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Business exam 5 > chap 19 > Flashcards

chap 19 Flashcards

Chapters 17-20 exam prep (61 cards)

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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
callable
prefered stockholders could be required to sell their shares back to the corporation
26
bond
corporate certificate indicating that an investor has lent money to a firm or government
27
corporate bonds are usually issued in units of...
$1000 and up
28
U.S government bond
issued by the federal government and considered the safest type of bond investment
29
treasury bill
matures in less than a year, issued with a minimum donation of $1000
30
treasury note
matures in 10 years or less $1000 and up
31
treasury bond
matures in 25 years or more
32
municipal bond
issued by states, cities, countires, and other government agencies
33
yankee bond
issued by a foreign government
34
advantages of issuing bonds
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
Disadvantages of issuing bonds
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
unsecured bonds (debenture bond)
bonds that are unsecured - not backed by any collateral such as equipment
37
secured bonds (Mortage bonds)
bonds backed by collateral such as land or buildings that is pledged to bondholders if interest or principle is not paid
38
sinking fund
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
why are sinking funds attractive to issuing firms and investors
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
callable bond
permits the bond issuer to pay off the bond's principal before its maturity date
41
stockbroker
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
robo-advisors
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
Human financial managers (CFPs)
are well schooled in estate planning , mortgage refinancing, and trust investments
44
five criteria when choosing investment options
investment risk, yield, duration, liquidity, and tax consequences
45
diversification
buying several different investment alternatives to spread the risk of investing
46
fiduciary
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
buying stocks ...
makes investors part owners of a company and can participate in its success or downfall
48
bull vs bear investors
bulls believe that stock prices are going to rise, bears expect stock prices to decline
49
capital gains
the positive difference between the purchase price of a stock and its sale price
50
stock splits
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
buying stock on margin
borrowing some of the stock's purchase cost from the brokerage form
52
if your bond does not have features that make it attractive to other investors...
you may need to sell it at a discount or at a price less than the bonds face value
53
Bond prices generally fluctuate inversely with current market interest rates
as interest rates go up, bond prices fall
54
Junk bonds
high risk, high interest bonds that can have high returns
55
Mutual fund
an organization that buys stock and bonds and then sells shares in those securities to the public
56
ETFs Exchange traded funds
collections of stocks, bonds, and other investments that are traded on exchange but are traded more like individual stocks than mutual funds
57
bonds
low degree of risk, secure expected income, little possible growth or capital gain
58
preferred stock
medium degree of risk, steady expected income, little possible capital gain
59
common stock
high degree of risk, variable expected income, good possible growth
60
mutual fund
medium degree of risk, variable expected income, good possible growth
61
ETFs
medium degree of risk, variable expected income, good possible capital gain

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