Series 79 Exam Study Guide: Financial Markets and Securities Markets, Exams of Nursing

Download Series 79 Exam Study Guide: Financial Markets and Securities Markets and more Exams Nursing in PDF only on Docsity! Series 79 Exam Study Guide (Latest Update 2024) Financial markets - Correct Answer ✅Overarching term that describes the coming together of buyers and sellers to trade assets such as equities, debt, currencies, and derivatives. They facilitate: 1) the raising of capital 2) the transfer of risk 3) international trade Capital markets - Correct Answer ✅Type of financial market that offers companies and governments the opportunity to raise long-term (period > 1 year) funds, by matching those that want capital with those that have it Consists of: 1) stock markets 2) bond markets Stock markets - Correct Answer ✅A capital market that provides equity financing through the issuance of shares of common stock and their subsequent trading Series 79 Exam Study Guide (Latest Update 2024) Bond markets - Correct Answer ✅A capital market that provides debt financing through the issuance of corporate, municipal, or government bonds and their subsequent trading Primary market - Correct Answer ✅Markets on which new stock or bond issues are sold. Ex. initial public offering (IPO) by a private company and additional issues (i.e. follow-on offerings) in which an existing public company sells new shares into the market Secondary market - Correct Answer ✅Market on which existing securities are bought and sold directly among investors and traders (can take place on the securities exchange or over-the-counter) Trading in US government/municipal bonds and corporate bonds is usually OTC Underwriting - Correct Answer ✅The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing either equity or debt securities Series 79 Exam Study Guide (Latest Update 2024) Foreign currency markets - Correct Answer ✅Markets that facilitate the trading of foreign currency; often called the forex or F market The market facilitates international trade and investment Spot exchange rate - Correct Answer ✅Current exchange rate Forward exchange rate - Correct Answer ✅Exchange rate that is quoted and traded today but for delivery and payment on a specific future date What is the main function of a stock exchange? - Correct Answer ✅To facilitate the buying and selling of securities. Companies that are listed on a specific stock exchange can make shares available for public trading What do the status of stock exchanges tell us? - Correct Answer ✅They are the primary indicator of a country's economic strength; the prices of shares are an important trend in economic activity. Rising prices tend to be associated with economic strength and increased business development Series 79 Exam Study Guide (Latest Update 2024) Securities and Exchange Commission (SEC) - Correct Answer ✅The primary overseer and regulator of securities markets Prospectus - Correct Answer ✅Investor disclosure document that is provided to purchasers at or prior to the sale of securities Where does secondary market trading occur? - Correct Answer ✅It takes place in securities exchanges (such as NYSE or Nasdaq) or in the over-the- counter market Listing requirements - Correct Answer ✅Certain standards that the stock of traded companies must meet to be listed on national exchanges (NYSE/Nasdaq) New York Stock Exchange - Correct Answer ✅Auction marketplace: trades are directed to the exchange floor by telephone or electronically and a broker matches interested buyers and sellers. NYSE now executes some transactions through its hybrid market (= combo of traditional and electronic trading) Series 79 Exam Study Guide (Latest Update 2024) Well-established companies and industrial firms have historically been traded on the NYSE and are often called blue chip stocks Nasdaq - Correct Answer ✅Dealer market: dealers hold inventories or make markets in certain securities and stand ready to buy or sell securities from other market participants and profit from the spread between the price at which the securities are purchased or sold Typically a high-tech market Over-the-counter (OTC) - Correct Answer ✅Refer to stocks that do not trade on a national exchange. These markets have fewer regulations Ex. OTC Bulletin Board (OTCBB) or OTC Pink or Pink OTC Markets Third market - Correct Answer ✅OTC, negotiated price-trading of exchange- traded securities Series 79 Exam Study Guide (Latest Update 2024) Interest rates - Correct Answer ✅Reflection of the cost of capital - the rate of interest is considered the price of credit and greatly influences investments Higher interest rates means higher cost of credit and therefore deter capital investment but are attractive to savers Low interest