Unit 6 - Bond Markets

Which of the following BEST distinguishes capital markets from money markets?

• Capital markets deal with short-term debt, while money markets deal with long-term debt.

• Capital markets trade securities with maturities of more than one year, while money markets trade securities with maturities of one year or less.

• Capital markets are used by individuals, while money markets are used by corporations.

• Capital markets are regulated, while money markets are unregulated.

What is the PRIMARY purpose of capital markets?

• To provide short-term loans to businesses for daily operations.

• To facilitate long-term financing for investments and projects.

• To manage the short-term liquidity of banks.

• To speculate on currency exchange rates.

How do capital markets help firms mitigate interest rate risk associated with long-term projects?

• By allowing firms to borrow at fluctuating short-term interest rates.

• By enabling firms to issue long-term securities and lock in interest rates for an extended period.

• By forcing firms to only use equity financing for long-term projects.

• Capital markets do not help mitigate interest rate risk; they increase it.

Name THREE major types of issuers (borrowers) in capital markets.

Individual investors can only participate in capital markets indirectly through mutual funds and cannot directly purchase stocks or bonds.

• True

• False

Which of the following is an example of an institutional investor in capital markets?

• A small family-owned business.

• A local grocery store.

• A pension fund managing retirement savings.

• An individual buying a single share of stock.

What is the primary market?

• A market where new securities are issued for the first time.

• A market where existing securities are traded.

• A place where only bonds are issued.

• A market that deals only with derivative contracts.

Which of the following is an example of a primary market transaction?

• Buying Apple shares on the NYSE.

• Purchasing government bonds from another investor.

• A company issuing new shares in an Initial Public Offering (IPO).

• Trading stocks in the secondary market.

What is the main purpose of the primary market?

• To allow investors to trade securities.

• To help companies raise capital by issuing new securities.

• To regulate stock exchanges.

• To facilitate bond trading.

Where do stocks trade in an organized, centralized secondary market?

• On private forums

• Over-the-Counter (OTC) markets

• Stock Exchanges (NYSE, NASDAQ, LSE)

• Private investment groups