Financial Markets and Institutions Hayley, Irine, and Jimmy recently graduated with a degree in finance and were trying to find jobs. They applied for jobs offered by the HIJ Financial Services Corporation but are interested in working in different institutions: a commercial bank, an investment bank, and a specialized fund, respectively. In their job interviews, the interviewers asked them the following questions. Please help them answer these questions.

All three were asked:

1. Differentiate between the following types of markets: physical asset markets versus financial asset markets, spot markets versus futures markets, money markets versus capital markets, primary markets versus secondary markets, and public markets versus private markets.

2. Differentiate between commercial and investment banks. Hayley was asked:

3. What are the three primary ways in which capital is transferred between savers and borrowers?

4. What is securitization? Is it important for a bank? Irine was asked:

5. What are the two leading stock markets in the United States? How much do you know about East Asian stock markets?

6. What is an initial public offering (IPO)? One of your customers read a number of newspaper articles about a huge IPO being carried out by a leading technology company. She wants to get 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?

7. If Applesauce Computer decided to issue additional common stock and your customers are interested in purchasing one million shares of the stock from the underwriter, would this transaction be a primary or a secondary market transaction? Jimmy was asked:

8. What are pension funds, mutual funds, exchange traded funds, hedge funds, and private equity companies?

9. What is an efficient market? How can we explain the events that are inconsistent with the efficient market hypothesis (EMH)?

10. What are derivatives? What is a credit default swap? Illustrate how derivatives can be used to reduce risk?