Business IV

Question 1

Volume

Answer 1

The number of shares that trade hands (from buyer to seller) during a certain period.

Question 2

Ask

Answer 2

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

Question 3

“To catch a falling knife”

Answer 3

Trying to estimate where a retracement will stop.

Question 4

Put/call ratio

Answer 4

Ratio of the trading volume of put options to call options.

If calls outpace puts: market sentiment is bullish
If puts outpace calls: sentiment is bearish

Question 5

Volume spike

Answer 5

A volume number that is double or more the size of the volume of the preceding day.

Question 6

Capital gains tax

Answer 6

Tax levied on capital gains incurred by people and corporations.

These taxes are only triggered when an investor sells a capital asset for a price that’s more than the purchase price. This only happens when the capital gain is realized, not while it is being held.

An investor can own shares that appreciate every year, but not have to pay capital gains tax until they are sold.

Question 7

Good effects of lower gas prices?

Answer 7

Money Americans save at the pump can be spent elsewhere, giving the economy a lift.

Question 8

Bad effect of lower gas prices?

Answer 8

• Low prices can hurt energy firms that depend on higher prices to finance exploration and green energy innovation (most energy companies have a stake in alternative energy).
• cheap fuel promotes the use of larger, less gas-efficient vehicles and can delay investment in cleaner energy sources.

Question 9

Capital loss

Answer 9

Loss incurred when a capital asset (investment or real estate) decreases in value.

The loss is not realized until the asset is sold for a price lower than the original price.

Question 10

Capital gain

Answer 10

1) . An increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold.
2) . Profit that results when the price of a security held by a mutual fund rises above its purchase price and the security is sold (realized gain). If the security continues to be held, the gain is unrealized.

Question 11

Capital asset

Answer 11

A type of asset not sold in the regular course of business’s operations and is generally owned for its role in contributing to a business’s ability to generate profit.

It is expected that the benefits gained from the asset will extend beyond a time span of one year.

Examples are: land, buildings, machinery, etc.

Question 12

S and P 400

Answer 12

An index of mid cap companies with market caps between $2 billion and $10 billion.

Question 13

What happens to a bond’s yield when the price rises?

Answer 13

A bond’s yield goes down when the price goes up.

It goes up when the price goes down.

(A bond’s yield and it’s price are inversely related).

Question 14

What securities move opposite of TBT’s

Answer 14

REIT’s, utilities, treasuries, and closed end funds.

Question 15

TBT

Answer 15

Mirrors movement of interest rates (if TBT is down interest rates are down).

It mirrors the movements of 10-year treasuries.
TBT is a basket of JP Morgan bonds sold short.

Question 16

Commodity

Answer 16

A basic good used in commerce that is interchangeable with other commodities of the same type (oil, grains, gold, beef, etc).

What differentiates commodities from other goods (like electronics, for instance, which is not a commodity) is that there is little difference between a commodity that comes from one producer or another (a barrel of oil is a barrel of oil, no matter where it comes from).

Commodities are bought and sold through futures contracts on commodities exchanges.

Question 17

Mid cap

Answer 17

A company with a market cap between $2 billion and $10 billion.

Question 18

Blue chip company

Answer 18

A large cap company that is a leader in its sector and offers a dividend to shareholders.

Question 19

Index

Answer 19

a.k.a. Market index, market average

A measure of the overall health of a given portion of the market (sector, small cap, large cap, etc) as specified by a representative group of stocks from that portion.

A index is the sum of all the current values of stocks in the group divided by the total number of shares in the group.

Question 20

S and P 500

Answer 20

Standard and Poor’s index of 500 large cap companies that represent the leading industries in the US economy.

Tracks the ebb and flow of the large cap portion of the market.

Question 21

FX

Answer 21

Forex

The market where currencies are traded.

$1 trillion is traded there everyday

It is decentralized (has no central marketplace).

Question 22

Variable interest rate

Answer 22

An interest rate on a loan or security that fluctuates because it is based on a benchmark or index that fluctuates.

Question 23

Levy

Answer 23

To establish a fine or tax.

To put upon.

Ex: “taxes were levied”

Question 24

Hedge

Answer 24

Making an investment to reduce the risk of adverse price movement in the market (a way of reducing investment risk).

An example would be to do a put option for security, if you owned a stock you thought might go down.

Question 25

Margin

Answer 25

Borrowed money used to purchase securities.

Question 26

What is the world’s most vital natural resource?

Why?

Answer 26

• oil

- when the price of gas rises it affects how people travel, budget, and how goods are shipped.

Question 27

What is the main factor that affects gas prices?

Answer 27

Oil prices

Question 28

Unearned income

Answer 28

Income from any non job related sources (investments, etc)

Question 29

Front-running

Answer 29

Unethical practice of a broker trading an equity based on information from the analyst department before his client has been given the information.

(the broker buys in at a lower price then gives the info. to the customer, who buys in, causing the price to increase, which benefits the broker).

• the broker knows that when his customer buys in, it will cause the price to increase.

Question 30

What is the relationship between interest rates and utilities and treasuries?

Answer 30

Utilities can be a substitute for treasuries for some investors because there is little volatility and they have about a 3% yield.

When interest rates go down utilities and treasuries go up and vice versa.
Because if people buy a treasury with a fixed interest rate of 2% for $20.00 and interest rates the next week go up to 2.5% and the 2.5% treasury is also sold for $20.00, your treasury with a 2% interest rate will go down in value because no one will want to buy a 2% treasury for $20.00 when they can buy a 2.5% treasury for $20.00.

You will only get around $18.00 for it (so when interest rates go up people dump their stock and utilities and treasuries fall).