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Unformatted text preview: ransfers of ownership between existing shareholders
issuance in the primary market. The proceeds of a secondary market transaction go to the investor who sells
the securities, not D) involve changes in security. Thus, A and B shares
to the issuer of the the ownership of existing are incorrect. C is inaccurate through inclusion of
the word ‘only’ (there is also a transfer of funds) and because the buyer need not be an ‘existing shareholder’. D
is correct. See page 16. 11
The flow of funds in the primary market may be direct or indirect. Which of the following is correct?
A) direct finance is provided by financial institutions such as banks
B) direct finance is provided by brokers and dealers
C) indirect finance is provided by brokers and dealers
D) brokers by financial intermediaries such provision flows indirectly
Feedback: Finance providedacting as agents often facilitate the as banksof direct finance from savers to borrowers
s o A and C are both incorrect. Direct finance is provided by savers not by brokers and dealers, but brokers are
often involved in these transactions as agents so D is the correct answer. See page 17. 12
Intermediated finance differs fundamentally from direct finance in that:
A) in contrast to a broker who may arrange direct finance, the intermediary acts as a principal and is
exposed to default risk
Feedback: A crucial difference between directbroker who brings together savers and borrowers
B) the intermediary acts as a and intermediated finance relates to the obligations of the parties.
For example, direct finance may involve ais generally less costly than direct finance bringing the parties together
C) intermediated finance broker who plays an important role in
but the broker never has ownership of any securities that are issued. In contrast, a financial intermediary is an
D) bank, that accepts deposits and makes loans. Importantly, the
institution, such as adirect lenders are exposed to default risk but intermediaries are not deposits are...
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This note was uploaded on 03/26/2012 for the course FIN 1612 at University of New South Wales.