Indicate the markets in which each of the following transactions will be traded: 1. Karl spends...

Indicate the markets in which each of the following transactions will be traded:

1. Karl spends $1,500 to buy Google stock options through his online brokerage account.

physical OR financial asset market

2. The state of California issues new bonds to the public with an investment bank serving as the underwriter to raise capital.

private OR public markets

3. 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 is

speculating OR hedging

Solutions

Expert Solution

1.Answer is financial asset market

Google stock options are a financial asset that are traded and offered in the financial asset market like S&P and Dow Jones. As it is relevant from the above statement that it is bought online through the brokerage account, thus this transaction is traded on the financial asset market.

2.Answer is Private market

In the above statement the state of California issued new bond to the public through the underwriter. This transaction is in the private market as it is not standardised and traded on the stock market exchange.

3.Answer is speculating

As it is evident from the above statement that credit default swap are purchased on the securities that are likely to get default, thus it is the transaction of speculating as they are like short seller of the stock which lowers the price of the underlying asset in the financial market. It is a transaction undertaken to gain from adverse development.

jeff jeffy answered 1 year ago

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