Module 1

Question 1

Are markets for long-term securities.

Answer 1

Capital markets

Question 2

Long-term securities are either 1)________ (notes, bonds, mortgages, leases) or 2)______ (stocks).

Answer 2

1. debt securities
2. equity securities

Question 3

Major suppliers of capital market securities are corporations for 1)_______ and corporation and governments for 2)_______.

Answer 3

1. stocks
2. bonds

Question 4

__________ have maturities of more than a year. These instruments often carry greater default and market risks than money market instruments generally because they are long-term. In return, they carry a higher return yield. They suffer wider price fluctuations than money market instruments.

Answer 4

Long-term securities

Question 5

Capital markets are composed of 1)________ for equity or stock securities, 2)_______ for debt securities, 3)______ for mortgages, 4)________, 5)_______, 6)_______, and 7)________, among others.

Answer 5

1. stock market
2. bond markets
3. mortgage market
4. foreign exchange markets
5. derivative securities markets
6. direct loan market
7. lease market

Question 6

Capital Market consist of: (2)

Answer 6

1. Securities Market
2. Negotiated or non-securities Market

Question 7

In _________, company issues common stocks or bonds, which are marketable/ negotiable to obtain long-term funds.

Answer 7

securities markets

Question 8

Securities Market is composed of:

1. _______ for equity or stock securities
2. _______ for debt securities; and
3. ___________

Answer 8

1. Stock market
2. Bond market
3. Derivative securities market

Question 9

__________ does not involve securities.

Answer 9

Negotiated or non-securities market

Question 10

The negotiated or non-securities market include but not limited to:

1. _________
2. _________
3. _________

Answer 10

1. loan market
2. mortgage market
3. lease market

Question 11

Financial System Participants (6)

Answer 11

1. Household or Consumers
2. Financial Institutions / Intermediaries
3. Non-financial Institutions
4. Government
5. Central Bank
6. Foreign Participants

Question 12

___________ are generally described as the group that receives income, majority of which typically comes from wages and salaries.

Answer 12

Households or consumers

Question 13

___________ are the firms that bridge the gap between surplus units (Sus) or investors/ lenders and deficit units (DUs) or borrowers.

Answer 13

Financial Institutions / Intermediaries

Question 14

_________ are businesses other than Financial Institutions / Intermediaries.

Answer 14

Non-financial Institutions

Question 15

The ________ means the national, provincial, municipal, or city governments, barangays or towns comprising the Philippines as a whole.

Answer 15

Government

Question 16

The Banko Sentral ng Pilipinas and all other ________ of the different countries are mandated to ensure that their respective countries have a stable and healthy financial system.

Answer 16

central banks

Question 17

________ refer to the participants from the rest of the world-household, governments, financial and non-financial firms, and central banks.

Answer 17

Foreign participants

Question 18

The need for long-term assets or capital goods as purchase of land or building or plant expansion will resort to the _______ as a source of funds.

Answer 18

capital market

Question 19

_______ are used to produce goods and services to generate revenues.

Answer 19

Capital goods

Question 20

It is in the _______ that long-term users of funds and those with long-term excess funds meet.

Answer 20

capital market

Question 21

These ________ include long-term loans, mortgages, and financial leases; corporate stocks and bonds; and government long-term Treasury notes and bonds.

Answer 21

long-term securities

Question 22

Security exchanges, over-the-counter markets, investment banks, mortgage banks, insurance companies, and other financial institutions deal with the _________.

Answer 22

capital markets

Question 23

Over-the-counter transactions are done through a loose network of security traders known as 1)______, 2)______ and 3)_______.

Answer 23

1. broker-dealer
2. dealers
3. brokers

Question 24

The term ________ is a broad one that is used to describe the in-person and digital spaces in which various entities trade different types of financial instruments.

Answer 24

capital market

Question 25

These venues may include the stock market, the bond market, and the currency and foreign exchange (forex) markets. Most markets are concentrated in major financial centers such as 1)______, 2)______, 3)______, and 4)_______.

Answer 25

1. New York 2. London 3. Singapore 4. Hong Kong

Question 26

Capital markets are composed of the 1)_______ and 2)_______ of funds.

