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Business exam 5 > chap 19 > Flashcards

chap 19 Flashcards

Chapters 17-20 exam prep

1
Q

securities markets

A

A financial marketplace for stocks, bonds, and other investments.

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2
Q

Two major functions of securities markets

A

Assist businesses in finding long-term funding to finance capital needs. (like expanding operations and developing new products). Provide private investors a place to buy and sell securities like stocks and bonds.

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3
Q

Primary Market

A

Handles the sale of new securities

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4
Q

IPO

A

the first public offering of a Corporation’s stocks

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5
Q

secondary market

A

handles the trading of the securities between investors, with the proceeds of the sale going to the investor selling the stock

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6
Q

investment bankers

A

specialists who assist in the issue and sale of new securities. Can underwrite new issues of stocks or bonds

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7
Q

institutional investors

A

large organizations like pension funds, mutual funds, and insurance companies that invest their own funds or the funds of others

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8
Q

stock exchange

A

is an organization whose members can buy and sell (exchange) securities on behalf of companies and individual investors

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9
Q

Over +-The-Counter market

A

provides companies and investors with the means to trade stocks not listed on the large securities exchange

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10
Q

NASDAQ

A

was the world’s first electronic stock market

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11
Q

SEC

A

the federal agency responsible for regulating the various stock exchanges

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12
Q

prospectus

A

a condensed version of economic and financial information that a company must file with the SEC before issuing stock

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13
Q

1934 act

A

established guidelines to prevent insiders within the company to take advantage of privileged information they may have, established guidelines a company must follow when issuing financial securities

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14
Q

insider trading

A

using knowledge or information that individuals gain through their position that allows them to benefit unfairly from fluctuations in security prices

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15
Q

because of communications and the relaxation of many legal barriers…

A

investors can buy securities from companies almost anywhere in the world

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16
Q

stocks

A

shares of ownership in a company

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17
Q

stock certificate

A

evidence of stock ownership that specifies the name of the company, the number of shares it represents, and the type of stock being issued

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18
Q

par value

A

a dollar amount assigned to each share of stock by the corporation’s charter

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19
Q

since par values do not reflect the market value of the stock, (what the stock is actually worth)

A

most companies issue stock with a very low par value or no par value

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20
Q

Advantages of issuing stock

A

stockholders never have to be repaid their investment
there is no legal obligation to pay dividends to stockholders
can improve the condition of a firm’s balance sheet because issuing stocks creates no debt

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21
Q

Disadvantages of issuing stock

A

all owners have the right to vote for the company’s board of directors
issuing shares can alter the control of the firm
dividends are paid from profit after taxes and are not tax deductible
the need to keep stockholders happy can affect mangers’ decisions

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22
Q

common stock

A

the most basic form of ownership in a firm, have the right to vote and elect members, share in the firm’s profits, and have preemptive rights

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23
Q

preemptive right

A

to purchase new shares of common stock before anyone else

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24
Q

preferred stock

A

stock that gives its owners preference in the payment of dividends and an earlier claim on assets than common stockholders of the company is forced out of business and its assets sold

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25
Q

callable

A

prefered stockholders could be required to sell their shares back to the corporation

26
Q

bond

A

corporate certificate indicating that an investor has lent money to a firm or government

27
Q

corporate bonds are usually issued in units of…

A

$1000 and up

28
Q

U.S government bond

A

issued by the federal government and considered the safest type of bond investment

29
Q

treasury bill

A

matures in less than a year, issued with a minimum donation of $1000

30
Q

treasury note

A

matures in 10 years or less
$1000 and up

31
Q

treasury bond

A

matures in 25 years or more

32
Q

municipal bond

A

issued by states, cities, countires, and other government agencies

33
Q

yankee bond

A

issued by a foreign government

34
Q

advantages of issuing bonds

A

bondholders are creditors of the firm, bond interest is a business expense and tax deductible, bonds are a temporary source of funding, bonds can be repaid before the maturity date if they are callable

35
Q

Disadvantages of issuing bonds

A

bonds increase debt, paying interest on bonds is a legal obligation, the face value of the bond must be repaid on the maturity date

36
Q

unsecured bonds (debenture bond)

A

bonds that are unsecured - not backed by any collateral such as equipment

37
Q

secured bonds (Mortage bonds)

A

bonds backed by collateral such as land or buildings that is pledged to bondholders if interest or principle is not paid

38
Q

sinking fund

A

a reserve account in which the issuer of a bond periodically retires some part of the bond principal prior to maturity so that enough capital will be accumulated by the maturity date to pay off the bond

39
Q

why are sinking funds attractive to issuing firms and investors

A

they provide for an orderly retirement, they reduce the risk the bond will not be repaid, they support the market price of the bond because they reduce the rick the bond will not be repaid

40
Q

callable bond

A

permits the bond issuer to pay off the bond’s principal before its maturity date

41
Q

stockbroker

A

a registered representative who works for a brockerage form as a market intermediary to buy and sell securities for clients , they place an order and negotiate a price

42
Q

robo-advisors

A

automated online tools that use advanced algorithms to make investment suggestions, manage money, rebalance a client’s portfolio and shift investments to save taxes

43
Q

Human financial managers (CFPs)

A

are well schooled in estate planning , mortgage refinancing, and trust investments

44
Q

five criteria when choosing investment options

A

investment risk, yield, duration, liquidity, and tax consequences

45
Q

diversification

A

buying several different investment alternatives to spread the risk of investing

46
Q

fiduciary

A

advisors that always act in the best interest of their clients and must disclose any possible conflicts of interest that might impact their clients

47
Q

buying stocks …

A

makes investors part owners of a company and can participate in its success or downfall

48
Q

bull vs bear investors

A

bulls believe that stock prices are going to rise, bears expect stock prices to decline

49
Q

capital gains

A

the positive difference between the purchase price of a stock and its sale price

50
Q

stock splits

A

an action by a company that gives stockholders two more shares of stock for each one they own, they cause no change in the firms ownership structure an no immediate change in the investment’s value

51
Q

buying stock on margin

A

borrowing some of the stock’s purchase cost from the brokerage form

52
Q

if your bond does not have features that make it attractive to other investors…

A

you may need to sell it at a discount or at a price less than the bonds face value

53
Q

Bond prices generally fluctuate inversely with current market interest rates

A

as interest rates go up, bond prices fall

54
Q

Junk bonds

A

high risk, high interest bonds that can have high returns

55
Q

Mutual fund

A

an organization that buys stock and bonds and then sells shares in those securities to the public

56
Q

ETFs Exchange traded funds

A

collections of stocks, bonds, and other investments that are traded on exchange but are traded more like individual stocks than mutual funds

57
Q

bonds

A

low degree of risk, secure expected income, little possible growth or capital gain

58
Q

preferred stock

A

medium degree of risk, steady expected income, little possible capital gain

59
Q

common stock

A

high degree of risk, variable expected income, good possible growth

60
Q

mutual fund

A

medium degree of risk, variable expected income, good possible growth

61
Q

ETFs

A

medium degree of risk, variable expected income, good possible capital gain

Business exam 5 (4 decks)

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