4.4.1 The structure of financial markets and financial assets

• Financial markets are forums where buyers and sellers trade various financial assets
• What role do brokers play in financial markets?

  Facilitate transactions
• Money markets provide funds for short-term financing needs.


  True
• Price discovery in financial markets is based on supply and demand.

  True
• Money markets have a time horizon of less than one year.
• What are the two primary factors that distinguish money markets from capital markets?

  Duration and liquidity
• What is the primary function of capital allocation in financial markets?

  Directing funds to investments
• Risk management in financial markets allows hedging against uncertainties.


  True
• What are the two main types of financial markets?

  Money markets and capital markets
• Capital markets deal with instruments such as treasury bills and commercial paper.

  False
• What is the primary role of financial institutions in facilitating capital flow?

  Channeling savings to businesses
• What is the fundamental difference between equity and debt instruments?

  Nature of the claim
• Short-term financial assets have a maturity of more than one year.

  False
• Money markets deal with short-term, liquid assets
• What is the role of financial markets in price determination?

  Transparency and fair pricing
• The functions of financial markets are crucial for supporting a stable and growing economy.


  True
• What is the primary role of financial institutions in facilitating capital flow?

  Channel savings from investors
• Match the feature with the corresponding instrument:

  Ownership ↔️ Equity instrument

  Loan ↔️ Debt instrument
• Short-term financial assets have a maturity of less than one year
• What is an example of a long-term financial asset?

  Bonds
• Bonds provide fixed interest payments and are less risky than stocks.


  True
• Investors provide capital to financial markets by purchasing financial assets
• Match the financial market regulation with its purpose:

  Capital requirements ↔️ Ensure sufficient capital to withstand shocks

  Disclosure rules ↔️ Mandate information for informed decisions

  Investor protection laws ↔️ Safeguard against fraud
• What are the two main types of financial markets?

  Money markets and capital markets
• Financial markets facilitate capital allocation by directing funds to profitable investments.


  True
• Money markets trade short-term, highly liquid financial instruments
• What is the key distinction between money markets and capital markets?

  Maturity of financial products
• Arrange the key functions of financial markets in the correct order of their importance

  1️⃣ Capital allocation

  2️⃣ Price discovery

  3️⃣ Risk management

  4️⃣ Liquidity provision
• Capital markets deal with instruments that have a time horizon of more than one year.

  True
• Financial markets enable hedging to manage and mitigate financial risks
• Match the role of financial institutions with its description:

  Facilitate capital flow ↔️ Channel savings to businesses

  Provide liquidity ↔️ Enable easy buying and selling

  Manage financial risks ↔️ Use hedging to protect investors

  Offer payment services ↔️ Simplify transactions
• Financial markets establish asset prices through the process of discovery
• Match the participant with their role in financial markets:

  Investors ↔️ Provide capital

  Businesses ↔️ Raise funds

  Brokers ↔️ Facilitate transactions

  Regulators ↔️ Oversee market activities
• Money markets have a time horizon of less than a year
• Match the function of financial markets with its description:

  Capital allocation ↔️ Directs funds to productive projects

  Price discovery ↔️ Establishes market prices based on supply and demand

  Risk management ↔️ Allows hedging against uncertainties

  Liquidity provision ↔️ Ensures easy buying and selling of assets
• Financial institutions facilitate capital flow by channeling savings from investors to businesses
• What is the classification of financial assets based on their maturity?

  Short-term and long-term
• Long-term financial assets include instruments such as stocks, bonds, and derivatives
• Financial markets facilitate the flow of capital from investors to businesses and governments.


  True
• Financial markets enable hedging to manage and mitigate financial risks