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Investments > 1. Financial Assets > Flashcards

1. Financial Assets Flashcards

1
Q

What is asset allocation?

A

Asset allocation involves deciding how much money to allocate to broad classes of assets.

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2
Q

What are money markets composed of?

A

Money markets are composed of short-term, marketable, liquid, low-risk debt securities.

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3
Q

What are capital markets?

A

Capital markets are financial markets where long-term debt or equity securities are bought and sold. These markets allow companies, governments, and other organizations to raise funds for their projects and operations. Main markets: primary and secondary.

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4
Q

What is a Treasury Bill (T-bill)?

A

A Treasury Bill is a government-issued debt security with a short-term maturity, sold to raise money.

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5
Q

What is a Certificate of Deposit (CD)?

A

A CD is a bank deposit where interest and principal are paid at maturity, and it cannot be withdrawn on demand.

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6
Q

What is commercial paper?

A

Commercial paper is short-term unsecured debt notes issued by large, well-known companies.

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7
Q

What is a banker’s acceptance?

A

A banker’s acceptance is an order to a bank by a customer to pay a sum of money at a future date.

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8
Q

What are Eurodollars?

A

Eurodollars are dollar-denominated deposits at foreign banks or branches of American banks.

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9
Q

What is a repurchase agreement?

A

A repurchase agreement is the short-term sale of securities with an agreement to repurchase them at a slightly higher price.

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10
Q

What is the federal funds rate?

A

The federal funds rate is the overnight rate set by the Federal Reserve.

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11
Q

What are Treasury notes and bonds?

A

Treasury notes have maturities up to 10 years, while bonds have maturities from 10 to 30 years.

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12
Q

What are municipal bonds?

A

Municipal bonds are tax-exempt bonds issued by state and local governments.

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13
Q

What are corporate bonds?

A

Corporate bonds are debt securities issued by private firms to borrow money directly from the public.

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14
Q

What are mortgage-backed securities?

A

Mortgage-backed securities represent an ownership claim in a pool of mortgages or an obligation secured by such a pool.

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15
Q

What is common stock?

A

Common stock represents ownership shares in a corporation.

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16
Q

What is preferred stock?

A

Preferred stock pays a fixed amount of income each year, but does not convey voting power.

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17
Q

What is an American Depository Receipt (ADR)?

A

An ADR is a certificate traded in U.S. markets representing ownership in shares of a foreign company.

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18
Q

What is the Dow Jones Industrial Average (DJIA)?

A

The DJIA is a price-weighted index of 30 large blue-chip corporations.

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19
Q

What is a derivative asset?

A

A derivative asset’s value is dependent on or contingent upon the value of an underlying asset.

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20
Q

What is a call option?

A

A call option gives the holder the right to purchase an asset at a specified price before a specified expiration date.

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21
Q

What is a put option?

A

A put option gives the holder the right to sell an asset at a specified price before a specified expiration date.

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22
Q

What is a futures contract?

A

A futures contract is an obligation to buy or sell an asset at a specified future date for a predetermined price.

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23
Q

What is an investment company?

A

An investment company pools and invests funds from individual investors in securities or other assets.

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24
Q

How is Net Asset Value (NAV) calculated?

A

NAV is calculated as the market value of assets minus liabilities, divided by the number of shares outstanding.

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25
Q

What is a unit investment trust?

A

A unit investment trust is a fixed portfolio of securities for the life of the fund.

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26
Q

What is an open-end investment company?

A

An open-end investment company continuously issues or redeems shares at NAV.

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27
Q

What is a closed-end investment company?

A

A closed-end investment company does not redeem or issue new shares; its shares are traded among investors.

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28
Q

What is a Real Estate Investment Trust (REIT)?

A

A REIT is a closed-end fund that invests in real estate or mortgages.

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29
Q

What is a hedge fund?

A

A hedge fund is a private investment fund that pools assets from investors and is managed by a fund manager.

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30
Q

What is a mutual fund?

A

A mutual fund is an open-end investment company that pools money from many investors to invest in a diversified portfolio.

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31
Q

What is a front-end load?

A

A front-end load is an entry fee charged when buying into a mutual fund.

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32
Q

What is a back-end load?

A

A back-end load is an exit fee charged when selling out of a mutual fund.

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33
Q

What is an expense ratio?

A

The expense ratio represents the operating expenses of a mutual fund.

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34
Q

What is an Exchange Traded Fund (ETF)?

A

An ETF is a type of investment fund that tracks an index and can be traded like a stock.

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35
Q

What is the price-earnings (P/E) ratio?

A

The P/E ratio is the ratio of a stock’s price to its earnings per share.

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36
Q

What is a dividend yield?

A

The dividend yield is the annual dividend payment expressed as a percentage of the stock price.

