Chapter 1 (part 3) Flashcards
What is a security?
A formal, legal document, which sets out rights and obligations of the buyer and seller.
What are the 5 types of financial instruments?
- Debt instruments
- Equity instruments
- Investment fund - (mutual fund, pension fund.)
- Derivatives
- ETF’s and Linked funds
What are 6 ways Private equity is invested?
- Leveraged buyout - acquisition of company financed with equity and debt.
- Growth capital - Financing expanding firms for acquisitions and high growth rates.
- Turnaround - Investing in underperforming industries that are in financial need or going to restructure.
- Early stage venture capital - investment in firms in infancy stages of developing products or services in high growth industries.
- Late stage venture capital - Investing in well established companies that are not yet profitable.
- Distressed debt - buying of debt securities of private/public companies trading below par due to financial trouble.
What are 5 types of investors on the private equity markets?
- Public pension plans
- Private pension plans
- Endowments
- Foundations
- High net-worth investors
What is the positives and negatives of investing in private equity markets
higher returns but has lower liquidity
What are the 5 types of debt instruments?
What is a debt instrument?
- Bonds
- Debentures
- Mortgages
- Treasury bills
- Commercial paper.
What is a equity instrument?
Investor buys a share of the company and participates in the companies fortune (capital gains). The company also has the option to pay portion of profits in form of dividends.
What is an investment fund?
A company or trust that manages investments for clients. The fund raises capital by selling shares to investors and then invests the capital.
What is a derivative?
Options and Forwards, They are based on underlying instruments such as a stock or index.
