Finance Market and Institution
Midterm Exam Notes
BA3540
Tianhui Yu
2012
First Exam Notes
CHAPTER ONE
1. The two reasons why you (or anyone) should study financial markets and financial institutions).
Answers:
* Personal needs, your career, your life, less surprise in the future. You could not avoid financial markets and institutions anywhere * Assume us work for business, government; non-profit program is affected by financial institution and market. 2. Define security.
Answers:
* A security also called a financial instrument is a claim on the issuer’s future income or assets (any financial claim or piece of property that is subject to ownership) 3. What is basis point and why do financial professionals use the term basis point rather than percentage?
Answers:
* 1/100th of a percentage point. Used as verbal shorthand by financial professionals. For example, rather than say “fees are 75 one-hundredths of a percentage point, investment professionals say “fees are 75 basis points” * There are several advantages to referring to changes in basis points, rather than percentages. The first is that basis points are absolute and clear. For example, one could say equally correctly that interest rates rose 20%, from 5% to 6%, or that interest rates rose 1% from 5% to 6%. This can get a bit confusing, but it's much more simple when basis points are used, because one can say that interest rates rose by 100 basis points, providing instant clarity. Basis points can also be used to discuss very small increments of change without having to throw around challenging numbers. A rise in interest of 0.38%, for example, is perhaps better understood as 38 basis points. 4. The FX market is:
Answers:
* Not highly regulated, very large worldwide in terms of amount of transactions, volatile at times, and important to the U. S. economy (and most other nations) since it facilitates international trade (exports and imports). It is the place where foreign exchange rate
BA3540
Tianhui Yu
2012
First Exam Notes
CHAPTER ONE
1. The two reasons why you (or anyone) should study financial markets and financial institutions).
Answers:
* Personal needs, your career, your life, less surprise in the future. You could not avoid financial markets and institutions anywhere * Assume us work for business, government; non-profit program is affected by financial institution and market. 2. Define security.
Answers:
* A security also called a financial instrument is a claim on the issuer’s future income or assets (any financial claim or piece of property that is subject to ownership) 3. What is basis point and why do financial professionals use the term basis point rather than percentage?
Answers:
* 1/100th of a percentage point. Used as verbal shorthand by financial professionals. For example, rather than say “fees are 75 one-hundredths of a percentage point, investment professionals say “fees are 75 basis points” * There are several advantages to referring to changes in basis points, rather than percentages. The first is that basis points are absolute and clear. For example, one could say equally correctly that interest rates rose 20%, from 5% to 6%, or that interest rates rose 1% from 5% to 6%. This can get a bit confusing, but it's much more simple when basis points are used, because one can say that interest rates rose by 100 basis points, providing instant clarity. Basis points can also be used to discuss very small increments of change without having to throw around challenging numbers. A rise in interest of 0.38%, for example, is perhaps better understood as 38 basis points. 4. The FX market is:
Answers:
* Not highly regulated, very large worldwide in terms of amount of transactions, volatile at times, and important to the U. S. economy (and most other nations) since it facilitates international trade (exports and imports). It is the place where foreign exchange rate