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37
Q

What is buying on margin?

A

Buying on margin means borrowing part of the purchase price of a stock from a broker.

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38
Q

What is a margin call?

A

A margin call occurs when the value of an investor’s margin account falls below the maintenance level.

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39
Q

What is short selling?

A

Short selling is when an investor borrows stock, sells it, and then buys it back later to return it, hoping to profit from a price decline.

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40
Q

What is insider trading?

A

Insider trading refers to buying or selling securities based on material, non-public information.

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41
Q

What is a market order?

A

A market order is a buy or sell order to be executed immediately at the current market price.

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42
Q

What is a price-contingent order?

A

A price-contingent order is an order where the trader specifies a price at which they are willing to buy or sell a security.

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43
Q

What is a bid price?

A

A bid price is the price at which a dealer or buyer is willing to purchase a security.

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44
Q

What is an ask price?

A

An ask price is the price at which a dealer or seller is willing to sell a security.

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45
Q

What is the bid-ask spread?

A

The bid-ask spread is the difference between the bid price and the ask price, representing the dealer’s profit.

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46
Q

What is a dealer market?

A

A dealer market is a market where dealers buy and sell securities from their own inventory.

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47
Q

What is an Electronic Communication Network (ECN)?

A

An ECN is a computer-operated trading network that allows direct trading without a middleman.

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48
Q

What is a Designated Market Maker (DMM)?

A

A DMM is responsible for maintaining a fair and orderly market in a particular security.

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49
Q

What is algorithmic trading?

A

Algorithmic trading uses computer programs to make trading decisions based on pre-set criteria.

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50
Q

What is high-frequency trading?

A

High-frequency trading is a type of algorithmic trading that involves executing a large number of orders at extremely high speeds.

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51
Q

What is a dark pool?

A

A dark pool is a private trading venue where investors can trade large blocks of securities without revealing their intentions.

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52
Q

What is a full-service broker?

A

A full-service broker provides personalized investment advice, as well as executes trades on behalf of clients.

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53
Q

What is a discount broker?

A

A discount broker executes trades for clients but offers little or no investment advice.

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54
Q

What are explicit trading costs?

A

Explicit trading costs refer to the brokerage commissions paid when a trade is executed.

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55
Q

What are implicit trading costs?

A

Implicit trading costs include the bid-ask spread and the price concessions when trading large quantities of securities.

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56
Q

What is the Wilshire 5000 index?

A

The Wilshire 5000 is a broad-based market index used as a benchmark for the performance of equity fund managers.

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57
Q

What is insider information?

A

Insider information is non-public, material information about a company that can affect its stock price.

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58
Q

What is capital gains tax?

A

Capital gains tax is a tax on the profit made from the sale of a financial asset, like stocks or real estate.

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59
Q

What is a revenue bond?

A

A revenue bond is a municipal bond backed by the revenue generated from the project it is issued to finance.

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60
Q

What is a general obligation bond?

A

A general obligation bond is a municipal bond backed by the full taxing power of the issuing government.

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61
Q

What is a Treasury note?

A

A Treasury note is a U.S. government debt security with a maturity of 1 to 10 years.

62
Q

What is a Treasury bond?

A

A Treasury bond is a U.S. government debt security with a maturity of 10 to 30 years.

63
Q

What is a municipal bond?

A

A municipal bond is a debt security issued by a state, municipality, or county to finance public projects.

64
Q

What is a callable bond?

A

A callable bond is a bond that can be redeemed by the issuer before its maturity date at a specified call price.

65
Q

What is a convertible bond?

A

A convertible bond is a bond that can be converted into a specified number of shares of the issuing company’s stock.

66
Q

What is inflation-protected Treasury bond (TIPS)?

A

TIPS are U.S. government bonds that are indexed to inflation, providing protection against inflation risk.

67
Q

What is a conforming mortgage?

A

A conforming mortgage is a loan that meets the underwriting guidelines set by Fannie Mae and Freddie Mac.

68
Q

What is a subprime mortgage?

A

A subprime mortgage is a high-risk loan offered to borrowers with weaker credit.

69
Q

What is residual claim?

A

Residual claim refers to the right of shareholders to the remaining assets of a company after all debts have been paid.

70
Q

What is limited liability?

A

Limited liability means that shareholders can only lose the amount they invested in the company, not more.

71
Q

What is a capital gain?

A

A capital gain is the profit made from selling an asset for more than its purchase price.

72
Q

What is a stock market index?

A

A stock market index is a measurement of the performance of a section of the stock market.

73
Q

What is the S

A

500 index? & The S&P 500 is a market-value-weighted index of 500 large U.S. companies.

74
Q

What is the Nasdaq index?

A

The Nasdaq index tracks the performance of more than 3,000 technology and growth-oriented companies.

