a. What are the three primary ways in which capital is transferred between savers and borrowers? Describe each one.

b. What are derivatives? How can derivatives be used to reduce risk? Can derivatives be used to increase risk? Explain

c. What are the two leading stock markets? Describe the two basic types of stock markets.

d. If Apple Computer decided to issue additional common stock, and Varga purchased shares of this stock from Smyth Barry, the underwriter, would this transaction be a primary or a secondary market transaction? Would it make a difference if Varga purchased previously outstanding Apple stock in the deal market? Explain.

e. After your consultation with Michelle, she wants to discuss these two possible stock purchases:

1. While in the waiting room of your office, she overheard an anayst on a financial TV network say that a particular medical research company ust received FDA approval for one of its products. On the basis of this "hot" information, Michelle wants to buy many shares of that company's stock. Assuming the stock market is highly efficient, what advice would you give her?

2. She has read a number of newspaper articles about a huge IPO being carried out by a leading technology company. She wants to purchase as many shares in the IPO as possible and would even be willing to buy the shares in the open market immediately after the issue. What advice do you have for her?

f. How does behavioral finance explain the real work inconsistencies of te efficient markets hypothesis (EMH)?