FIN 306 FINAL PAPER WITH COMPLETE
SOLUTIONS
◉ Brokers
Answer: compensated with commissions on trades
◉ Dealers
Answer: compensated on their positions in particular securities.
Some dealers also provide brokerage services
◉ Why are the securities more marketable than the loans in the
secondary market?
Answer: Securities are more standardized than loans and therefore
can be more easily sold in the secondary market. The excessive
documentation on commercial loans limits a bank's ability to sell
loans in the secondary market.
◉ Saving Institutions
Answer: Concentrated in mortgage
can now diversify their asset portfolio to a greater degree and will
likely increase their concentration in commercial loans
,◉ Commercial Banks
Answer: Concentrated in commercial lending
greater degree of diversification than saving institutions have
◉ How do credit unions differ from other financial institutions?
Answer: They are non-profit financial institutions
◉ Non-Depository Institution: Finance Companies
Answer: Sell securities to obtain funds
use funds to provide direct loans to consumers and businesses. Ins
◉ Non-Depository Institution: Insurance Companies and Pension
Funds
Answer: receive employee/employer contributions
purchase securities
◉ Mutual Funds
Answer: sells shares to investors, pools the funds, and invests the
funds in a portfolio of securities
,pular because they can help individuals diversify while using
professional expertise to make investment decisions
invests in stocks or bonds
◉ Money Market Mutual Fund
Answer: Invests in money market securities
◉ Secondary Market for Debt Securities
Answer: active secondary market is especially desirable for debt
securities that have a long-term maturity, because it allows investors
flexibility to sell them at any time prior to maturity. Many investors
would not even consider investing in long-term debt securities if
they were forced to hold these securities until maturity.
◉ Depository Institutions
Answer: commercial banks, savings and loan associations, and credit
unions
accept deposits (unlike non-depository institutions)
◉ Non Depository Institutions
, Answer: finance companies, insurance companies, pension funds,
mutual funds, and money market funds.
◉ Financial Intermediary
Answer: Takes place when a financial transaction involves two
financial institutions
when a financial institution simply acts as an intermediary, income
(fees or commissions) is earned, but the institution's asset portfolio
is not significantly affected.
◉ Role of Accounting in Financial Markets
Answer: financial market participants rely on financial information
provided by firms
financial statements provided by firms must be audited to ensure
that they are correctly stated and accurately represent the financial
condition of the firm
However, the accounting standards are loose (think of Ritta
Crundwell), so financial market participants can benefit from strong
accounting skills that may allow them to more properly interpret
financial statements.
SOLUTIONS
◉ Brokers
Answer: compensated with commissions on trades
◉ Dealers
Answer: compensated on their positions in particular securities.
Some dealers also provide brokerage services
◉ Why are the securities more marketable than the loans in the
secondary market?
Answer: Securities are more standardized than loans and therefore
can be more easily sold in the secondary market. The excessive
documentation on commercial loans limits a bank's ability to sell
loans in the secondary market.
◉ Saving Institutions
Answer: Concentrated in mortgage
can now diversify their asset portfolio to a greater degree and will
likely increase their concentration in commercial loans
,◉ Commercial Banks
Answer: Concentrated in commercial lending
greater degree of diversification than saving institutions have
◉ How do credit unions differ from other financial institutions?
Answer: They are non-profit financial institutions
◉ Non-Depository Institution: Finance Companies
Answer: Sell securities to obtain funds
use funds to provide direct loans to consumers and businesses. Ins
◉ Non-Depository Institution: Insurance Companies and Pension
Funds
Answer: receive employee/employer contributions
purchase securities
◉ Mutual Funds
Answer: sells shares to investors, pools the funds, and invests the
funds in a portfolio of securities
,pular because they can help individuals diversify while using
professional expertise to make investment decisions
invests in stocks or bonds
◉ Money Market Mutual Fund
Answer: Invests in money market securities
◉ Secondary Market for Debt Securities
Answer: active secondary market is especially desirable for debt
securities that have a long-term maturity, because it allows investors
flexibility to sell them at any time prior to maturity. Many investors
would not even consider investing in long-term debt securities if
they were forced to hold these securities until maturity.
◉ Depository Institutions
Answer: commercial banks, savings and loan associations, and credit
unions
accept deposits (unlike non-depository institutions)
◉ Non Depository Institutions
, Answer: finance companies, insurance companies, pension funds,
mutual funds, and money market funds.
◉ Financial Intermediary
Answer: Takes place when a financial transaction involves two
financial institutions
when a financial institution simply acts as an intermediary, income
(fees or commissions) is earned, but the institution's asset portfolio
is not significantly affected.
◉ Role of Accounting in Financial Markets
Answer: financial market participants rely on financial information
provided by firms
financial statements provided by firms must be audited to ensure
that they are correctly stated and accurately represent the financial
condition of the firm
However, the accounting standards are loose (think of Ritta
Crundwell), so financial market participants can benefit from strong
accounting skills that may allow them to more properly interpret
financial statements.
