Chapter 2: The Financial Markets and Interest Rates Flashcards
Capital Markets
All institutions and procedures that facilitate transactions in long-term financial instruments.
Angel Investor
A wealthy private investor who provides capital for a business start-up.
Venture Capitalist
An investment firm (or individual investor) that provides money to business start-ups.
Public Offering
A security offering where all investors have the opportunity to acquire a portion of the financial claims being sold.
Private Placement
A security offering limited to a small number of potential investors.
Primary Market
A market in which securities are offered for the first time for sale to potential investors.
Initial Public Offering (IPO)
The first time a company sells its stock to the public.
Seasoned Equity Offering (SEO)
The sale of additional stock by a company whose shares are already publically traded.
Secondary Market
A market in which currently outstanding securities are traded.
Money Market
All institutions and procedures that facilitate transactions in short-term instruments issued by borrowers with very high credit ratings.
Spot Market
Cash market
Futures Market
Markets where you can buy or sell something at a future date.
Organized Security Exchanges
Formal organizations that facilitate the trading of securities.
Over-the-Counter Markets
All security markets except the organized exchanges. The money market is an over-the-counter market. Most corporate bonds also are traded in the over-the-counter market.
Investment Banker
A financial specialist who underwrites and distributes new securities and advises corporate clients about raising new funds.
Underwriting
The purchase and subsequent resale of a new security issue. The risk of selling the new issue at a satisfactory (profitable) price is assumed (underwritten) by the investment banker.
Underwriter’s Spread
The difference between the price the corporation raising the money gets and the public offering price of a security.
Syndicate
A group of investment bankers who contractually assist in the buying and selling of a new security issue.
Privileged Subscription
The process of marketing a new security to a select group of investors.
Dutch Auction
A method of issuing securities (common stock) by which investors place bids indicating how many shares they are willing to buy and at what price. The price the stock is then sod for becomes the lowest price at which the issuing company can sell all the available shares.
Direct Sale
The sale of securities by a corporation to the investing public without the services of an investment-banking firm.
Flotation Costs
The transaction cost incurred when a firm raises funds by issuing a particular type of security.
Opportunity Cost of Funds
The next-best rate of return available to the investor for a given level of risk.
Nominal (or Quoted) Rate of Interest
The interest rate paid on debt securities without an adjustment for any loss in purchasing power.
