Chapter 2 Flashcards
Money market securities are sometimes referred to as ____ ___________ because they are ____ and _________
cash equivalents , safe , marketable
What are the main characteristics of the Money Market?
made up of debt securities
<1 year (short)
highly marketable
How does an investor in a T-bill earn interest?
By buying the bill at a discount from face value to be received at maturity
What initial maturities are T-bills issued with?
4 week and 26 weeks
What denominations do T-bills typically sell for?
$10,000
What is the difference between Bid and Ask price?
The bid price is the highest price a buyer is willing to pay for a security, while the ask price is the lowest price a seller is willing to accept.
What is a Commercial Paper?
short-term security issued by large well-known companies to raise funds
What are Bankers’ Acceptance used for?
To back international sales of goods and services
What are Eurodollars?
dollar-dominated deposits at any foreign bank
AS LONG AS IT’S NOT IN THE US it’s a eurodollar
The dealer’s price is always discounted on a ….
360 days year
If they ask for Yield use …
365 days
If they ask for the Price use…
360 days
What are Repose and Reserves?
If a company owns many investments and needs quick cash, it can borrow money cheaply through a repurchase agreement, where it temporarily sells its securities and agrees to buy them back later
what are repurchase agreements most like?
short-term collateralized loans
What does the Brokers’ calls rate represent?
The interest rate a broker pays to the bank for borrowing money
What are Federal Funds?
deposits of commercial banks at the Federal Reserve
What is LIBOR?
the interest rate used by large banks in London to trade
What are the main characteristics of the Bond Market?
composed of debt securities
>1 year (long-term)
fixed-income capital market
What is the initial maturity of Treasury notes and T-bonds?
Treasury notes: between 1 and 10 years
T-bonds: between 10 and 30 years
What are TIPS?
treasury bonds that protect investors from inflation
Are Municipal Bonds exempt from federal income taxation?
Yes!
The yield on tax-exempt bonds is ____ than the yield on taxable bonds
less
Income earned on T-bills is ______ from state and local taxes
exempt
true or false: Corporate Bonds do not pay taxes.
FALSE; they are not tax-deductible
A ________ ____________ security is an example of ______________
mortgage pass-through , securitization
What does characteristic of Residual Claimant mean? (common stock)
the last to get paid if a company goes bankrupt or distributes profits
What does characteristic of Limited Liability mean? (common stock)
if the company goes bankrupt they only lose the money they invested; the bank cannot go after them or their house as collateral
What is the Dow jones Industrial Average?
Price-weighted average of 30 large industrial stocks
Price per stock or share / # stocks or shares of companies
What is the Standard and poor’s 500 index?
Value-weighted index
