1. Financial Assets Flashcards
What is asset allocation?
Asset allocation involves deciding how much money to allocate to broad classes of assets.
What are money markets composed of?
Money markets are composed of short-term, marketable, liquid, low-risk debt securities.
What are capital markets?
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.
What is a Treasury Bill (T-bill)?
A Treasury Bill is a government-issued debt security with a short-term maturity, sold to raise money.
What is a Certificate of Deposit (CD)?
A CD is a bank deposit where interest and principal are paid at maturity, and it cannot be withdrawn on demand.
What is commercial paper?
Commercial paper is short-term unsecured debt notes issued by large, well-known companies.
What is a banker’s acceptance?
A banker’s acceptance is an order to a bank by a customer to pay a sum of money at a future date.
What are Eurodollars?
Eurodollars are dollar-denominated deposits at foreign banks or branches of American banks.
What is a repurchase agreement?
A repurchase agreement is the short-term sale of securities with an agreement to repurchase them at a slightly higher price.
What is the federal funds rate?
The federal funds rate is the overnight rate set by the Federal Reserve.
What are Treasury notes and bonds?
Treasury notes have maturities up to 10 years, while bonds have maturities from 10 to 30 years.
What are municipal bonds?
Municipal bonds are tax-exempt bonds issued by state and local governments.
What are corporate bonds?
Corporate bonds are debt securities issued by private firms to borrow money directly from the public.
What are mortgage-backed securities?
Mortgage-backed securities represent an ownership claim in a pool of mortgages or an obligation secured by such a pool.
What is common stock?
Common stock represents ownership shares in a corporation.
What is preferred stock?
Preferred stock pays a fixed amount of income each year, but does not convey voting power.
What is an American Depository Receipt (ADR)?
An ADR is a certificate traded in U.S. markets representing ownership in shares of a foreign company.
What is the Dow Jones Industrial Average (DJIA)?
The DJIA is a price-weighted index of 30 large blue-chip corporations.
What is a derivative asset?
A derivative asset’s value is dependent on or contingent upon the value of an underlying asset.
What is a call option?
A call option gives the holder the right to purchase an asset at a specified price before a specified expiration date.
What is a put option?
A put option gives the holder the right to sell an asset at a specified price before a specified expiration date.
What is a futures contract?
A futures contract is an obligation to buy or sell an asset at a specified future date for a predetermined price.
What is an investment company?
An investment company pools and invests funds from individual investors in securities or other assets.
How is Net Asset Value (NAV) calculated?
NAV is calculated as the market value of assets minus liabilities, divided by the number of shares outstanding.