AFM 121 MIDTERM EXAM QUESTIONS AND ANSWERS
WITH COMPLETE SOLUTIONS GRADED A++
What is the vital function of financial markets?
Help facilitate transfer of capital
What are the three components of the wealth transfer process?
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?
Capital is made up of governments, corporations and individuals
How is capital transferred?
Direct investment (land, real estate)
Indirect investment (stocks, bonds, t-bills)
When will people transfer capital?
When it is easy, cheap, and generates a good return
What does capital flow depend on?
Political environment
Economic trends
,Fiscal and Monetary policy
Investment opportunities
Labour force (highly educated / laws governing rights of labour force)
Who provides capital?
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?
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?
Debt
Equity
Investment Funds
Derivatives
Private equity
What makes a market efficient?
, Fast
Cheap
Liquid
What are primary markets?
Securities are sold by issuers for the first time
Issuer receives money from this sale
What are secondary markets?
Where securities previously issued are bought and sold
Funds do not go to issuer
How are regulations set for financial intermediaries?
Regulations are meant to be structured such that market efficiency is a by-product of
this self interest
What are auction markets?
Where all transaction converge in one location (TSX, TSX Venture Exchange)
How does a stock exchange make money?
Transaction fees
Initial listing fees
What is the latest trend in stock exchanges?
WITH COMPLETE SOLUTIONS GRADED A++
What is the vital function of financial markets?
Help facilitate transfer of capital
What are the three components of the wealth transfer process?
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?
Capital is made up of governments, corporations and individuals
How is capital transferred?
Direct investment (land, real estate)
Indirect investment (stocks, bonds, t-bills)
When will people transfer capital?
When it is easy, cheap, and generates a good return
What does capital flow depend on?
Political environment
Economic trends
,Fiscal and Monetary policy
Investment opportunities
Labour force (highly educated / laws governing rights of labour force)
Who provides capital?
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?
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?
Debt
Equity
Investment Funds
Derivatives
Private equity
What makes a market efficient?
, Fast
Cheap
Liquid
What are primary markets?
Securities are sold by issuers for the first time
Issuer receives money from this sale
What are secondary markets?
Where securities previously issued are bought and sold
Funds do not go to issuer
How are regulations set for financial intermediaries?
Regulations are meant to be structured such that market efficiency is a by-product of
this self interest
What are auction markets?
Where all transaction converge in one location (TSX, TSX Venture Exchange)
How does a stock exchange make money?
Transaction fees
Initial listing fees
What is the latest trend in stock exchanges?
