1. Distinguish between physical asset and financial asset markets.

 Physical assets are also called tangible or real asset, these are assets that you can touch and usually
depreciates. While financial assets are assets that are usually non material, for example stocks,
notes, bonds, and etc.
2. What’s the difference between spot and futures markets?
 Spot markets are markets which assets are bought or sold for on-the-spot delivery. While future
markets are markets in which participants agree today to buy or sell an asset at some future date.
3. Distinguish between money and capital market.
 Money markets are the markets for short-term, highly liquid debt securities. While capital market
are the markets for intermediate- or long-term debt and corporate stocks.
4. What’s the difference between primary and secondary markets?
 Primary markets are the markets in which corporations raise new capital. While Secondary
markets are markets in which existing, already outstanding, securities are traded among investors.
5. Differentiate between private and public markets.
 Private markets are where transactions are negotiated directly between two parties, they may be
structured in any manner that appeals to the two parties. Public markets are ultimately held by a
large number of individuals. Private market securities are, therefore, more tailor-made but less
liquid, whereas publicly traded securities are more liquid but subject to greater standardization.
6. Why are financial markets essential for a healthy economy and economic growth?
 A healthy economy is dependent on efficient funds transfers from people who are net savers to
firms and individuals who need capital.
7. What is a derivative, and how is its value related to that of an “underlying asset”
 A derivative is any security whose value is derived from the price of some other “underlying”
asset.
8. What is the difference between a pure commercial bank and a pure investment bank?
 Commercial banks primarily deal with deposits and loans for companies or individuals. While
investment banks deals with purchasing and selling of bonds and stocks for companies.
9. What are some important differences between mutual and hedge funds? How are they similar?
 While mutual funds are registered and regulated by the Securities and Exchange Commission
(SEC), hedge funds are largely unregulated. This difference in regulation stems from the fact that
mutual funds typically target small investors, whereas hedge funds typically have large minimum
investments that are effectively marketed to institutions and individuals with high net worth.
Different hedge fund managers follow different strategies. Hedge funds are similar to mutual
funds because they accept money from savers and use the funds to buy various securities
10. What are the different financial institutions? Differentiate the nature, scope and function of each one
from the other?
a) Investment banking houses - Provide a number of services to both investors and companies
planning to raise capital. Such organizations, help corporations design securities with features that
are currently attractive to investors, then buy these securities from the corporation, and resell them
to savers.
b) Commercial banks - Deals with deposits and loans for companies or individuals. Commercial
banks are providing an ever-widening range of services, including stock brokerage services and
insurance.
c) Investment banks - deals with purchasing and selling of bonds and stocks for companies.
d) Financial services corporations - Are large conglomerates that combine many different financial
institutions within a single corporation.
e) Savings and loan associations - traditionally served individual savers and residential and
commercial mortgage borrowers, taking the funds of many small savers and then lending this
money to home buyers and other types of borrowers.
f) Mutual savings banks - are similar to S&Ls, operate primarily in the northeastern states, accepting
savings primarily from individuals, and lending mainly on a long-term basis to home buyers and
consumers.
g) Credit unions - are cooperative associations whose members are supposed to have a common
bond, such as being employees of the same firm.
h) Pension funds - are retirement plans funded by corporations or government agencies for their
workers and administered primarily by the trust departments of commercial banks or by life
insurance companies.
i) Life insurance companies take savings in the form of annual premiums; invest these funds in
stocks, bonds, real estate, and mortgages.
j) Mutual funds are corporations that accept money from savers and then use these funds to buy
stocks, long-term bonds, or short-term debt instruments issued by businesses or government units.
k) Hedge funds are similar to mutual funds because they accept money from savers and use the funds
to buy various securities. Different hedge fund managers follow different strategies.