Capital Markets: Understanding Assets, Markets, and Investments, Exams of Nursing

Download Capital Markets: Understanding Assets, Markets, and Investments and more Exams Nursing in PDF only on Docsity! Capital markets questions and answers 2024 market - correct answer ✅-any location or means in which assets are traded. -bringing together buyers and sellers, physically or electronically. characteristics of good market - correct answer ✅1. Availability of information at no or low costs. 2. Liquidity-the presence of ready buyers and sellers. 3. Price continuity- minimal changes in prices as a result of transactions taking place. 4. Low transactions costs. 5. Informational efficiency, such that prices of assets in the market reflect all available public information. investment - correct answer ✅an expenditure at a point in time to generate future cash flow. security - correct answer ✅financial instrument that represents an investment as an owner (e.g., stock) or a creditor (e.g., bond). opportunity cost of funds - correct answer ✅is what investors could have earned in a similar-risk investment. (paid as required rate of return) required rate of returns - correct answer ✅the minimum return necessary to compensate an investor for what they could earn if they invested their funds in the next, best opportunity Treasury Bill (T-Bill) - correct answer ✅-has no risk of default (aka lower return) Capital markets questions and answers 2024 -but NOT truly risk free -The return you earn on a T-Bill is referred to as the risk free rate of interest. -short term obligations of the US government. -Money market risk and return of Tbill stocks bonds Derivatives - warrants, options futures - correct answer ✅tbill - lowest risk lowest EXPECTED return stocks / bonds- more risk more EXP return derivatives- highest risk and EXP return actual yields on these investments vs expected returns are they the same? different? why? - correct answer ✅The actual yield will be different because of the uncertainty associated with investment S&P 500 is a - correct answer ✅stock market index: the measure of a section of stocks of the stock market. S&P is the 500 stock capitalization of the 500 largest stocks. buying gold is high or low risk - correct answer ✅high Capital markets questions and answers 2024 -Best-efforts offering - correct answer ✅Negotiated: the issuer and the underwriter negotiate the public offering price. Competitive: underwriters submit proposals for the purchase of the securities and theunderwriter submitting the best bid is awarded the securities. Best-efforts: the investment banks do not commit to a specific number of securities that it will sell, but rather uses their best efforts to sell the security to investors. underwriting syndicate - correct answer ✅only used in negotiated/ competetive when the banks BUY the securities from the issuers. -not best efforts offering bc the investment banker does not buy the shares from the issuer. shelf registration for securities rule 415 - correct answer ✅company may file, which stays "on the shelf" until the issuer is prepared to offer any number of securities within the registered amount. These registrations provide the issuer with more flexibility in the timing of issues included in the registration. private placement Rule 144 - correct answer ✅issuer may also sell securities directly to a small number of investors in a private placement -This rule allows a company to sell restricted or control securities to an investors who can then resell them to another investor without filing the typical registration statements. Capital markets questions and answers 2024 Bid quote vs ask quote - correct answer ✅Bid: What a buyer is willing to pay for a specified amount of stock. Ask quote: What a seller is willing to take for a specified amount of stock. secondary capital markets - correct answer ✅involve securities traded among investors. dealer market - correct answer ✅-the dealers own securities. -They stand ready to buy or sell securities and will quote a bid and an ask price. -Brokers (who represent investors) wanting to buy or sell, then shop around for dealer with best bid or ask. -Might not ALWAYS get best price if broker doesnt do job fairly. **NASDAQ pure auction market - correct answer ✅buyers and sellers submit bids to a central location. -competative offers -orders are matched by broker Call market - correct answer ✅-trading of individual stocks takes place at specified times. -One party determines the single price that satisfies the most orders and then all transactions at this price continuous market - correct answer ✅-trades occur whenever the market is open Capital markets questions and answers 2024 -prices are determined by auction or by dealers. In the New York Stock Exchange NYSE, the opening price is determined by a _______ market, and trading during the trading hours is determined by the _________ - correct answer ✅call continuous market. largest and 2nd largest stock exchanges in the US and the differences between them. Lots of requirements - correct answer ✅NYSE- AUCTION MARKET. requires that the company be much larger in terms of market value of equity, net income, and share trading volume. Nasdaq- DEALER MARKET. used to operate largest over the counter market. doesnt have these requirements pink sheets - correct answer ✅-provides quotes of overthe-counter securities. -Dealers provide their bid and ask quotes to this system and brokers can then view these quotes -small companies / thin