BSNS114 Exam with Questions and 100%
Correct Answers
Where can a corporate company get capital? - Answer Corporations can borrow from
savers (surplus of resource)
How does a business raise money - Answer Gain money by selling/trading securities
(debt and equity)
What do savers(investors) get back in exchange for their money? - Answer Debt holders
get a percentage of interests on money they lend to the corporate firm and the return
of the principal and contractual obligation. Shareholders get ownership claims and a
share in the earnings
Financial Institutions - Answer Are intermediaries whose business is to bring together
savers with money and to invest with other firms that need money
NZ debt market - Answer dealer market
NZ stock exchange - Answer broker market
Dealer market - Answer firm sells securities to investors and the borrowers receive the
money from the lenders
broker market - Answer investors sell those securities/stocks/bonds to other investors
and buyers receive those securities/stocks/bonds from sellers
Primary Market Transaction - Answer aka dealer market- firms issue new securities and
sell them to investors
,IPO - Answer Initial public offering, a corporation's first offer to sell shares/stocks to the
public
Who facilitates primary market transactions - Answer An investment bank(underwriter)
Secondary market transactions - Answer aka broker market- outstanding financial
securities are traded between investors
Who facilitates secondary market transactions - Answer A dealer who is a person who
will buy and sell securities on their account for the trading of bonds and a broker a
person who executes the trade on behalf of others for the trading of shares
Functions of Financial Markets - Answer assist companies to obtain large amounts of
capital to grow businesses, enable the government to finance fiscal deficits, enable the
satisfaction of investment needs of both the corporate firms and investors, allow
investors to trade securities among themselves; when the need for cash arises, investors
have a place to sell their securities in the secondary markets (liquidity)
physical assets - Answer business entity, property, plant and equipment
Financial assets - Answer stocks, bonds etc
Non-Physical Assets - Answer knowledge, reputation, opportunities etc
What determines the growth of the dollar over a number of years? - Answer It depends
on the interest rate
, What is an asset - Answer A sequence of cash flows but assets do not involve past cash
flows
How do you value an asset - Answer requires valuing a sequence of cash flows
What is the basic building blocks of finance - Answer sequences of cash flows
Future value at the end of the investment period - Answer principal+interest earned
What is future value - Answer What the investment will be worth after earning interest
for one or more periods
What is present value - Answer What the investment is worth today, the amount a
future sum of money is worth today given a specific discount factor
Interest rate - Answer Interest rate expressed as a percentage of the principal, it is the
rate which is charged or paid for use of assets (physical or financial)
Investing for one period - Answer present value grows by a factor of 1+r
What does Interest rate account for - Answer uncertainty (risk) premium and inflation
premium which both include which are the adjustments made to the interest rate to
account for risk and inflation and time preference (current consumption over future
consumption) which is the base rate of the interest rate
Investing for t periods - Answer present value grows by a factor of (1+r)^t
Correct Answers
Where can a corporate company get capital? - Answer Corporations can borrow from
savers (surplus of resource)
How does a business raise money - Answer Gain money by selling/trading securities
(debt and equity)
What do savers(investors) get back in exchange for their money? - Answer Debt holders
get a percentage of interests on money they lend to the corporate firm and the return
of the principal and contractual obligation. Shareholders get ownership claims and a
share in the earnings
Financial Institutions - Answer Are intermediaries whose business is to bring together
savers with money and to invest with other firms that need money
NZ debt market - Answer dealer market
NZ stock exchange - Answer broker market
Dealer market - Answer firm sells securities to investors and the borrowers receive the
money from the lenders
broker market - Answer investors sell those securities/stocks/bonds to other investors
and buyers receive those securities/stocks/bonds from sellers
Primary Market Transaction - Answer aka dealer market- firms issue new securities and
sell them to investors
,IPO - Answer Initial public offering, a corporation's first offer to sell shares/stocks to the
public
Who facilitates primary market transactions - Answer An investment bank(underwriter)
Secondary market transactions - Answer aka broker market- outstanding financial
securities are traded between investors
Who facilitates secondary market transactions - Answer A dealer who is a person who
will buy and sell securities on their account for the trading of bonds and a broker a
person who executes the trade on behalf of others for the trading of shares
Functions of Financial Markets - Answer assist companies to obtain large amounts of
capital to grow businesses, enable the government to finance fiscal deficits, enable the
satisfaction of investment needs of both the corporate firms and investors, allow
investors to trade securities among themselves; when the need for cash arises, investors
have a place to sell their securities in the secondary markets (liquidity)
physical assets - Answer business entity, property, plant and equipment
Financial assets - Answer stocks, bonds etc
Non-Physical Assets - Answer knowledge, reputation, opportunities etc
What determines the growth of the dollar over a number of years? - Answer It depends
on the interest rate
, What is an asset - Answer A sequence of cash flows but assets do not involve past cash
flows
How do you value an asset - Answer requires valuing a sequence of cash flows
What is the basic building blocks of finance - Answer sequences of cash flows
Future value at the end of the investment period - Answer principal+interest earned
What is future value - Answer What the investment will be worth after earning interest
for one or more periods
What is present value - Answer What the investment is worth today, the amount a
future sum of money is worth today given a specific discount factor
Interest rate - Answer Interest rate expressed as a percentage of the principal, it is the
rate which is charged or paid for use of assets (physical or financial)
Investing for one period - Answer present value grows by a factor of 1+r
What does Interest rate account for - Answer uncertainty (risk) premium and inflation
premium which both include which are the adjustments made to the interest rate to
account for risk and inflation and time preference (current consumption over future
consumption) which is the base rate of the interest rate
Investing for t periods - Answer present value grows by a factor of (1+r)^t
