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<div><b>What is a financial system?</b></div>"<div>-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A financial system is a set of institutions,
such as banks, insurance companies, and stock exchanges, that permit the
exchange of funds.<b></b></div>
<div>-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
They function to achieve the goals of users,
they determine rates of return of investments, and it provides allocation of
capital to the best uses.&nbsp;</div>"
<div><b>What purposes would users of a financial system have?</b></div>"<div>-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Save money for future use. </div>
<div>-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Borrow money for current use or raise equity capital.
</div>
<div>-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Manage risks. </div>
<div>-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Exchange assets for immediate and future
deliveries </div>-&nbsp; &nbsp; &nbsp; &nbsp; Trade on information&nbsp;<br>"
<div><b>How do you determine rates of return?</b></div>"<div>-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Average return divided by initial investment.&nbsp;</div>"
<div><b>What are some behaviours of rates of return?</b></div>"<div>-&nbsp; When demand for funds is the same as the supply
of funds, it become the equilibrium interest rate </div>
<div>-&nbsp;&nbsp;Low rates of return increase the demand for
funds, but reduce supply of funds </div>
<div>-&nbsp;&nbsp;The required rates of return of individual
securities depend on a common equilibrium interest rate plus adjustment for
risk&nbsp;</div>"
"<div><b>What determines the allocation of capital to the best
uses?</b></div>""<div>-&nbsp;&nbsp;Investors weigh the expected risks and returns
of different investments to determine their most preferred investments. </div>
<div>-&nbsp; As long as investors are well informed regarding
risk and return and the market functions well, this results in allocation of
capital to its most valuable uses&nbsp;</div>"
<div><b>What are financial institutions?</b></div>"<div>-&nbsp;&nbsp;Institutions that conduct financial transactions
such as investments, loans, or deposits. </div>
<div>-&nbsp;&nbsp;They permit the flow funds between borrows and
lenders.</div>"
<div><b>What is a depositary financial institution?</b></div>"<div>-&nbsp;&nbsp;Provide loans to borrowers in household and
business sectors. <b></b></div>
<div>-&nbsp;&nbsp;Examples include commercial banks, credit
unions, building societies.&nbsp;<b></b></div>"
<div><b>What are investment banks?</b></div>"<div>-&nbsp;They provide off-sheet advisory services and
advice on raising funds directly in capital markets.&nbsp;<b></b></div>"
"<b>What
are contractual saving institutions?</b>""<div>-&nbsp;Institutions that make payments for contract
holders if a specified event occurs, in exchange for the members subscription.</div>
<div>-&nbsp;Examples include life insurance companies and
superannuation funds&nbsp;</div>"
<div><b>What are primary markets?</b></div>"<div>-&nbsp;&nbsp;Markets where securities are traded from
issuers/companies to investors. Events like these include an initial public
offering and a seasoned offering&nbsp;<b></b></div>"
<div><b>What are secondary markets?</b></div>"<div>-&nbsp;Markets where securities are traded from
investor to investor.&nbsp;</div>"
<div><b>How can secondary markets support primary markets?</b></div>"<div>-&nbsp;&nbsp;They provide liquidity. <b></b></div>
<div>-&nbsp;&nbsp;If investors are able to buy from companies and
then quickly sell off the stock in the secondary market, then they are more
willing to pay premium prices if the liquid market exists. <b></b></div>
<div>-&nbsp;&nbsp;Higher prices paid by investors in the primary
market translate into lower costs of capital for the issuers.&nbsp;<b></b></div>"
<div><b>What are some types of assets?</b></div>"Financial
assets and physical assets"
"<b>What
are some examples of financial assets?</b>""<div>-&nbsp; Securities such as equity securities, fixed
income securities and pooled investments. Public securities are those available
to be bought by any investors on the stock exchange, private securities can
