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Trading > Equities > Flashcards

Equities Flashcards

1
Q

balance sheet

A

a sheet with two columns, debit (assets) and credit (liabilities plus net worth), that describe a companies financials.

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2
Q

Assets

A

things that are owned or owed by a company

Liquid Assets - cash, accounts receivable, inventory, etc.
Fixed Assets - buildings, furniture, fixtures, etc.
Intangibles - goodwill, etc.

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3
Q

Liabilities

A

Current Liabilities - obligations that are due within a year such as utilities payable, salaries payable, notes payable, taxes payable

Long-Term Liabilities - mortgages payable, company’s issued bonds

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4
Q

Net Worth

A

AKA stockholder’s equity

Non-corporation - ownership classes

Corporation - preferred or common stock

Both - retained earnings

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5
Q

Profit and Loss Statement

A

composed of all revenue (credit balances) and expense (debit balances) accounts

Revenue - sources of income

Expenses - direct or indirect usage of funds and materials in attempting to generate revenue

Net profit or loss - revenue minus expenses

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6
Q

Statement of Cash Flows

A

a report showing where funds came from, where they went, and the result

starts with the net earnings figure from P&L and discusses the movement of cash on three aspect’s:

  • cash flows fro operations
  • cash flows from investing activities
  • cash flows from financing activities
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7
Q

Debt-to-Equity ratio

A

total liabilities / total shareholders equities

reflects how much financing is be used by a company or how much leverage they are using

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8
Q

Leverage

A

the use of other people’s money to increase profits

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9
Q

Price-Earnings ratio

A

market value per share / earnings per share

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10
Q

Earnings per Share

A

Earnings / common shares outstanding

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11
Q

Earnings per Share Diluted

A

the ratio between the earnings and the total amount of shares if all convertible securities were converted to common stock

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12
Q

Earnings Before Interest and Taxes

A

Revenue - Expenses (without taxes or interest)

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13
Q

EBITDA

A

Earnings Before Interest, Taxes, Depreciation, and Amortization

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14
Q

Dividend Payout Ratio

A

total dollar amount dividends payed / net income

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15
Q

Times Fixed Charges Earned

A

((earnings before interest and tax)+(fixed charges before tax)) / ((Fixed charges before tax)+(interest))

or

(EBIT+FCBT) / (FCBT+i)

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16
Q

Margin-of-Profit Ratio

A

% of sale that turned into a profit

Gross Profit Margin: (Net Sales - Cost of Goods sold) / Net Sales

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17
Q

American Depository Receipts (ADR)

A

certificate issued by a US depository bank representing a specified number of shares of a foreign comapany

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18
Q

Global Depository Receipts (GDR)

A

certificate issued by an international bank in more than one country for shares in a foreign company

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19
Q

Voting Trust Certificate

A

A certificate that allows a small group of individuals to gain control of making decisions for a corporation

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20
Q

Voting Rights

A

The right for stock shareholders to vote on corporate policies

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21
Q

Cash Dividends

A

Distribution of funds to stock shareholders as part of a corporations’ earnings

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22
Q

Dividends: Declaration Date

A

The day a company announces the dividends

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23
Q

Dividends: Record Date

A

The night of the date that one must legally own the stock in order to be entitled to the dividend

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24
Q

Dividend: Payable Date

A

The day the dividend distribution is made

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25
Q

Stock Splits

A

When companies split their stocks to make more, i.e. 2-1 split will double the number of outstanding shares

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26
Q

Stock Dividend

A

The issuance of new shares to existing shareholders

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27
Q

Mergers

A

The merging of two separate companies into one

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28
Q

Acquisition

A

The buying of one company buy another to be absorbed in the buying company

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29
Q

Tender Offers

A

A bid to purchase a certain percentage of a company

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30
Q

Spin-Offs

A

When a company lets go of a division that has its own management structure, which then becomes its own company

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31
Q

Reverse Splits

A

The consolidation of a number of shares into one share in order to increase share price, decrease the number of shares, etc.

