Ch.2 Flashcards
Spot Markets
- Markets where financial instruments or commodities are traded for immediate delivery
Futures Markets
- Markets where participants agree to buy or sell an asset at future date for a price specified today
Money Markets
- Markets for short-term debt securities
- Typically with maturities of less then one year
Capital Markets
- Markets where long-term debt or equity-backed securities are bought and sold
Primary Markets
- Markets where new securities are issued and sold for the first time
- Investment Banks are trading
Secondary Markets
- Markets where previously issued securities are traded between investors
- Trading on Charles Schwab
Private Markets
Markets where transactions are negotiated directly between parties without public exchange
Public Markets
- Markets where securities are traded on organized exchanges and are open to the public
Derivatives
- Financial instruments whose value is derived from the value of an underlying asset
- Options or futures
Investment Banks (IBs)
- Financial institutions that assist companies in raising capital, underwriting new securities, and providing advisory services for mergers and acquisitions
Commercial Banks
Financial institutions that provide a broad range of services
- Accepting deposits
- Providing loans
- Offering investment products
Financial Services Corporations
Large firms that offer a range of financial services
- Investment
- Banking
- Insurance Services
Mutual Funds
Investment funds that pool money from many investors to purchase a diversified portfolio of securities
Money Market Funds
Mutual funds that invest in short-term high-quality, and low-risk debt instruments
- Treasury Bills
- Commercial Paper
Exchange-Traded Funds (ETFs)
Investment funds that trade on stock exchanges similar to stocks and hold a portfolio of assets such as
- Bonds
- Stocks
- Commodities
Hedge Funds
Private investment funds that engage in more aggressive strategies to maximize returns for their investors
Private Equity Companies
Investment firms that acquire private companies or invest in private companies through
- Equity stakes
- Goal of improving their financial performance
Physical Location Exchanges
Exchanges have a physical location where trading can take place (NYSE)
Over-the-Counter (OTC) market
Securities are traded directly between parties rather then on a formal exchange
Dealer Market
Transactions are made through a network of dealers who buy and sell for their own accounts
Closely Held Corporation
Corporation who’s stock is held by a small number of shareholders often family members and it is not publicly traded
Publicly Owned Corporation
Traded publicly and can be owned by a wide range of investors
Going Public
Process which a private company becomes a publicly traded company by offering its shares through an initial public offering (IPO)
Initial Public Offering (IPO) Market
Market for the first sale of stock by a private company to the public
Efficient markets hypothesis (EMH)
A theory that states that asset prices fully reflect all available information, making it
impossible to consistently achieve higher returns without taking additional risk
Arbitrage
The practice of taking advantage of a price difference between two or more markets to
generate a profit.
Behavioral finance
A field of study that combines behavioral and psychological theories with economics to
explain why people make irrational financial decisions.
