Module 2 (Part 1)

Question 1

It is a market where personal debt is taken on to purchase goods and services.

Answer 1

Consumer Credit Market

Question 2

It is usually involved in loans on autos, appliances, education, travel, etc. Example is the credit card.

Answer 2

Consumer Credit Market

Question 3

It is a market in which buyers enter competitive bids and sellers enters competitive offers at the same time. The price a stock is traded represents the highest price that a buyer is willing to pay and the lowest price a seller is willing to sell at.

Answer 3

Auction Market

Question 4

When buyers and sellers of securities negotiate with each other regarding price and volume, either directly or through broker to dealers, they are engaged in the _________. Through it, the situation wherein securities are not frequently traded and which are in large volumes may not be readily accommodated in the auction market for lack of time is remedied.

Answer 4

negotiation market

Question 5

It is a specific place in which buyers and sellers meet to trade according to the agreed rules and procedures (Oxford). Example is the Philippine Stock Exchange (PSE).

Answer 5

Organized Market

Question 6

Unlike exchanges, _________ have never been a “place”.

Answer 6

OTC markets

Question 7

They are less formal, although often well-organized networks of trading relationships centered on one or more dealers.

Answer 7

Over-the-counter (OTC) Market

Question 8

___________ provides the physical and institutional structure through which the money of one country is exchanged for that of another country, the rate of exchange between currencies is determined, and foreign exchange transactions are physically completed.

Answer 8

Foreign Exchange Market

Question 9

__________ are called such because buying and selling is done “on the spot”, that is, for immediate delivery and payment.

Answer 9

Spot markets

Question 10

Unlike the spot market, ________ is where contracts are originated and traded that give the holder right to buy something in the future at a price specified in the contract.

Answer 10

futures market

Question 11

Both the 1)________ and the 2)________ involve trading contracts calling for the future delivery of financial instruments, commodities, or currencies.

Answer 11

1. futures market
2. forward market

Question 12

_________ is where stock options are traded.

Answer 12

Options market

Question 13

This is the formal market where the options are bought and sold, and not when a stockholder is given the option or preemptive right to buy additional shares of stocks to maintain his proportionate share or ownership in the corporation.

Answer 13

Options market

Question 14

________ are agreement between two parties (counterparties) in exchanging specific periodic cash flows in the future based on an underlying instrument or price (e.g. fixed or floating rate on a bond or a note)

Answer 14

Swaps

Question 15

When securities that are listed in organized exchanges as NYSE, AMEX, and London Stock Exchange Group, among others are sold in over-the-counter market, they are referred to as the 1)______ and 2)________.

Answer 15

1. third market
2. fourth market

Question 16

________ refers to transactions between broker-dealers and large institutions.

Answer 16

Third market

Question 17

_________ refers to transactions that take place between securities firms and large institutional investors like pension funds and investment companies.

Answer 17

Fourth market

Question 18

1)_______, or 2)______, is a share of ownership in a company. The owner of an equity stake may profit from 3)_______.

Answer 18

1. Equity
2. stock
3. dividends

Question 19

___________ are the percentage of company profits returned to shareholders. The equity holder may also profit from the sale of the stock if the market price should increase.

Answer 19

Dividends

Question 20

The owner of an equity stake can also lose money. When there’s a ______, they may lose the entire stake.

Answer 20

bankruptcy

Question 21

The equity market is ______ by nature. Shares of equity can experience substantial price swings, sometimes having little to do with the stability or finances of the corporation that issued them.

Answer 21

volatile

Question 22

_______ can be caused by social, political, governmental, or economic events.

Answer 22

Volatility

Question 23

A large _________ exists to research, analyze, and predict the direction of individual stocks, stock sectors, and the equity market in general.

Answer 23

financial industry

Question 24

The ________ is viewed as inherently risky while having the potential to deliver a higher return than other investments.

Answer 24

equity market

Question 25

Investors in either equity or debt should educate themselves and speak to a trusted ________.

Answer 25

financial advisor

Question 26

Investments in ________ typically involve less risk than equity investments and offer a lower potential return on investment.

