Ch03 Sm Petty Fmpa6e Essay example

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CHAPTER 3

The financial markets

SOLUTIONS TO CONCEPT CHECK QUESTIONS

3.1 Not necessarily. Financial markets refer to a complex of institutions and procedures that facilitate a transfer of funds. Many of these transactions are done electronically and hence market participants do not need to physically meet for these transactions to take place.

3.2 The share market is a sub-market within the overall financial markets. In other words, the share market makes up one important component of the financial market.

3.3 The main role of financial markets is to facilitate a transfer of funds between net savers and net users of funds.

3.4 The development of financial markets is positively related to economic development. Developed countries in the world all have very well-developed financial markets. Well-developed financial markets allow funds to be allocated to the most effective usage and therefore encourage economic development.

3.5 Unlike commercial banks, non-bank authorised deposit-taking institutions (i.e. building societies and credit unions) are unlisted not-for-profit organisations owned by their members. Profits generated are used to improve services to members.

3.6 A few of the more well-known investment companies are Blackrock Investments, BT, Colonial First State, Macquarie Group, MLC and Perpetual.

3.7 A hedge fund is similar to a mutual fund, but they are more regulated and tend to take on more risks. They also tend to actively influence the managers of the corporations they invest in. Management fees are typically higher than those of mutual funds, and only accredited investors (with net worth exceeding $1 million) can invest in a hedge fund.

3.8 The two principal types of private equity firms are venture capital firms, which raise money from wealthy individuals and financial institutions to invest in private start-up companies, and leveraged buyout funds, which acquire established firms that typically have not been performing well.

3.9 T3 shares are direct securities as the shares are sold directly to the public. There are no financial institutions involved in the process.…