Answer 26

1. suppliers 2. users

Question 27

________ include households (through the savings accounts they hold with banks) as well as institutions like pension and retirement funds, life insurance companies, charitable foundations, and non-financial companies that generate excess cash.

Answer 27

Suppliers

Question 28

The ________ of the funds distributed on capital markets include home and motor vehicle purchasers, non-financial companies, and governments financing infrastructure investment and operating expenses.

Answer 28

users

Question 29

________ are used primarily to sell financial products such as equities and debt securities.

Answer 29

Capital markets

Question 30

_______ are stocks, which are ownership shares in a company.

Answer 30

Equities

Question 31

________, such as bonds, are interest-bearing IOUs.

Answer 31

Debt securities

Question 32

________ describes collectively the financial markets, the financial system participants, and the financial instruments and securities that are traded in the financial markets.

Answer 32

Financial system

Question 33

Functions of the financial system: 1. To ________ from the savings units (lenders) to the deficit units (borrowers); 2. To provide a 2)_______; 3. To provide a mechanism for 3)_______; and 4. To provide a channel through which the 4)_______ can influence the economy, in general and the financial system, in particular.

Answer 33

1. channel the funds 2. medium of exchange 3. risk sharing 3. central bank

Question 34

With the advent of globalization, we have a ___________.

Answer 34

multinational financial system

Question 35

1)__________ refers to the collective financial transfer mechanisms that facilitate the movement of money and profits between and among financial system participants throughout the world. These mechanisms include transfer of prices on goods and services traded internally and internationally; intercompany loans and 2)_______ (speeding up) and 3)_______ (slowing down) payments, fees, and royalty charges wherever they are located in the world; and dividend payments. Together, they lead to a "pattern of profits and movements of funds that would be impossible, in the world of 4)________" (Shapiro 2003).

Answer 35

1. Multinational financial system 2. leading 3. lagging 4. Adam Smith

Question 36

Kidwell et al. (2013) cited the inferences that we can draw about the financial system: • If the financial system is ________, the interest rate that the bank pays on certificates of deposit (CDs) will bear at or near the highest rate that you can earn on CDs of similar maturity and risk. At the same time, borrowers will have borrowed at or near the lowest possible interest cost, given their risk class. Competition among banks for deposits will drive CD rates up and loan rates down.

Answer 36

competitive

Question 37

Kidwell et al. (2013) cited the inferences that we can draw about the financial system: • Banks and other depository institutions, such as insurance companies, gather 1)______ from consumers in small dollar amounts, aggregate it, and then make loans in much larger dollar amounts. • One important function of the financial system is to allocate money to the most productive 2)______ in the economy. If the financial system is working properly, only projects with high-risk adjusted rates of return are funded, and those with low rates are rejected. • Finally, 3)______ are profit-making organizations, and the _______ and other lenders earn much of their profits from the spread between lending and borrowing rates.

Answer 37

1. money 2. investment projects 3. banks

Question 38

From the foregoing discussion, we can see that ________ performs four basic functions, which are also the functions of finance and financial managers.

Answer 38

financial system

Question 39

Four basic functions of finance and finance manager:

Answer 39

1. fund acquisition 2. fund allocation 3. fund distribution 4. fund utilization

Question 40

a way of getting deposits and necessary funds to finance projects and investments

Answer 40

fund acquisition

Question 41

determining to which uses, projects, or investments the required funds will be used

Answer 41

fund allocation

Question 42

the process by which necessary funds are given to the uses, projects, or investments that need funds

Answer 42

fund distribution

Question 43

using the funds for its intended purpose

Answer 43

fund utilization

Question 44

The _______ plays a vital role in economic development because it creates links between savers and investors through savings and investment. Also, it facilitates the expansion of financial markets and aids in financial deepening and broadening.

Answer 44

financial system

Question 45

Firms often make decisions that involve spending money in the present and expecting to earn profits in the future. Some examples are: when a firm buys a machine that will last ten years, or builds a new plant that will last for thirty years, or starts a research and development project. They need economic resources—qalso known as 1)_______—to do this. Firms can raise the financial capital they need to pay for such projects in four main ways: (1) from early-stage 2)________; (2) by reinvesting 3)_______; (3) by borrowing through 4)______; and (4) by selling 5)________.

Answer 45

1. financial capital 2. investors 3. profits 4. banks or bonds 5. stock