ECS2605_Exam_Pack

ECS2605 EXAM REVISION PACK Written by TWP 2016 ECS2605 Tel: SUGGESTED SOLUTIONS FOR MAY/JUNE 2015 QUESTION 1 a) i. Money market  A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded  The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year Whilst Capital market  Capital market is a market where buyers and sellers engage in trade of financial securities like bonds, stocks, etc.  Capital market consists of primary markets and secondary markets  It helps in channelizing surplus funds from savers to institutions which then invest them into productive use. ii. Primary Markets  Deals with the trading of newly issued securities.  The corporations, governments and companies issue securities like stocks and bonds when they need to raise capital.  The investors can purchase the stocks or bonds directly from the company issuing them  Initial Public Offering (IPO) occurs when a private company sells stocks to the public for the first time (happens in primary market). iii. Secondary Markets  Deals with already traded securities  Investors’ trade securities among themselves and the company with the security being traded do not participate in the transaction.  The resale value of the securities in the secondary market is dependent on the fluctuating interest rates. b) i. Intermediaries  Intermediaries such as bank, building society, insurance company, investment bank or pension fund offers a service to help an individual/ firm to save or borrow money.  It also helps to facilitate the different needs of lenders and borrowers. ii. Payment Service Providers  Payment Service Providers offer ecommerce merchants one single technical interface to one or more online payment methods. They help ecommerce merchants and businesses to accept credit cards, alternative payment methods (bank transfers, direct debits), digital wallets (MasterPass, Visa Checkout) etc c) i. Collective investment scheme  A collective investment scheme (“CIS”) can be described as an investment product that allows many different investors to pool their money into a portfolio.  Unit trusts were the first collective investment scheme to be offered to investors in South Africa. ii. Micro finance institution