International Finance and Treasury MCQ Questions and Solutions with Explanations | Management

Type of security backed by mortgage cash flows and are packed by financial instruments is classified as securitized mortgage. Securitization is the procedure where an issuer designs a marketable financial instrument by merging or pooling various financial assets into one group. The issuer then sells this group of repackaged assets to investors. Securitization offers opportunities for investors and frees up capital for originators, both of which promote liquidity in the marketplace.

Markets in which transactions are done through computers and telephone without any specific location are classified as over counter markets. An over-the-counter (OTC) market is a market where trading is done directly between two parties, without any supervision. The difference between OTC markets and exchange markets, is that in exchange markets, trading occurs via exchanges.

Institutions deals in financial functions and protects corporations and individuals against accidents, theft and death are considered as insurance companies. Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients' risks to make payments more affordable for the insured.

Saving banks, insurance companies, mutual funds and commercial banks are all examples of financial institutions. A financial institution (FI) is a company engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments, and currency exchange.

Additional debt instruments or equity instruments of publicly traded firm are included in markets classified as primary markets. The primary market is where securities are created. It's in this market that firms sell (float) new stocks and bonds to the public for the first time. An initial public offering, or IPO, is an example of a primary market.

Maturity of debt instruments which faces more price fluctuations is long term maturity. Term to maturity refers to the remaining life of a debt instrument. With bonds, term to maturity is the time between when the bond is issued and when it matures, known as its maturity date, at which time the issuer must redeem the bond by paying the principal or face value.

Financial instruments of public markets includes shares. A financial instrument is a monetary contract between parties. We can create, trade, or modify them. We can also settle them. A financial instrument may be evidence of ownership of part of something, as in stocks and shares. Bonds, which are contractual rights to receive cash, are financial instruments.

Centralized market place where agents can have efficiently and quickly transactions is classified as secondary markets. The secondary market is where investors buy and sell securities they already own. It is what most people typically think of as the "stock market," though stocks are also sold on the primary market when they are first issued.

Risk arises from trading of assets because of change in asset prices and exchange rates is classified as market risk. Market risk is the possibility of an investor experiencing losses due to factors that affect the overall performance of the financial markets in which he or she is involved. Market risk, also called "systematic risk," cannot be eliminated through diversification, though it can be hedged against in other ways.

Type of institutions that write securities, engage in brokerage and security trading are considered as investment banks. An investment bank (IB) is a financial intermediary that performs a variety of services. Most Investment banks specialize in large and complex financial transactions, such as underwriting, acting as an intermediary between a securities issuer and the investing public, facilitating mergers and other corporate reorganizations and acting as a broker or financial adviser for institutional clients.