Surplus and Deficit Units Explain the meaning of surplus units and deficit units

1. Surplus and Deficit Units Explain the meaning of surplus units and deficit units. Provide an example of each. Which types of financial institutions do you deal with? Explain whether you are acting as a surplus unit or a deficit unit in your relationship with each financial institution. 2. Types of Markets Distinguish between primary and secondary markets. Distinguish between money and capital markets. 3. Imperfect Markets Distinguish between perfect and imperfect security markets. Explain why the existence of imperfect markets creates a need for financial intermediaries. 4. Efficient Markets Explain the meaning of efficient markets. Why might we expect markets to be efficient most of the time? In recent years, several securities firms have been guilty of using inside information when purchasing securities, thereby achieving returns well above the norm (even when accounting for risk). Does this suggest that the security markets are not efficient? Explain. 5. Securities Laws What was the purpose of the Securities Act of 1933? What was the purpose of the Securities Exchange Act of 1934? Do these laws prevent investors from making poor investment decisions? Explain. 6. International Barriers If barriers to international securities markets are reduced, will a countrys interest rate be more or less susceptible to foreign lending and borrowing activities? Explain. 7. International Flow of Funds In what way could the international flow of funds cause a decline in interest rates? 1. Characteristics That Affect Security Yields Identify the relevant characteristics of any security that can affect its yield. 2. Impact of Credit Risk on Yield What effect does a high credit risk have on securities? 3. Impact of Liquidity on Yield Discuss the relationship between the yield and liquidity of securities. 4. Tax Effects on Yields Do investors in high tax brackets or those in low tax brackets benefit more from tax-exempt securities? Why?