focus points financial markets
Financial Markets – Focus Points
Since this is a very extensive course I have compiled a list of the most important subjects, those which you should place the greatest emphasis on when studying for the final exam. Please note that this is not an exhaustive list and the final exam may include questions based on topics not directly mentioned below. This list should supplement the questions/problems from the practical sessions – which you should study carefully.
Do not get intimidated by the number of bullet points, many of the subjects supplement each other and some of the key terms are repeated over and over again throughout the course. In addition, knowing how one market works will help you understand how others work, and so on.
Students Should:
Know what asymmetric information means (moral hazard and adverse selection) and how financial markets are able to reduce problems associated with such issues
Asymmetric information is when one party (individual or a company perhaps) has more information than the other one in a transaction. Adverse section is an immoral behaviour before a transaction takes place. Moral hazard is an immoral behaviour after a transaction takes place.
How are the financial markets able to reduce them:
Reduce adverse section: Seperating the good from the bad. It can be costly to acces all the possible inforamtion about an investment. Financial intermediaries have employees that specialize in accessing credit risk and business opertunities.
Reduce moral hazard: Without the role of the financial intermediaries the investor would have to make and check out all the content of the contract himself – Most “normal” investors do not have the knowledge to understand every aspect of a complecated financial contract.
Know the primary roles of financial markets and financial assets.
The role of financial markets are:
1.Determine price or required rate of return of asset.
2.Provide liquidity.
3.Reduce transactions costs, which consists
Since this is a very extensive course I have compiled a list of the most important subjects, those which you should place the greatest emphasis on when studying for the final exam. Please note that this is not an exhaustive list and the final exam may include questions based on topics not directly mentioned below. This list should supplement the questions/problems from the practical sessions – which you should study carefully.
Do not get intimidated by the number of bullet points, many of the subjects supplement each other and some of the key terms are repeated over and over again throughout the course. In addition, knowing how one market works will help you understand how others work, and so on.
Students Should:
Know what asymmetric information means (moral hazard and adverse selection) and how financial markets are able to reduce problems associated with such issues
Asymmetric information is when one party (individual or a company perhaps) has more information than the other one in a transaction. Adverse section is an immoral behaviour before a transaction takes place. Moral hazard is an immoral behaviour after a transaction takes place.
How are the financial markets able to reduce them:
Reduce adverse section: Seperating the good from the bad. It can be costly to acces all the possible inforamtion about an investment. Financial intermediaries have employees that specialize in accessing credit risk and business opertunities.
Reduce moral hazard: Without the role of the financial intermediaries the investor would have to make and check out all the content of the contract himself – Most “normal” investors do not have the knowledge to understand every aspect of a complecated financial contract.
Know the primary roles of financial markets and financial assets.
The role of financial markets are:
1.Determine price or required rate of return of asset.
2.Provide liquidity.
3.Reduce transactions costs, which consists