Chapter 7b-Understanding Global Capital Markets

What is the primary function of the global capital market?

• To regulate international trade agreements.

• To manage government budgets and expenditures.

• To provide loans to developing countries.

• To connect investors with entities seeking capital.

Name two major types of securities traded in the global capital market.

• Real estate securities and commodity securities

• Currency securities and derivative securities

• Insurance securities and mutual fund securities

• Equity securities and debt securities

How do interest rates affect the global capital market?

• Interest rates only affect local markets, not global ones.

• Higher interest rates always lead to increased investment in capital markets.

• Interest rates have no impact on asset prices or economic growth.

• Interest rates affect the global capital market by influencing borrowing costs, investment decisions, and capital flows, which in turn impact economic growth and asset prices.

What role do investment banks play in the global capital market?

• Investment banks primarily focus on retail banking services.

• Investment banks are only involved in personal loans and mortgages.

• Investment banks do not participate in stock market activities.

• Investment banks play a crucial role in raising capital, providing advisory services, and facilitating trading in the global capital market.

Explain the difference between primary and secondary markets.

• Primary markets only involve government bonds.

• Primary markets involve the issuance of new securities, while secondary markets involve the trading of existing securities.

• Primary markets are for buying and selling used securities.

• Secondary markets are where new securities are created.

What is meant by 'market liquidity' in the context of capital markets?

• Market liquidity is the ease of buying or selling assets in capital markets without affecting their price.

• Market liquidity is the process of increasing asset prices through speculation.

• Market liquidity is the ability to hold assets indefinitely without selling.

• Market liquidity refers to the total amount of assets in the market.

How do foreign exchange rates impact global capital markets?

• Foreign exchange rates only affect local markets.

• Investment values are determined solely by interest rates.

• Capital markets are unaffected by currency fluctuations.

• Foreign exchange rates impact global capital markets by influencing investment values, capital flows, and corporate earnings.

What are derivatives, and how are they used in capital markets?

• Derivatives are stocks that represent ownership in a company.

• Derivatives are fixed-income securities that guarantee returns.

• Derivatives are cash instruments used only for short-term investments.

• Derivatives are financial instruments that derive their value from underlying assets and are used in capital markets for hedging, speculation, and liquidity.

Describe the impact of globalization on capital markets.

• Globalization has decreased access to capital markets for developing countries.

• Globalization has led to the isolation of capital markets.

• Globalization has increased integration, liquidity, and access to capital markets while exposing them to global risks.

• Globalization has eliminated all risks associated with capital markets.

What regulatory bodies oversee the global capital market?

• International Organization of Securities Commissions (IOSCO), Securities and Exchange Commission (SEC), Financial Conduct Authority (FCA), European Securities and Markets Authority (ESMA)

• World Trade Organization (WTO)

• International Monetary Fund (IMF)

• Bank for International Settlements (BIS)