market - not required to file financial statements with SEC -Pump and dump: take advantage of uninformed independent members who act as brokers for other members, executing buy and sell orders. - correct answer ✅Floor brokers Capital markets questions and answers 2024 -the price of short sale must be higher than last trade price (Uptick) -- to prevent downward manipulation of stock prices through shorting -must pay cash dividends when do you do a short sale? - correct answer ✅when you think that the price of the stock will go DOWN by enough to cover the expenses of the short. borrow 100 shares at $164 and sell them, prices drop to $140 what happens - correct answer ✅you buy the stock at 140 and replenish it, making a profit. borrow 100 shares at $164 and sell them, prices raise to $180 what happens - correct answer ✅you then have to buy it at 180 to replenish it short sell risk - correct answer ✅unlimited -short queeze: price rises and many sellers are trying to get the stock --> upward pressure on the stock price. (not what sellers like) Naked short sale - correct answer ✅a sale of shares short without determining that the shares exist. A trader earns a profit from short selling when - correct answer ✅the price goes down by more than the commission and any cash dividends SEC securities exchange commussion - correct answer ✅Protect investors and maintain integrity of markets. (still allow investors to make mistakes) Capital markets questions and answers 2024 •Enforces laws and acts www.sec.gov Financial Industry Regulatory Authority (FINRA) - correct answer ✅regulate themselves, but actually do it bc if they dont someone else (like sec will) --regulate brokers and dealers exchanges Members are brokers, dealers, firms, and exchange markets. •www.finra.org corp bonds common stock warrants options on stock financial features - correct answer ✅low risk free rate of interest / expectred return high risk free rate of interest / exp return portfoliois - correct answer ✅any group of investments (can be stocks, bonds,... -constructed on investors investment policy -return goals, risk, tolerance, CF describing portfolios based on size/style: - correct answer ✅large cap size, value, blend, growth (high risk) Capital markets questions and answers 2024 med cap small cap Suppose you earn 1% in one quarter. The effective annual return equivalent to (equation not answer) - correct answer ✅Effectiveannualreturn= [ (1+0.01) ^4 ] −1 market order - correct answer ✅Buy or sell immediately at best price. (take price broker gets you) Limit order - correct answer ✅Buy or sell at a specified price or better. ~if im buying i specify a price & anything lower is better ~if im selling i specify price anything higher is better. --doesnt always get bought or sold Stop loss order - correct answer ✅An order to sell (or buy) when a stock's price reaches a specified price. *if stock hits 10 im out •Protect downside risk in an order for a fall in price (or increase for short). regulatory halt and delay - correct answer ✅occurs often when there is significant company-specific news, or when the security may no longer meet listing standards. Non-regulatory halts and delays - correct answer ✅occur on exchanges when there is an imbalance between buy and sell orders Capital markets questions and answers 2024 A put option is the right to sell the stock ~write the put option(i.e., be prepared to buy the stock if the option is exercised). indirect investments means - correct answer ✅letting others buy and manage investments Mutual funds -- fees. On average, mutual funds do not outperform the market on a risk-adjusted basis. UITs closed end investment companies Mutual funds - correct answer ✅-- fees. -On average do not outperform the market on a risk-adjusted basis. -easier way to get diversification if youre a small investor -convenient hedge fund - correct answer ✅-an investment pool in which investors' funds are invested in different investments. -The objective: to generate positive returns on the investment. -only credited investors (min $1 mil) -provide liquidity to markets that are usually illiquid-> buy business going under and flipping it. -hard to assess value -NOT diverse. big bets on risky investments -short life span Capital markets questions and answers 2024 -not persistent -Actual returns are lower than generally reported. diff between hedge and mutual funds - correct answer ✅hedge- largely unregulated dont register with SEC Market efficiency - correct answer ✅that the price of an asset reflects all relevant information. ▪There are three "forms" of market efficiency, where each refers to a different set of information. weak form semi strong strong - correct answer ✅weak: prices reflect historical data semi: ^ that plus all publically available info strong: ^^ plus prices reflect private info (can make $ on insider trading) implications of weak form semi strong strong - correct answer ✅weak: no benefit to trading on patterns of stock prices semi: no benefit to public info strong: No abnormal returns from trading on inside information Capital markets questions and answers 2024 Mortgage backed securities are: - correct answer ✅interests in the cash flows of a pool of mortgages. how do x-dividend dates work - correct answer ✅2 dates prior to the record date. -If an investor buys the stock on the ex-dividend date, they do not receive the forthcoming dividend -If he buys the stock the day before the ex-dividend date, he/she will receive the forthcoming dividend.