Unformatted text preview: in the capital market rather than the money market. An issue of $10 million in one
parcel would be regarded as a ‘wholesale’ transaction but the information provided leaves open the possibility
that the bonds will be issued in smaller, ‘retail’ parcels. In summary, B, C and A are all , but D is . See page 26.
The essential characteristic of equity is:
A) ordinary shares are issued only by public companies
B) equity provides both short- and long-term funding
C) the equity investor obtains an ownership interest
D) equity finance can be raised only by companies with shares listed holders exchange
Feedback: The most common form of equity is the ordinary share, which provideson a stockwith an ownership
interest in the issuing company, so C is . Ordinary shares are issued by private and unlisted companies as well
as listed public companies, so A and D are both . Shares have no maturity date so B is also . See page 27.
Banks and other financial intermediaries typically use standardised documentation for their contracts,
including deposits and loans. Which of the following benefits of financial intermediation applies in this case?
A) asset transformation
B) economies of scale
C) liquidity transformation
Feedback: Standardisation lowers costs in financial intermediation because once a contract has been drawn up
the same contract D) credituseddiversification
can be risk for many transactions. Therefore, the fixed costs of preparing the contract are
s pread over many ‘units of output’, lowering the cost per unit which is the concept known as economies of
s cale. See page 22.
Users of the foreign exchange market may be concerned about foreign exchange risk. This risk is:
A) the risk that interest rates in overseas markets may change
B) the risk that the exchange rate between currencies may alter
C) the risk that an overseas borrower may default
D) the risk that particular foreign currency may not be available when it is required
Feedback: Currencies are tradedain the foreign exchange market a...
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