75
Q

What is the role of a mutual fund manager?

A

A mutual fund manager selects investments for the fund to meet its stated objectives.

76
Q

What is a balanced mutual fund?

A

A balanced mutual fund holds both equities and fixed-income securities in stable proportions.

77
Q

What is an index fund?

A

An index fund seeks to replicate the performance of a specific market index.

78
Q

What is a hedge fund fee structure?

A

Hedge funds typically charge a management fee plus a percentage of the profits (e.g., “2 and 20”).

79
Q

What is a sector fund?

A

A sector fund is a mutual fund that focuses its investments on a specific industry or sector.

80
Q

What is the role of the Federal Reserve in margin trading?

A

The Federal Reserve sets the margin requirements for borrowing in stock trading.

81
Q

What is a maintenance margin?

A

A maintenance margin is the minimum amount of equity that must be maintained in a margin account.

82
Q

What is NAV in mutual funds?

A

NAV, or Net Asset Value, is the value of a mutual fund’s assets minus liabilities, divided by the number of shares outstanding.

83
Q

What are the advantages of ETFs?

A

ETFs can be traded like stocks, sold short, bought on margin, and are generally cheaper than mutual funds.

84
Q

What is a revenue bond used for?

A

Revenue bonds are used to finance specific projects, with repayments made from the revenue generated by those projects.

85
Q

What is a long position in futures trading?

A

A long position is the commitment to purchase an asset at a future date at a specified price.

86
Q

What is a short position in futures trading?

A

A short position is the commitment to deliver an asset at a future date at a specified price.

87
Q

What is the function of a broker?

A

A broker facilitates the buying and selling of securities for investors.

88
Q

What is a full-service broker?

A

A full-service broker provides investment advice, research, and trade execution services to clients.

89
Q

What is a discount broker?

A

A discount broker executes trades for clients at lower fees but offers minimal or no investment advice.

90
Q

What is the purpose of short selling?

A

Short selling allows investors to profit from a decline in a security’s price by selling borrowed shares and buying them back later at a lower price.

91
Q

What is the primary market?

A

The primary market is where new securities are issued and sold to investors for the first time.

92
Q

What is the secondary market?

A

The secondary market is where previously issued securities are bought and sold among investors.

93
Q

What is a broker’s call loan?

A

A broker’s call loan is a loan that brokers use to fund margin accounts for investors.

94
Q

What is the Federal funds rate?

A

The Federal funds rate is the interest rate at which banks lend reserve balances to other banks overnight.

95
Q

What is the LIBOR rate?

A

LIBOR was the premier interest rate used for short-term loans in the international money markets, now replaced by other benchmarks.

96
Q

What is a money market fund?

A

A money market fund is a mutual fund that invests in short-term, low-risk money market instruments.

97
Q

What is the bid price in a stock transaction?

A

The bid price is the price a buyer is willing to pay for a security.

98
Q

What is the ask price in a stock transaction?

A

The ask price is the price a seller is willing to accept for a security.

99
Q

What is the bid-ask spread?

A

The bid-ask spread is the difference between the bid price and the ask price in a stock transaction.

100
Q

What is a municipal revenue bond?

A

A municipal revenue bond is a bond backed by the revenue generated from the project it finances.

101
Q

What is a general obligation bond?

A

A general obligation bond is backed by the credit and taxing power of the issuer, typically a government.

102
Q

What is an American Depository Receipt (ADR)?

A

An ADR is a certificate that represents shares in a foreign company and is traded in U.S. financial markets.

103
Q

What is equity in a company?

A

Equity represents ownership in a company, typically in the form of common stock.

104
Q

What is a bond?

A

A bond is a debt security where the issuer borrows money from investors and promises to repay with interest.

105
Q

What is diversification in investing?

A

Diversification involves spreading investments across various assets to reduce risk.

106
Q

What is capital market?

A

The capital market is a financial market for buying and selling long-term debt and equity instruments.

107
Q

What is asset allocation?

A

Asset allocation is the process of distributing investments across different asset classes like stocks, bonds, and cash.

108
Q

What is security selection?

A

Security selection is the process of choosing specific securities within an asset class for investment.

109
Q

What is a mortgage-backed security?

A

A mortgage-backed security is a financial instrument secured by a pool of mortgage loans.

110
Q

What is a hedge fund?

A

A hedge fund is an investment fund that uses various strategies to earn active returns for its investors.

111
Q

What is an exchange-traded fund (ETF)?

A

An ETF is a type of investment fund that tracks an index and trades on exchanges like a stock.

112
Q

What is liquidity in finance?

A

Liquidity refers to how easily an asset can be converted into cash without affecting its price.

113
Q

What is a callable bond?

