Ch. 11 Financial Markets

Match the term with its correct definition

• Secondary Market

• a market for buying long-term investment

• Capital Market

• a market for buying and selling financial assets that the original buyer must redeem

• Financial Market

• a market for buying short-term investments

• Money Market

• a market where financial assets are resold

• Primary Market

• a situation in which buyers and sellers exchange financial assets

Match the definition with its correct term

• financial asset

• income not used for consumption

• investment

• a claim on the property of the borrower

• financial intermediary

• an institution that collects funds from savers and invests those funds in financial assets

• mutual fund

• an investment company that gathers money from individual investors and purchases a range of financial assets

• savings

• the use of income today that allows for a future benefit

What is an investment objective?

• the final destination of an investor’s money

• a financial goal used to determine whether investments are appropriate

• a method of investing that involves cool, unemotional appraisal of stocks

• a formula used to calculate simple versus compound interest

Which of the following is a short-term financial goal?

• saving for college

• saving for the prom

• saving for a house

• saving to open a business

What type of relationship do risk and return have?

• a direct relationship

• a geometric relationship

• an inverse relationship

• a parallel relationship

Which of the following statements is true?

• Corporate stocks are risky because their returns depend on company profits.

• Corporate bonds are risky because they are paid off after stocks are paid.

• Corporate stocks are risky because their returns do not keep up with inflation.

• Corporate bonds are risky because their returns vary so much.

match the definition with the correct term

• option

• the right to buy or sell a stock at a future date at a preset price

• capital gain

• a contract to buy or sell a stock at a later time on a specific date at a preset price

• bear market

• a situation in which stock market prices rise steadily over a relatively long period of time

• bull market

• profit made from the selling of securities

• future

• a situation in which stock market prices decline steadily over a relatively long period of time

match the definition with the correct term

• preferred stock

• a share of ownership that gives shareholders voting rights and a share of profits

• stock broker

• a share of ownership that gives shareholders a share of profits but no voting rights

• stock exchange

• an instrument that measures and reports the change in prices of a set of stocks

• stock index

• a market where securities are bought and sold

• common stock

• a person who buys and sells securities for customers

Bonds are considered less risky than stocks because

• bonds are issued by a national, state, or local government

• bondholders are paid before stockholders in the event a company fails

• corporations engaged in high-risk businesses are not allowed to issue bonds

• the government regulates bonds more closely than it does stocks

What is the name of the amount that the issuer of a bond promises to pay the buyer at maturity?

• bond value

• coupon rate

• par value

• yield