Answer 26

debt securities

Question 27

________ fluctuate less in price than stocks. Even if a company is liquidated, bondholders are the first to be paid.

Answer 27

Debt investments

Question 28

_______ are the most common form of debt investment.

Answer 28

Bonds

Question 29

These are issued by corporations or by the government to raise capital for their operations and generally carry a fixed interest rate. Most are unsecured but are issued with a rating by one of several agencies, such as Moody's, to indicate the likely integrity of the issuer.

Answer 29

Bonds

Question 30

_________ can be a very convenient way to achieve financial goals. For example, a company that wants to hedge against its exposure to commodities can do so by buying or selling energy _______ such as crude oil futures. Similarly, a company could hedge its currency risk by purchasing currency forward contracts.

Answer 30

Derivatives

Question 31

________ can also help investors leverage their positions, such as by buying equities through stock options rather than shares.

Answer 31

Derivatives

Question 32

The main drawbacks of derivatives include 1)______, the 2)_______ of leverage, and the fact that complicated webs of derivative contracts can lead to 3)_______.

Answer 32

1. counterparty risk 2. inherent risks 3. systemic risks

Question 33

In the stock market, there are what we call "1)______" and "2)_______."

Answer 33

1. bulls 2. bears

Question 34

When the market is showing confidence, that is, stock prices are going up and market indices like the Nasdaq go up, we have a _________. The number of shares traded is also high and even the number of companies entering the stock market rises showing that the market is confident.

Answer 34

bull market

Question 35

_______ are most common in an expanding economy with low unemployment and inflation is somewhat constant.

Answer 35

Bull markets

Question 36

Technically, a ________ is a rise in the value of the market of at least 20%.

Answer 36

bull market

Question 37

The huge rise of the Dow and Nasdaq during the tech boom is a good example of a ________.

Answer 37

bull market

Question 38

A _________ is the opposite of a bull market.

Answer 38

bear market

Question 39

It is when the economy is bad, recession is looming, and stock prices are falling.

Answer 39

bear market

Question 40

If a person is pessimistic and believes that stocks are going to drop, he is called a 1)_______ and said to have a "2)________."

Answer 40

1. bear 2. bearish outlook

Question 41

________ make it tough for investors to pick profitable stocks.

Answer 41

Bear markets

Question 42

________ is a technique used by people who try to profit from the falling price of a stock.

Answer 42

Short selling

Question 43

_______ is a very risky technique as it involves precise timing and goes contrary to the overall direction of the market.

Answer 43

Short selling

Question 44

Assume you want to sell short 100 shares of a company because you believe sales are slowing and its earnings will drop. Your broker will borrow the shares from someone with the promise that you will return them later. You immediately sell the borrowed shares at the current market price. When the price of the shares drops, you "cover your short position" by buying back the shares, and your broker returns them to the lender. Your profit is the difference of the price at which you sold the stock and your cost to buy it back, minus the commissions and expenses in borrowing the stock. But if you were wrong, and the price of the shares increases, your potential losses are unlimited. Another strategy is to wait on the sidelines until you feel that the _______ is nearing its end, only starting to buy in anticipation of a bull market (Investorguide.com). Actually, it makes sense to buy when prices are low so your cost is low. Then, you wait until prices go up and that is the time for you to sell.

Answer 44

bear market

Question 45

In a market economy, any price movement can be explained by a temporary difference between what providers are 1)_______ and what consumers are 2)_______.

Answer 45

1. supplying 2. demanding

Question 46

This is why economists say that markets tend towards ________, in which supply equals demand. This is how it works with stocks, too.

Answer 46

equilibrium

Question 47

1. _______ is the number of shares people want to sell, and 2)______ is the number of shares people want to purchase.

Answer 47

1. Supply 2. demand

Question 48

If there is a greater number of buyers than sellers (more ______), the buyers bid up the prices of the stocks to entice sellers to sell more. If there are more sellers than buyers, prices go down until they reach a level that entices buyers.

Answer 48

demand

Question 49

Individually, _______ like stocks and bonds are dependent on the performance of the issuing entity (business or government) and the likelihood that the entity will be valued more highly in the future (stocks) or be able to repay its debts (bonds).

Answer 49

security instruments

Question 50

Some of the products most commonly traded over-the-counter include 1)______, 2)______, structured products and currencies.

Answer 50

1. bonds 2. derivatives

Question 51

It allows players to secure a specific price and protect against the possibility of wild price change (up or down) ahead.

Answer 51

Futures contract