Question

Classify the market in which each of the following financial transactions takes place as: (a) money versus capital; (b) primary versus secondary; (c) open versus negotiated; and (d) spot versus futures/forward. The transactions below may fit in more than one of the above categories of markets.

i. You visit a local bank today and secure a three-year loan to finance the purchase of a new car and some furniture.

ii. You purchase a new U.S. Treasury bill through the Federal Reserve bank in a neighboring city for delivery today.

iii. Responding to a rise in the price of Texaco common stock, you have just purchased 100 shares of that company's stock through a phone call to your broker who is linked to a major stock exchange.

Answer 1

Solution i) You visit a local bank today and secure a three-year loan to finance the purchase of a new car and some furniture.

Markets include: Capital market; primary market; negotiated market; spot market

Solution ii) You purchase a new U.S. Treasury bill through the Federal Reserve bank in a neighboring city for delivery today.

Markets include: Money market; primary market; open market; spot market

Solution iii) Responding to a rise in the price of Texaco common stock, you have just purchased 100 shares of that company's stock through a phone call to your broker who is linked to a major stock exchange.

Markets include: Capital market; secondary market; open market; spot market

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