AFM 121 MIDTERM QUESTIONS AND
ANSWERS WITH SOLUTIONS 2024
What is the vital function of financial markets? - ANSWER Help facilitate transfer of capital
What are the three components of the wealth transfer process? - ANSWER Financial instruments (what
is actually bought / sold)
Financial markets (facilitating / buying financial instruments)
Financial intermediaries (people / companies involved in financial instruments and markets)
What is capital made up of? - ANSWER Capital is made up of governments, corporations and individuals
How is capital transferred? - ANSWER Direct investment (land, real estate)
Indirect investment (stocks, bonds, t-bills)
When will people transfer capital? - ANSWER When it is easy, cheap, and generates a good return
What does capital flow depend on? - ANSWER Political environment
Economic trends
Fiscal and Monetary policy
Investment opportunities
Labour force (highly educated / laws governing rights of labour force)
Who provides capital? - ANSWER Retail investors (individuals that buy retail)
Institutional Investors (pension funds and mutual funds)
Foreign investors (can include foreign retail, institutional and government investors)
, Who uses capital? - ANSWER Companies and businesses (earn money through internally through existing
operations and reinvest the money) (raise money by issuing stocks/bonds)
Government (t bills, longer term debt) (spend on all forms of government spending that aren't covered
by tax and other revenues)
What are the different kinds of financial instruments? - ANSWER Debt
Equity
Investment Funds
Derivatives
Private equity
What makes a market efficient? - ANSWER Fast
Cheap
Liquid
What are primary markets? - ANSWER Securities are sold by issuers for the first time
Issuer receives money from this sale
What are secondary markets? - ANSWER Where securities previously issued are bought and sold
Funds do not go to issuer
How are regulations set for financial intermediaries? - ANSWER Regulations are meant to be structured
such that market efficiency is a by-product of this self interest
What are auction markets? - ANSWER Where all transaction converge in one location (TSX, TSX Venture
Exchange)
ANSWERS WITH SOLUTIONS 2024
What is the vital function of financial markets? - ANSWER Help facilitate transfer of capital
What are the three components of the wealth transfer process? - ANSWER Financial instruments (what
is actually bought / sold)
Financial markets (facilitating / buying financial instruments)
Financial intermediaries (people / companies involved in financial instruments and markets)
What is capital made up of? - ANSWER Capital is made up of governments, corporations and individuals
How is capital transferred? - ANSWER Direct investment (land, real estate)
Indirect investment (stocks, bonds, t-bills)
When will people transfer capital? - ANSWER When it is easy, cheap, and generates a good return
What does capital flow depend on? - ANSWER Political environment
Economic trends
Fiscal and Monetary policy
Investment opportunities
Labour force (highly educated / laws governing rights of labour force)
Who provides capital? - ANSWER Retail investors (individuals that buy retail)
Institutional Investors (pension funds and mutual funds)
Foreign investors (can include foreign retail, institutional and government investors)
, Who uses capital? - ANSWER Companies and businesses (earn money through internally through existing
operations and reinvest the money) (raise money by issuing stocks/bonds)
Government (t bills, longer term debt) (spend on all forms of government spending that aren't covered
by tax and other revenues)
What are the different kinds of financial instruments? - ANSWER Debt
Equity
Investment Funds
Derivatives
Private equity
What makes a market efficient? - ANSWER Fast
Cheap
Liquid
What are primary markets? - ANSWER Securities are sold by issuers for the first time
Issuer receives money from this sale
What are secondary markets? - ANSWER Where securities previously issued are bought and sold
Funds do not go to issuer
How are regulations set for financial intermediaries? - ANSWER Regulations are meant to be structured
such that market efficiency is a by-product of this self interest
What are auction markets? - ANSWER Where all transaction converge in one location (TSX, TSX Venture
Exchange)
