Concept explainers
Concept introduction:
Debt securities:
Debt securities are financing instrument which represents the loan taken from the creditor and usually these securities pay defined interest rate on the amount borrowed. The several types of debt instruments are bonds, certificate of deposits,
Equity securities:
Equity securities are financing instrument issued by a company representing the share in the capital financed by the investor. These securities gives right of ownership in the share capital of the company. Equity share holders are paid dividend and share the
Short-term investments:
Short-term investments are investments which are hold for a period of one year or less and which are easily convertible into cash.
Long-term investments:
Long-term investments are investments which are to be hold for a period of more than one year which are not easily convertible into cash in short term.
To choose:
The reason why business purchases securities.
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Cornerstones of Financial Accounting
- The way in which the price of securities determined in Financial Markets is: a. By mobilization of savings b. Through frequent interaction between investors c. Providing liquidity to non- tradable assets d. None of thesearrow_forwardUnsystematic risk is * a.the risk associated with movements in securities prices B.higher when interest rates rise C.the risk of loss of purchasing power D.reduced through diversificationarrow_forwardQUESTION Hedging is a risk management strategy that is used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities. In effect, hedging is a transfer of risk without buying insurance policies. REQUIRED: Discuss the importance of hedging to the financial risk manager Are there any downside to hedging?arrow_forward
- One of the basic promises of security analysis, and in particular fundamental analysis is that A- a stock's price is based on the cash flows it has generated in the past B- market sectors and industries do not move in concert with business cycle C- all securities have an intrinsic value that their market value will approach over time D- a security's risk has relatively litthe effect on the security's returnarrow_forwardWhich of the following is not an advantage of a repurchase agreement (repo) market? a. Facilitating price discovery and transparency of Bond Prices b. Improving investor appeal and broadening the investor base c. Developing hedging tools which contribute to risk management d. None of the abovearrow_forwardWhat is the best ways or strategies for a company to hedge the funds in order to eliminate the risk or lose profit?arrow_forward
- Which of the following types of financial risk can be effectively managed by holding a lot of short-term deposits on the balance sheet that are used to finance long-term assets of the business such as mortgage loans/credits to allow the business to make profits? Select one: a. Interest Rate Risk b. Liquidity Risk c. Market Risk d. Foreign Exchange Riskarrow_forwardWhich of the following businesses are most exposed to interest rate risk? * A. A company with a high equity to debt ratio B. A company with a large amount of floating rate debt C. An al-equity company D. An investment company with an investment portfolio that matches its investment horizon.arrow_forwardThe Capital Asset Pricing Model (CAPM) considers which type of risk in pricing the expected returns and risk of securities? A) Systemic risk. B) Unsystemic risk. C) Diversifiable risk. D) Non-market risk.arrow_forward
- Banks use gap analysis to measure interest rate risk in their balance sheets. If firm XYZ is said to have a positive gap, this means: Group of answer choices C. Rate-sensitive assets exceed rate-sensitive liabilities B. Long-term assets are funded with short-term liabilities D. Rate-sensitive assets equal rate-sensitive liabilities A. Liabilities reprice before assetsarrow_forwardand allow a financial intermediary to offer safe liquid liabilities such as deposits while investing the depositors money in riskier illiquid assets. Multiple Choice O Diversification; high equity returns Price risk; collateral Free riders; regulationsarrow_forwardDiscuss how the concept of pure security, short selling and no arbitrage profit help establish and understand the equilibrium from the capital markets. Discuss different economic determinants security prices. Kindly answer the question as soon as possible.arrow_forward
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