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Financial Economics > Chapter 3 > Flashcards

Chapter 3 Flashcards

1
Q

What are the items below describing?

  • Owned by a relatively small number of shareholders
  • Raise funds through private placement
  • Fewer obligations to release information to the public
  • Jumpstart Our Business Startups (JOBS) of 2012 allows up to 2,000 shareholders
A

Privately Held Firms

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2
Q

A private firm’s first issue of shares to the public

A

What is an Initial Public Offering?

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3
Q

The sale of additional shares by publicly traded firms

A

What is a Seasoned Equity Offering?

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4
Q

Advise the firm regarding the terms on which it should attempt to sell the securities

A

What are Underwriters?

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5
Q

What are the items below describing?

  • Underwriter bears price risk
  • Commonly underpriced compared to the price they could be marketed
A

Initial Public Offering

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6
Q
  • Sponsor of the ________ raises funds in its own IPO and goes public, but with no underlying commercial operations
  • Searches for an acquisition target, merging it into the publicly traded __________. (AKA: Blank Check Firms)
  • After 2 years, if there is no suitable acquisition, the money must be returned to investors
A

Special Purpose Acquisition Company (SPAC)

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7
Q
  • Least organized
  • Buyers and seller seek each other out directly
A

What are Direct Search Markets?

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8
Q

Traders specializing in particular assets buy and sell assets for their own accounts

A

What are Dealer Markets?

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8
Q

Brokers offer search services to buyers and sellers

A

What are Brokered Markets?

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8
Q

What are the items below describing?

  • Bids are offers to buy
  • In dealer markets, the bid price is the price at which the dealer is willing to buy
  • Investors “sell to the bid”
A

Bid Price

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8
Q

All traders in an asset meet (physically or electronically) at one place to buy and sell

A

What are Auction Markets?

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8
Q

What are the items below describing?

  • Ask prices are sell offers
  • In dealer markets, the ask price is the price at which the dealer is willing to sell
  • Investors must pay the ask price to buy the security
A

Ask Price

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8
Q

The difference between a dealer’s bid and ask price

A

What is Bid-Asked Spread?

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8
Q

What are the items below describing?

  • Over the Counter Market
  • Electronic communication network
A

Types of Dealer Markets

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8
Q

Informal network of brokers and dealers where securities can be traded

A

What are Over the Counter Markets?

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9
Q
  • Computer operated trading network
  • Register with SEC as broker-dealer
A

What are Electronic Communication Networks?

10
Q

Largest U.S. stock exchange, as measure by market value of listed stocks

Automatic electronic trading runs side by side with broker/specialist system

A

What is the New York Stock Exchange?

11
Q

What are the items below describing?

  • Lists about 3,000 firms
  • Three levels of subscribers
A

NASDAQ

12
Q

Refers to the time it takes to accept, process, and deliver a trading order

A

What is Latency?

13
Q

Use of computer programs to make trading decisions

A

What is Algorithm Trading?

14
Q

A subset of algorithmic trading that relies on programs to make extremely rapid decisions

A

What is High Frequency Trading?

15
Q

Private trading systems where participants can buy or sell large blocks of securities anonymously

A

What are Dark Pools?

16
Q

Practice by brokers of matching buy and sell orders internally rather than on exchanges

A

What is Order Internalization?

17
Q

Broker commission

  • Full service versus discount brokers
  • Execute orders, hold securities for safe-keeping, extend margin loans, facilitate short sales, and provide information and advice about investment alternatives
A

What is Explicit Cost?

18
Q
  • Dealer’s bid-ask spread
  • Price concession an investor may be forced to make for trading in quantities greater than those associated with the posted bid or ask price
A

What is Implicit Cost?

19
Q

Allows investors to profit from a decline in a security’s price

  • Investor borrows stock from a broker and sells it
  • Must then purchase a share of the same stock in order to replace the one that was borrowed
  • Proceeds must be kept on account with the broker
A

What are Short Sales?

Financial Economics (6 decks)

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