A

A callable bond allows the issuer to repay the bond before its maturity date at a specified price.

114
Q

What is a convertible bond?

A

A convertible bond can be converted into a predetermined number of shares of the issuing company’s stock.

115
Q

What is the Dow Jones Industrial Average (DJIA)?

A

The DJIA is a price-weighted index that tracks 30 major U.S. companies.

116
Q

What is the Standard

A

Poor’s 500 (S&P 500)? & The S&P 500 is a market-value-weighted index of 500 large U.S. companies.

117
Q

What is inflation risk?

A

Inflation risk is the potential for inflation to reduce the purchasing power of future cash flows from an investment.

118
Q

What is the purpose of mutual funds?

A

Mutual funds pool money from many investors to invest in a diversified portfolio of securities.

119
Q

What is the Wilshire 5000 index?

A

The Wilshire 5000 is a comprehensive market index that tracks nearly all publicly traded U.S. stocks.

120
Q

What is an option in financial markets?

A

An option is a financial contract that gives the holder the right, but not the obligation, to buy or sell an asset at a specific price within a certain period.

121
Q

What is a futures contract?

A

A futures contract is an agreement to buy or sell an asset at a future date for a predetermined price.

122
Q

What is a mutual fund’s expense ratio?

A

A mutual fund’s expense ratio is the percentage of a fund’s assets that are used to cover operating expenses.

123
Q

What is the capital gains yield?

A

The capital gains yield is the price appreciation or increase in the value of an asset or investment.

124
Q

What is dividend income?

A

Dividend income is the payment made by a corporation to its shareholders from its profits.

125
Q

What is market capitalization?

A

Market capitalization is the total value of a company’s outstanding shares of stock.

126
Q

What is a hedge?

A

A hedge is an investment strategy used to reduce or limit the risk of adverse price movements in an asset.

127
Q

What is an index fund?

A

An index fund is a mutual fund designed to track the performance of a specific market index.

128
Q

What is portfolio diversification?

A

Portfolio diversification is the practice of investing in a variety of assets to reduce risk.

129
Q

What is systematic risk?

A

Systematic risk is the risk inherent to the entire market or market segment, which cannot be diversified away.

130
Q

What is unsystematic risk?

A

Unsystematic risk is specific to a company or industry and can be reduced through diversification.

131
Q

What is a callable option?

A

A callable option allows the issuer of a bond to repurchase it before the maturity date.

132
Q

What is a strike price?

A

The strike price is the price at which the holder of an option can buy or sell the underlying asset.

133
Q

What is a call option?

A

A call option gives the holder the right to buy an asset at a specified price within a specified time period.

134
Q

What is a put option?

A

A put option gives the holder the right to sell an asset at a specified price within a specified time period.

135
Q

What is a premium in options trading?

A

The premium is the price paid for purchasing an option contract.

136
Q

What is a long position?

A

A long position is the purchase of a security with the expectation that its value will rise.

137
Q

What is a short position?

A

A short position is when an investor sells a borrowed security, expecting its price to decline.

138
Q

What is insider trading?

A

Insider trading involves buying or selling a security based on non-public, material information.

139
Q

What is liquidity risk?

A

Liquidity risk is the risk that an asset cannot be sold quickly without a significant price concession.

140
Q

What is interest rate risk?

A

Interest rate risk is the risk that changes in interest rates will negatively affect the value of an investment.

141
Q

What is credit risk?

A

Credit risk is the risk that a borrower will default on their debt obligations.

142
Q

What is a limit order?

A

A limit order is an order to buy or sell a security at a specific price or better.

143
Q

What is a market order?

A

A market order is an instruction to buy or sell a security immediately at the best available price.

144
Q

What is an over-the-counter (OTC) market?

A

An OTC market is a decentralized market where securities are traded directly between parties without a formal exchange.

145
Q

What is the role of a clearinghouse in futures trading?

A

A clearinghouse acts as an intermediary between buyers and sellers in futures contracts to ensure the transaction is completed.

146
Q

What is a margin account?

A

A margin account allows investors to borrow money from their broker to purchase securities.

147
Q

What is a maintenance margin?

A

A maintenance margin is the minimum amount of equity that must be maintained in a margin account.

148
Q

What is an initial public offering (IPO)?

A

An IPO is the first time a company offers its shares to the public for purchase.

149
Q

What is a corporate bond?

A

A corporate bond is a debt security issued by a corporation to raise capital.

150
Q

What is a tax-exempt bond?

A

A tax-exempt bond is a bond where the interest income is exempt from federal income tax, often issued by municipalities.

151
Q

maintenance level

A

the maintenance level is 1 minus the minimum percentage of the total investment value that must be covered by the investor’s own funds to avoid a margin call from the broker

Investments (2 decks)

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