Question

2. Explain why stocks are better suited for financial markets than financial intermediaries.

3. Give an example of a transaction that goes from the supplier to capital to the financial intermediary to the financial markets to the demander of capital.

4. Give an example of a money market security and capital market security.

Answer 1

2. Stocks don't involve financial scrutiny which is done in the case of intermediaries nor any restrictions on the liquidity ratios or DSCR or dividend policy. Stocks do not have any fixed obligations as dividends are not mandatory to be paid.

3. Investing in a mutual fund. When an investor buys NAV of a mutual fund then the money goes from the supplier to capital to the financial intermediary to the financial markets to the demander of capital.

4. Money market security - T-bills, Certificate of deposits

Capital market security - Stocks, Long -term Bonds