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Financial markets– Exercises
Sophie Gay Anger – EM Normandie
Financial markets, structure and definitions 1. Financial markets guarantee the quality of information provided to investors.
FALSE

2. Primary markets guarantee that all financial instruments are liquid.
FALSE

3. Trading on secondary markets are not taken into consideration by the management of quoted companies.
FALSE

4. Trades on secondary markets have no impact on the funds collected by quoted companies.
TRUE

5. The interbank market is part of the monetary market.
TRUE

Answer the following questions: 1. What are the key roles played by financial markets?

* Market price determination * Information aggregation into prices * Risk sharing between market participants * Liquidity of financial assets thanks to the presence of secondary markets

2. Why do we refer to stocks as “residual claims”?

Stocks are considered as residual claims because if a company’s assets are liquidated, stockholders are entitled to a proportional portion of the liquidation boni : what is left after debts to the Government, employees and other debt holders have been paid. This residual value is in general null.

3. What are “preferred stocks”?

Since 2004 in France it is possible for a corporation to create “preferred stocks” (or rather preference stocks) offering specific rights to some stockholders. Frequently, these stocks give their holders multiple voting rights. It is also possible to create stocks without voting rights but carrying priority rights to the dividend.

4. What does the term “spread” mean in the context of stock market quotations?

Financial assets in a continuous pricing system are associated with two prices: a BID price (price at which you can sell) and an ASK price (at which you can buy, higher than the BID). The «

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