rates can stimulate capital investment but are unattractive to savers What effect does inflation have on different types of assets - Correct Answer ✅Uncertainty about future inflation may discourage investment and saving and high inflation may lead to shortages of goods if consumers begin hoarding out of concern for future price concerns Cash - inflation causes rising interest rates and savers therefore earn a higher return when inflation is higher Bonds - inflation erodes the fixed interest payments of bonds. As interest rates rise, bond prices fall, so bonds perform worse when inflation is higher Series 79 Exam Study Guide (Latest Update 2024) Stocks - inflation can increase asset values but erode cash flows. Stocks tend to do best when inflation is low and moderate and to fall in the case of either high inflation or deflation Real estate - higher cash flows and asset values tend to result in a positive correlation between real estate and inflation Is a deficit balance of trade a good or bad thing? - Correct Answer ✅It is not always a bad thing: - in a recession, countries try to increase exports with the aim of creating new jobs and increasing demand (leads to a trade surplus) - in a strong expansion, countries prefer to increase imports, providing price competition. This helps limit inflation and provides goods that the economy would otherwise be unable to supply What are the four parts of a business cycle? - Correct Answer ✅Contraction = phase characterized by a slowdown in the pace of an economic activity. This can take the form of a recession (a prolonged period of contraction - decline in GDP for 2+ consecutive quarters) or a depression (a sustained long-term downturn in economic activity) Trough = when a contraction reaches its lowest point and begins to turn Series 79 Exam Study Guide (Latest Update 2024) Expansion = increased economic activity and increased availability of g/s in the marketplace. Unemployment declines and GDP rises Peak = expansion reaches its highest point and begins to turn Fiscal policy - Correct Answer ✅Use of gov't spending and taxation to influence the economy What are the three stances of fiscal policy? - Correct Answer ✅Neutral - balanced budget: gov't spending = tax revenue Expansionary - Increase in gov't spending over taxation - designed to stimulate economic growth but will typically increase budget deficit Contractionary - gov't spending is reduced and potentially in combination with higher taxation. Intended to slow economic growth and reduce a budget deficit Series 79 Exam Study Guide (Latest Update 2024) - international statistics Leading indicators - Correct Answer ✅Economic indicators that change before the economy starts to follow a particular pattern or trend - bond yields - building permits - stock market indices and averages - average of weekly unemployment insurance claims - changes in business inventories Lagging indicators - Correct Answer ✅Economic indicators that change after the economy has already begun to follow a particular pattern or trend - interest rates - unemployment rate - corporate profits - labor cost per unit of output - commercial and industrial loans outstanding Series 79 Exam Study Guide (Latest Update 2024) Institutional investors - Correct Answer ✅Banks, insurance companies, retirement, pension funds, hedge funds, and mutual funds and other organizations that pool large sums of money and invest those sums in companies Coincidental indicators - Correct Answer ✅Economic indicators that vary simultaneous with the business cycle - GDP - personal income - consumer spending - inventory/sales ratio - retail/manufacturing sales - industrial production index - capacity utilization index Systematic risk/market risk - Correct Answer ✅Reflects the fact that the performance of an individual security will be impacted by the performance of the market --> A risk that cannot be avoided through diversification Source of market risk = recessions, wars, political events, interest rates Series 79 Exam Study Guide (Latest Update 2024) Beta measures the systematic risk of the security compared to the market as a whole Beta - Correct Answer ✅Measures the systematic risk of the security compared to the market as a whole B = 1 - the security's price will move with the market B < 1 - security will be less volatile than the market (ex. utility stocks) B > 1 - security's price will be more volatile than the market (ex. tech stocks) Non-systematic risk / business risk / specific risk - Correct Answer ✅Risk that will not impact an investor's entire portfolio Caused by changes in corporate management, product recalls, etc. Capital risk / principal risk - Correct Answer ✅Risk that an investor can lose all the money that was invested