FI 412 Exam 2 Study Guide

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FI 412 Money and Capital Markets Study Aid

Note: This study guide represents important concepts and problems covered on exam. It is not meant to be an all-inclusive guide. Many of the items here will be covered on the exam in some fashion.

Chapter 11
The three basic characteristics of money market securities
How do money market transaction take place?
Cost advantage of money markets
How did bank interest rate ceilings contribute to the rise of the money market? Purpose of money markets as a warehouse of funds and source of short-term funds List of market participants
Types of money market securities and their key characteristics (see table 11.4 for a summary) Calculate discount rate, investment rate, face value, price, or time to maturity of various money market securities such as the T-bill and commercial paper The Feds’ role in controlling money supply? How is it accomplished?

Chapter 12
Purpose of capital market
Why do individuals and firms borrow long-term
Capital market participants. Who is the largest?
Organized versus OTC exchanges
What are TIPS, STRIPS, and TIGRS
Major types of bonds: who issues, types of risk,
Distinguish between General Obligation and Revenue munis
Terminology: Registered bonds, restrictive covenants, call provisions, conversion, sinking fund
Secured vs. unsecured bonds
Calculate current yield, bond price, yield to maturity, yield to call

Chapter 13
Stock as a residual claim- what does that statement means
Common stock vs preferred stock characteristics
Which is riskier?
Organized vs OTC trading: example of each type of exchange
What are ECNs and how are they changing the game? What are their advantages and disadvantages? What are ETFs?
Calculate the stock price using various methods: one period valuation, Gordon growth, and PE ratio Indexes as market indications: Price-weighted index (PWI) vs value weighted index (VWI)
What type of stocks has...