument

• A derivative

In the context of stock markets, liquidity refers to:

• The ease and speed of converting an asset into cash without loss of value

• The ability to invest in multiple stocks

• The interest earned on stock investments

• The size of the market capitalization

What is the primary difference between debt and equity markets?

• Debt markets trade ownership shares, equity markets trade bonds

• Debt markets involve contractual repayments, equity markets represent ownership stakes

• Debt markets are more liquid than equity markets

• Equity markets guarantee fixed returns, debt markets do not