Question

Types of financial markets Financial markets across economies involve various kinds of participants and trade various types of assets and securities. It is important to understand the kinds of markets in which financial transactions take place.

You are preparing to take an exam in your finance class, and you’ve been making flash cards on different markets and transactions. Indicate the markets in which each of the following transactions will be traded:

Description of Transaction Type of Market Mr. and Mrs. Smith buy a new house in Walnut Creek, California. They paid the entire amount, $800,000, in cash. Financial asset markets

Description of Transaction Type of Market An investor buys $10,000 worth of gold at a certain price today. Spot markets

Description of Transaction Type of Market Abbey allocates 80% of her portfolio for investments in short-term US Treasury bills. Money markets

Description of Transaction Type of Market Martha Stewart sold 3,928 shares of ImClone stock on December 27, 2001. Source: Foxnews.com, Jan. 20, 2004. Secondary markets A hedge fund purchased credit default swaps on securities it did not own because it believed that the securities were likely to default. In this example, the hedge fund isspeculating .

Answer 1

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Answer:

Physical asset market

Mr. and Mrs. Smith buy a new house in Walnut Creek, California. They paid the entire amount, $800,000, in cash. Financial asset markets

spot market

An investor buys $10,000 worth of gold at a certain price today

Money markets

Abbey allocates 80% of her portfolio for investments in short-term US Treasury bills

Secondary markets

Martha Stewart sold 3,928 shares of ImClone stock on December 27, 2001.

Speculating

A hedge fund purchased credit default swaps on securities it did not own because it believed that the securities were likely to default