Chapter 1 & 2 Flashcards
SECURITY
A claim on the issuer’s future income or assets
BOND
A debt security that promises to make payments periodically for a specified period of time
INTEREST RATE
The cost of borrowing
Treasury Bills (T-Bills)
Short-term federal government bonds that provide no interest, but sold at a discount
Stock
Share of ownership in a corporation -> the value reflect expectations of future earnings and grows
Stock Market
Place where stocks are bought and sold
Long position
purchase a security
Short Selling
selling a security one does not own
Financial Intermediaries
- Borrow funds from people who saved
- Make loan to people who need funds
Ex: Bank, Insurance Companies, Pension funds
Bonds - Debt Instrument
A contract between borrower and lender (regularly payment until maturity)
Equity
Shares in a corporation that trade in the market (no maturity date)
Primary Market
Issuance of new security (typically private)
- Investment banks guarantee prices (underwriting)
Secondary Market
Buy and sell previously issued securities
- brokers (match buyer and seller) v.s. dealers (offer stated price for securities)
Exchanges
Buyer and seller meet in 1 central location
Over-the-count-market
dealer have inventory to buy/sell
