Summary: Cma Review Part 2: Strategic Financial Management

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  • 5 Financial Markets and Financing

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  • 5.1.1 Aspects of Financial Markets

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  • In which two ways can transfers of funds be managed?

    Transfers of funds may be either:
    1. Direct, or
    2. through intermediate entities, such as banks
  • What is the benefit of using intermediate entities for transfers of funds?

    Because of their special expertise, Intermediate entities enable rapid and relatively low-cost transfers of capital. Thus, improving allocative efficiency.
  • 5.1.2 Money Markets and Capital Markets

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  • What are Money Markets?

    Money Markets are Financial Markets that trade debt securities with maturities of less than 1 year.
  • 5.1.3 Primary Markets and Secondary Markets

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  • Financial Markets can be categorized into 'money markets' and 'capital markets'. In which other two categories can Financial Markets be divided?

    Financial Markets can be divided into:
    • Primary Markets
    • Secondary Markets 
  • What are primary (financial) markets?

    The primary markets are the markets in which corporations and governmental units (the issuer) raise new capital by making initial offerings of their securities.
    The issuer receives the proceeds of sale in a primary market.
  • What are examples of 'auction markets'?

    • Stock exchanges
    • Commodity exchanges
  • What are the main activities of 'auction markets'?

    The three main activities of 'auction markets' are:
    1. conduct trading at particular physical sites.
    2. immediate communication of share prices to the public
    3. trading in derivatives
  • Companies that wish to have their shares traded on an exchange must apply for listing and meet certain requirements. What are the benefits and disadvantages of listing?

    The benefits of listing:
    • it adds to a firm's prestige
    • it increases the liquidity of a firm's securities
    The disadvantages of listing:
    • having to meet up with SEC disclosure requirements
    • the greater risk of a hostile takeover
  • What is the essence of exchange trading?

    The essence of exchange trading is the matching of buy and sell orders communicated to brokerages with seats on the exchange.
  • What is 'the spread'? (When talking about exchange trading.)

    'The spread' is the excess of the asked over the bid price. It is the profit margin for the specialist at the exchange.
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