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Financial Management > 2 - Financial Markets & Institutions > Flashcards

2 - Financial Markets & Institutions Flashcards

1
Q

Occur when a business sells its stocks or bonds directly to savers; used by small firms

A

Direct transfers

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2
Q

Transfers may go through investment bank (IB; companies sells its stocks/bonds to the investment bank which then sells these same securities to savers.

A

Indirect transfers through IB

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3
Q

Facilitates the issuance of securities

A

Underwriter

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4
Q

May not be able to resell securities to savers for as much as it paid

A

Primary market transaction

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5
Q

Intermediary obtains funds from savers in exchange for its securities ; then they use this money to buy businesses’ securities

A

Indirect transfers through a financial intermediary

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6
Q

Markets which assets are bought or sold on the spot

A

Spot Markets

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7
Q

Markets where participants agree today to buy/sell an asset at some future date

A

Future Markets

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8
Q

Financial markets which funds are borrowed or loaned for short periods

A

Money Markets

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9
Q

Financial markets which funds are borrowed or loaned for long-term debt

A

Capital Markets

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10
Q

Markets in which corporations raise capital by issuing new securities

A

Primary Markets

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11
Q

Securities and other financial
assets are traded among
investors; markets in which existing, already outstanding securities are traded among investors

A

Secondary Markets

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12
Q

Transactions are worked out directly between 2 or more parties

A

Private Markets

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13
Q

Markets in which standardized contracts are
traded on organized
exchanges.

A

Public Markets

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14
Q

Financial asset whose
value is derived from
the value of some other
“underlying” asset

A

Derivatives

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15
Q

Formal organizations
having tangible physical
locations that conduct
auction markets in designated (“listed”) securities

A

Physical Location
Exchanges

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16
Q

Large collection of brokers & dealers that provides for trading in unlisted securities

A

Over-the-Counter
(OTC) Market

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17
Q

All facilities that
are needed to conduct
security transactions not
conducted on the physical location exchanges.

A

Dealer Markets

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18
Q

Corporation that is
owned by a few individuals who are typically
associated with the firm’s
management.

A

Closely Held
Corporation

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19
Q

Corporation that is
owned by a relatively
large number of individuals who are not actively
involved in the firm’s
management.

A

Publicly Owned Corporation

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20
Q

Act of selling stock to
the public at large by a
closely held corporation

A

Going Public

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21
Q

Market for stocks of companies that are in the process of going public

A

Initial Public Offering (IPO) Market

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22
Q

Price that balances buy and sell orders at any given time

A

Equilibrium price

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23
Q

Market in which prices are close to intrinsic values stocks seem to be in equilibrium

A

Efficient market

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24
Q

One of the cornerstones of modern finance theory; on average, asset prices are about equal to their intrinsic values.

A

Efficient Markets Hypothesis (EMH)

25
Q

Also called “tangible” or “real” asset markets

A

Physical asset markets

26
Q

Deals with stocks, bonds, notes, and mortgages

A

Financial asset markets

27
Q

Values are derived from changes in the prices of other prices

A

Derivative securities

28
Q

Contracts that offer protection against the default of a particular security

A

Credit default swaps (CDS)

29
Q

Purpose is to reduce risk exposure

A

Hedging operation

30
Q

Done in the hope of high returns but raises risk exposure

A

Speculation

31
Q

Organization that underwrites and distributes new investment securities and helps businesses obtain financing

A

Investment bank

32
Q

Also called ‘underwriters’

A

Investment bankers

33
Q

Traditional “department stores of finance” because they serve a variety of savers and borrowers

A

Commercial Banks

34
Q

Large conglomerates that combine many different financial institutions within a single corporation

A

Financial Services Corporation

35
Q

Cooperative associations whose members are supposed to have a common bond, such as being employees of the same firm

Cheapest source of funds available to individual borrowers

A

Credit Unions

36
Q

Retirement plans funded by corporations or government agencies for their workers and administered primarily by life insurance companies

A

Pension Funds

37
Q

Take savings in the form of annual premiums; invest these funds in stocks and bonds and make payments to the beneficiaries of the insured parties

A

Life Insurance Companies

38
Q

Organizations that pool investor funds to purchase financial instruments and thus reduce risks through diversification

A

Mutual Funds

39
Q

Try to outperform the overall markets

A

Actively Managed Funds

40
Q

Designed to simply replicate the performance of a specific market index

A

Indexed Funds

41
Q

Mutual funds that invest in short-term, low risk securities and allow investors to write checks against their accounts

A

Money-Market Funds

42
Q

Buy a portfolio of stocks of a certain type - then sell their own shares to the public

A

Exchange Traded Funds

43
Q

Largely unregulated; have large minimum investments and are marketed primarily to institutions and individuals with high net worth

A

Hedge Funds

44
Q

Organizations that operate much like hedge funds but rather than purchasing some of the stock of a firm, private equity players buy and then manage entire firms

A

Private Equity Companies

45
Q

Most active secondary market and the most important one to financial managers - where the prices of the firms’ stocks are established

A

Stock Market

46
Q

Different Stock Markets

A
  1. NYSE
  2. NASDAQ
47
Q

They purchase seats on exchanges and designate one or more of their officers as members

A

Brokerage Departments

48
Q

Exchange members with sell orders offer the shares for sale and they bid for by the members with buy orders

A

Auction Markets

49
Q

Licenses borders and overseas trading practices

A

Financial Industry Regulatory Authority (FINRA)

50
Q

Computerized network used by FINRA

A

National Association of Securities Dealers Automated Quotations (NASDAQ)

51
Q

Current price of a stock

A

Market Price

52
Q

Price at which the stock would sell if all investors had all knowledgeable information about a stock

A

Intrinsic Value

53
Q

Possibility of purchasing the company’s stock at a low price and then be able to turn around and sell it at a higher price making a profit

A

Arbitrage

54
Q

Rational traders will quickly take advantage of this opportunity and but the stock

A

Stock price is “too low”

55
Q

Rational traders will sell the stock pushing the price down to it equilibrium level

A

Stock price is “too high”

56
Q

Price at which they will pay for

A

Bid Price

57
Q

Price at which they will sell shares

A

Ask Price

58
Q

Difference between bid and ask prices represent the dealer’s mark-up or profit

A

Bid-Ask Spread

Financial Management (5 decks)

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