For each of the following financial instruments, list EVERY way that you can cat
ID: 1133785 • Letter: F
Question
For each of the following financial instruments, list EVERY way that you can categorize them. In other words, list if they are direct finances, indirect finance, a debt instrument, an equity instrument, traded on primary market, traded on secondary market, a money market instrument, and/or capital market instrument.
a. A 30 year United States bond that a person purchases from their bank.
_________________________
b. Stock in a United States company that a person purchases from another person (who already owns the stock) at the New York Stock Exchange. A broker helps match the two people.
_________________________
c. A repurchase agreement between a corporation and a bank.
_________________________
d. A 3-month t-bill (United States bond) that a person purchases from Treasury Direct (the U.S. Treasury).
_________________________
Explanation / Answer
The categories given are: Direct finance or indirect finance , a debt instrument or an equity instrument, capital market instrument or money market instument , primary market or Secondary market.
The meaning of theses categories are:
Direct finance: Given as loan direct to borrower. Eg. Bond
Indirect finance: Borrower borrows funds through intermediaries.
Debt instrument: Given as loan.
Equity instrument: Investment in shares.
Money market: Finance upto 365 days
Capital market: Finance for more than a year
Primary market: Market for issuance of securities for the first time.
Secondary market: Already issued securities are traded.
Answers:
a. A 30 year United States bond that a person purchases from their bank.
Answer: Direct finance, a debt instrument, capital market instrument, Secondary market
b. Stock in a United States company that a person purchases from another person (who already owns the stock) at the New York Stock Exchange. A broker helps match the two people.
Indirect finance, a equity instrument, traded on secondary market and capital market
c. A repurchase agreement between a corporation and a bank.
Direct finance, a debt instrument, traded in primary market and a money market instrument.
d. A 3-month t-bill (United States bond) that a person purchases from Treasury Direct (the U.S. Treasury).
Direct finance, debt market, traded on primary market, money market instrument.
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