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33 Cards in this Set
- Front
- Back
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Differences between direct and indirect finance
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Indirect finance uses a finacial intermediary while direct finance has a buyer sell directly to a seller through a financial market
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which market has a higher trading volume stock or bond
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bond
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what is the trading volume of the foreign exchange market daily
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1 trillion
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What happens to vacationing in Europe if the dollar is weak
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it is expensive
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What happens to foreign purchase of US goods with a strong dollar
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it falls
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What is the difference between a broker and a dealer
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Brokers-agents who match buyers and sellers
Dealers- Link buyers and sellers by buying and selling securities at stated prices |
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difference between a foreign bond and a eurobond
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Foreign Bonds- sold in a foreign country and denominated in that country
• Porsche selling a bond hear and issuing it in US currency Eurobond- a bond denominated in a currency other than the country in which it is issued. • Bond in US dollars issued in London |
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What is adverse selection
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one party has better info than the other
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What is moral hazard
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people wont behave correctly- engage in riskier behavior after being ensured
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What are the 3 reasons for gov't regulation
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1) increase investor information access
2) Increase soundness of financial intermediaries 3) improve monetary control - reserve requirements |
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In a business cycle expansion does the supply of bonds increase or decrease
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increase
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In a business cycle contraction does the supply of bonds increase or decrease
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decrease
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As expected inflation increases what happens to the supply of bonds
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increase
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As gov't deficit increase supply of bonds does what
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increases
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If the expected FUTURE interest rate is supposed to be higher what happens to quantity demanded of the bond
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it will fall.
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Draw out the change in supply and demand curve as expected inflation increases
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both increase
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In a business cycle expansion what happens to quantity supplied and quantity demanded of bonds
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both increase
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If you expect interest rates to increase in the future do you borrow short term or long term
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long term
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If you expect interest rates to increase in the future do you hold bonds short term or long term
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short term
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If default risk increases what happens to the price of corporate bonds and how does this affect municipal bonds
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demand curve shifts to the left for corporate bonds and to the right asa result for treasury bonds
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as default risk increases what happens to expected retrun
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decreases
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what is more liquid corporate or treasury bonds
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treasury
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if a bond becomes more liquid what happens to the demand curve of that corporate bonds
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`shifts to the right, so the interest rate must decrease
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why do muni's have lower returns than treasury bonds
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interest payments are tax exempt
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What is the risk structure of interest rates explained by
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1) default risk
2) liquidity 3) tax considerations |
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if there is a tax cut what happens to the price of municipal bonds and its interest rates
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price decreases and interest rates increase because these bonds are less attractive so demand falls
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What is a yield Curve
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rates of bonds with different ytm's
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what does the expectationts theory state
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short term rates move together
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What is the expectation theory adn what is its drawback
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if IR rastes short term are low, they will increase in the future so yield curve is upward sloping and if they are high short term they will fall. (Does not explain why the yield curve is upward sloping)
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what is the difference between a broker and a dealer
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Broker: matches buyers/sellers
Dealers: link buyers/sellers by buying and selling securities and making money off bid/ask price |
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What are the 2 types of secondary markets
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exchanges and over the counter markets
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do firms in the US , canada, and the UK generally raise funds from financial intermediaries or from capital markets
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financial intermediairies
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what is bigger the direct market or the indirect market
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indirect market
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