Corporate Finance and Capital Markets Flashcards
7 cards from real AAFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Corporate Finance and Capital Markets flashcards as text
What is the primary function of capital markets in the financial system?
Answer: Channeling long-term savings into productive investments
Capital markets facilitate the flow of long-term savings from investors to borrowers and businesses, enabling investment, economic growth, and wealth creation.
What is the key distinction between primary markets and secondary markets?
Answer: Primary markets involve new securities issuances; secondary markets trade existing securities
Primary markets are where new securities are first sold (IPOs, bond offerings), while secondary markets provide liquidity by enabling investors to trade previously issued securities.
What is the core assertion of the Efficient Market Hypothesis (EMH)?
Answer: Asset prices fully and immediately reflect all available relevant information
EMH asserts that asset prices fully incorporate all available information, making it impossible to consistently achieve above-market risk-adjusted returns through analysis.
Which form of the Efficient Market Hypothesis holds that current prices reflect all historical price and volume data?
Answer: Weak form EMH
The weak form of EMH states that prices already reflect all historical trading data, meaning technical analysis cannot be used to generate consistent excess returns.
What is a securities market 'circuit breaker'?
Answer: A mechanism that temporarily halts trading during extreme market price movements
Circuit breakers are exchange mechanisms that temporarily halt trading when prices decline beyond specified thresholds, designed to prevent panic selling and allow markets to stabilize.
How is a company's market capitalization calculated?
Answer: Current stock price multiplied by total shares outstanding
Market capitalization equals the current market price per share multiplied by the total number of shares outstanding, representing the market's total equity valuation of the company.
What does 'price discovery' refer to in the context of capital markets?
Answer: The mechanism by which supply and demand forces determine asset prices
Price discovery is the ongoing process through which market interactions between buyers and sellers establish the equilibrium price that reflects all relevant information about an asset.