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General Issues
I have no money, no resources, no hopes. I am the happiest man alive.
Henry Miller
1. There is a logical connection between two of the three terms mentioned below.
Which is the odd one out and why?
flotation initial public offering (IPO) liquidation
primary market OTC secondary market
equities shares bonds
securities equities debt
Ltd PLC investment bank
shareholder creditor market-maker
2. Choose from the options mentioned in brackets what each financial market may
facilitate:
The raising of capital (in the capital/derivatives/currency markets);
The transfer of risk (in the currency/capital/derivatives markets);
International trade (in the capital/derivatives/currency markets).
3. Choose the best option from the alternatives mentioned below:
Typically, a borrower/lender issues a receipt to the borrower/lender promising to pay
back the capital. These receipts are securities, which may be freely bought and/or sold.
In return for lending/borrowing money to the lender/borrower, the lender/borrower
will expect some compensation in the form of interest and/or dividends.
Types of financial markets:
Capital markets which consist of:
o Stock markets, where financing is provided through the issuance of shares
o Bond markets, where financing is provided through the issuance of bonds
Commodity markets, which facilitate the trading of commodities.
Money markets, which provide short term debt financing and investment.
Derivatives markets, which provide instruments for the management of financial
risk.
Futures markets, which provide standardized forward contracts for trading products
at some future date; there is also the forward market.
Insurance markets, which facilitate the redistribution of various risks.
Foreign exchange markets, which facilitate the trading of foreign exchange.
Without financial markets, borrowers would have difficulties in finding lenders by
themselves. Intermediaries such as banks help in this process. Banks take deposits from those
who have money to save. They can then lend money from this pool of deposited money to
those who seek to borrow.
More complex transactions than a simple bank deposit require markets where lenders
can meet borrowers and where existing borrowing or lending commitments can be sold to
other parties. A good example of a financial market is a stock exchange. A company can raise
money by selling shares to investors and its existing shares can be bought or sold.
4. Place the following items in the right column: banks, individuals, PLCs insurance
companies, pension funds, central government, stock exchange, money market, bond
market, public corporations, foreign exchange, mutual funds
Lenders
Financial intermediaries
Financial markets
Borrowers
Lenders
Lending activities may be:
Putting money in a savings account at a bank;
Contributing to a pension plan;
Paying premiums to an insurance company;
Investing in government bonds;
Investing in shares issued by a PLC.
4. Fill in using: lenders, borrowers, long, deficit, surplus, short
Companies tend to be..of capital. When companies havecash that is not needed for a..
period of time, they may seek to make money from their cash.by lending it via.term
markets called money markets.
Borrowers
Individuals borrow money by means of bank loans for short-term needs or longer-term
mortgages to help finance a house purchase.
Companies borrow money to support short-term or long-term cash flows in order to
invest in new equipment.
Governments often find their spending exceed their tax revenues. To make up this
difference, they need to borrow. Governments also borrow on behalf of nationalized
industries, municipalities, local authorities and other public sector bodies.
Governments borrow by issuing bonds or by taking funds from international creditors.
Municipalities and local authorities may borrow in their own name as well as
receiving funding from national governments.
Task
Make a list of the main Romanian cities, which are currently issuing munis.