only be bought by entities invited by issuers. <b></b></div>
<div>-&nbsp;&nbsp;Contracts such as options or agreement for
future investment<b></b></div>
<div>-&nbsp;&nbsp;Currencies&nbsp;<b></b></div>"
<div><b>What are some examples of Physical Assets?</b></div><div>- Commodities </div>- Real Assets<br>
"<div><b>What are pooled
investments and what are some examples?</b></div>""<div>-&nbsp;&nbsp;Pooled
investments are funds which have multiple investors. </div>
<div>-&nbsp;&nbsp;Examples
include mutual funds, trusts, depositories, and hedge funds&nbsp;</div>"
"<div><b>What are some
attributes of financial assets?</b></div>""<div>-&nbsp;Return
or yield – Total financial compensation received from an investment expressed
as a percentage of the amount investment </div>
<div>-&nbsp;Risk -
the probability that the actual return on an investment will vary from the
expected return </div>
<div>-&nbsp;Liquidity
– Ability to sell an asset within a reasonable amount of time at current market
prices and for reasonable transaction costs</div>
- Time pattern of cash
flows – when the expected cash flows from a financial asset are to be received
by the investor or lender<br>"
"<div><b>What does it mean to
have a long/short position in owning a financial instrument?</b></div>""<div>-&nbsp;Having a
long position means that the holder expects that the instrument will increase
in value. Vice Versa means the owner will have a short position.<b></b></div>"
<div><b>What is a trade order?</b></div>"<div>-&nbsp;Orders specify what instrument to trade, how
much to trade, and whether to buy or sell the instrument.</div>
<div>-&nbsp;Orders may have additional instructions such as
execution (how to fill the order), validity (when the order may be filled), and
clearing (how to manage trade settlement). </div>
<div>-&nbsp;Orders can be classified as either a market
order or a limit order</div>"
<div><b>What is a Market Order?</b></div>"<div>-&nbsp;An order that instructs the broker to execute
the trade immediately at the best possible price. <b></b></div>
<div>-&nbsp;The execution is quick. <b></b></div>
<div>-&nbsp;There is uncertain price concession.&nbsp;<b></b></div>"
<div><b>What is a limit order?</b></div>"<div>-&nbsp;&nbsp;&nbsp;An order that places a minimum execution price
on sell orders and a maximum execution on buy orders <b></b></div>
<div>-&nbsp;&nbsp;The order may not be filled.<b></b></div>
<div>-&nbsp;&nbsp;It is used to avoid price execution uncertainty.&nbsp;<b></b></div>"
<div><b>What are some validity instructions in a trade order?</b></div>"<div>-&nbsp;&nbsp;Day order – the order is good on the day it is
submitted <b></b></div>
<div>-&nbsp;&nbsp;Good till cancelled order – the order is good
until cancelled, often will have a limit on how long an order is good.<b></b></div>
<div>-&nbsp;&nbsp;Immediate or cancel order – cancel immediately
if order cannot be filled <b></b></div>
<div>-&nbsp;&nbsp;Good on close order – these orders can only be
filled at the close of trading. These are also known as Market on close orders<b></b></div>
<div>-&nbsp;&nbsp;Stop Order – suspends execution of an order
until a trade occurs at or below the stop price. A buy stop becomes valid only
after the price rises above the specified stop price<b></b></div>"
<div><b>What are some execution mechanisms?</b></div>"<div>-&nbsp;Order driven markets – Traders or dealers submit
orders. This is seen on the stock market<b></b></div>
<div>-&nbsp;Quote Driven Markets – Dealers will maintain an
inventory of securities and post bids and ask prices, which will be in
transaction with traders.<b></b></div>
<div>-&nbsp;Brokered Markets – Brokers arrange trades among
their clients. Trading in unique instruments<b></b></div>"
"<div><b>What Are
the Characteristics of Well-Functioning Financial System?</b></div>""<div>-&nbsp;It has completeness<b></b></div>
<div>-&nbsp;It is operationally efficient <b></b></div>
- It is Informationally efficient&nbsp;<br>"
"<b>What
are the objectives of market regulation?</b>""<div>-&nbsp;&nbsp;Control agency problems </div>
<div>-&nbsp;&nbsp;Control fraud </div>
<div>-&nbsp;&nbsp;Promote fairness </div>
<div>-&nbsp;&nbsp;Set mutually beneficial standards </div>
<div>-&nbsp;&nbsp;Prevent exploitation </div>
<div>-&nbsp; Insure liabilities are funded&nbsp;</div>"