Financial Markets and the Investments

20 important questions on Financial Markets and the Investments

What are capital markets?

all institutions and prcedures that facilitate transactions in long-term financial instruments

What are the key components of the US financial market system and the financing of business?

  1. direct tranfer of funds
  2. indirect transfer using an investment-banking firm
  3. indirect transfer using the financial intermediary

What is an angel investor?

a wealthy private investor who provides capital for a business start-up
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What is a venture capitalist?

an investment firm (or individual investor) that provides money to business start ups

What is a public offering?

a security offering where all investors have the opportunity to acquire a portion of the financial claims being sold

What is a private placement?

a security offering limited to a small number of potential investors

What is a primary market?

a market in which securities are offered for the first time for sale to potential investors

What is initial public offering (IPO)?

the first time a company issues its stocks to the public (part of primary market)

What is a seasoned equity offering (SEO)?

the sale of additional stock by a company whose shares are already publicly traded

What is a money market?

all institutions and procedures that facilitate transactions for short-term instruments issued by borrowers with very high credit ratings

What is a spot market?

cash market, a Physical trading place like stores

What are future markets?

where you can buy or sell something at a future date, often a long-term contract

What are organized security exchanges?

formal organizations that facilitate the trading of securities

What is over-the-counter markets?

all security markets except for organized exchanges

the money market is an over-the-counter market, just like most coporate bonds

What are the benefits of derived from having a stock exchange?

  1. providing a continuous market
  2. establishing and publicizing fair security prices
  3. helping business raise new capital

What is an investment banker?


a financial specialist who:
  • underwrites new securities
  • distributes new securities
  • advises corporate clients about raising new funds

What is an underwriter's spread?

the difference between the price the corporation raising money gets and the public offering price of a security

Which 6 types of distribution methods exsists today?

  1. a negotiation purchase (terms agreed)
  2. a competitive bid purchase (highest offer)
  3. a commission of best-efforts basis (fixed comissions)
  4. a priviliged subscription (select few)
  5. a dutch auction (cheapest offer)
  6. a direct sale (no bids)

What are the advantages associated with private debt placements?

  • speed
  • reduced costs
  • financially flexible

What are the disadvantages associated with private debt placements?

  • interest costs
  • restrictive covenants
  • the possibility of future SEC registration

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