Financial Markets and
Institutions: Key Concepts
and Risks Exam Prep A+
Grade 2026/2027
, Financial Market A structure through which funds flow.
Primary Market A market where the issuer receives new money from investors.
Secondary Market A market where investors trade previously issued securities with each other; the
issuer receives no new money.
IPO (Initial Public Offering) A firm's first public issue of equity.
Liquidity The ability to turn an asset into cash quickly at its fair market value.
Money Market A market for debt instruments maturing in one year or less.
Capital Market A market for debt and equity instruments maturing beyond one year.
Foreign Exchange Market A market where currencies are exchanged.
Foreign Exchange Risk The sensitivity of the dollar value of foreign cash flows to changes in the foreign
currency's price in dollars.
Derivative Security A security whose payoff is linked to a security that already exists.
Financial Institution An institution that channels funds from savers to borrowers.
Direct Finance When suppliers of funds provide funds directly to users of funds.
Intermediated Finance When a financial institution stands between suppliers and users of funds.
Monitoring Costs Costs associated with checking that a borrower behaves appropriately.
Liquidity Costs Costs associated with needing to get money back before the borrower repays.
Institutions: Key Concepts
and Risks Exam Prep A+
Grade 2026/2027
, Financial Market A structure through which funds flow.
Primary Market A market where the issuer receives new money from investors.
Secondary Market A market where investors trade previously issued securities with each other; the
issuer receives no new money.
IPO (Initial Public Offering) A firm's first public issue of equity.
Liquidity The ability to turn an asset into cash quickly at its fair market value.
Money Market A market for debt instruments maturing in one year or less.
Capital Market A market for debt and equity instruments maturing beyond one year.
Foreign Exchange Market A market where currencies are exchanged.
Foreign Exchange Risk The sensitivity of the dollar value of foreign cash flows to changes in the foreign
currency's price in dollars.
Derivative Security A security whose payoff is linked to a security that already exists.
Financial Institution An institution that channels funds from savers to borrowers.
Direct Finance When suppliers of funds provide funds directly to users of funds.
Intermediated Finance When a financial institution stands between suppliers and users of funds.
Monitoring Costs Costs associated with checking that a borrower behaves appropriately.
Liquidity Costs Costs associated with needing to get money back before the borrower repays.