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32
Q

Common Stock

A

Denotes the ownership in a corporation and is the voting stock of a company

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33
Q

Preferred Stock

A

Stock that has no voting rights but often has higher claims on company’s assets

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34
Q

Purchase Rights

A

The right for shareholders to purchase an agreed amount of shares at a predetermined price

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35
Q

Rights Issues

A

An invitation for existing shareholders to purchase additional new shares in a company

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36
Q

Cum Rights

A

Enable existing shareholders to buy new shares of a new issuance or at a predetermined price

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37
Q

Ex Rights

A

Shares trading without the attached rights

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38
Q

Warrants

A

Allows the owner to purchase shares of common stock directly from the company over a period of time

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39
Q

Preferred Stock

A

Represents a nonvoting share in the ownership of a company

The owner receives dividends before common stock holders

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40
Q

Straight Preferred Stock

A

A type of preferred stock that pays its dividends quarterly and will be outstanding for the duration of the existence of the company

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41
Q

Cumulative/Noncumulative Preferred

A

Cumulative is a type of preferred stock that insures that the preferred stock holders get paid before the common stockholders in case of an incomplete payment on the payable date

Noncumulative allows the preferred dividend to be lost if payment is not payed by the dividend date. Common stockholders will be able to receive dividends on the next payable date.

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42
Q

Participating Preferred

A

A type of preferred stock that has irregular payment amounts due to a business cycle.

They can make up for low payments by giving a special dividend at the high point of the business cycle.

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43
Q

Convertible Preferred Stock

A

A type of preferred stock that is able to be converted into another security, typically common stock

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44
Q

Preferred Equity Redemption (PERC)

A

Similar to a convertible preferred stock but has a lifespan for which it can be converted.

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45
Q

Callable Preferred

A

A type of preferred stock that can be called in by the company or redeemed so that they can eliminate or reduce the dividend payments.

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46
Q

Adjustable (Floating) Rate Preferred (ARP)

A

A type of preferred stock that is able to change dividend payment rates

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47
Q

Reverse Floating Rate Preferred

A

A type of preferred stock that lowers its payment rate as interest rates increase, and vice-versa

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48
Q

Putable Preferred

A

A type of preferred stock that can be “put” back to the original issuer by the owner.

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49
Q

Rule 144A

A

Allows for the sale of equities by a qualified intuitional buyer (QIB) without it being registered with the SEC

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50
Q

Market Risk (for Bonds)

A

The potential for the price of a bond to be higher or lower in the future due to changes in interest rates

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51
Q

Credit Risk (for Bonds)

A

The risk associated with a company issuing the bond to fold, go bankrupt, etc.

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52
Q

Bond Ratings

A

A measure of the creditworthiness of a bond based on it’s risk and reward.

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53
Q

Debt Dollar Pricing

A

Presented as 10% of the actual money value. For example, a $1000 bond trading at a dollar pricing of 98 is trading at $980.

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54
Q

Debt Basis Pricing

A

Represents the yield or percent return the buyer can expect if the bonds are held to maturity

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55
Q

Current Yield

A

Annual Interest Rate/Cost of Bond

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56
Q

Present Value of Cash FLows

A 
PV = PO / (1+r)^t
PV = Present Value
PO = Payout
r = yield rate
t = number of times the payout occurs

It is the current value of a future sum of money given a rate of return

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57
Q

Yield to Maturity

A

The total rate of return of a bond that has made all interest payments plus the principal

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58
Q

Yield to Call

A

A feature to some bonds that allow them to be callable; the issuer is able to retire the bond before it reaches maturity

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59
Q

Yield Curve

A

A graph of several yields of equal credit but from differing maturity

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60
Q

Accrued Interest

A

The amount of interest accrued between payment periods. For example, a $1000 6% bond paying every six months would have an accrued interest at 4 months in of:

$1000 x .06 x ~(120/360) = $20

~estimating 120 days in 4 months and 360 days a year

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61
Q

Procedural Debt Retirement: Maturity

A

The bond issuer must repay the face amount to the bondholder and any accrued interest

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62
Q

Procedural Debt Retirement: Refunding

A

The process of issuing new debt in order to pay off old debt.

or

Asking the current bondholders to exchange their old debt for new debt

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63
Q

Procedural Debt Retirement: Callable

A

A feature of bonds that are typically issued during periods of high interest rates that allows the issuer to retire the bond in part or full before maturity. Called a “call feature”.

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64
Q

Procedural Debt Retirement: Convertible

A

A type of bond that is able to be converted into another equity (usually common stock) at a fixed ratio

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65
Q

Procedural Debt Retirement: Sinking Fund

A

When a bond issuer buys some of their bonds with net earnings before maturity.

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66
Q

Quarterly Paying Debt

A

Bonds with quarterly payouts compared to the typically 6 month payout.

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67
Q

Zero-Coupon Bonds

A

Bonds that do not have regular payouts but instead pays out the face value at maturity. These bonds are priced so that the purchase price plus the accrued interest over the duration of maturity is equal to the face value

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68
Q

Floating/Adjustable Rate bonds

A

A bond that adjusts its interest rates in relation to a target bond. For example, a bond can be 250 points above US treasury bonds. So if a US TB had an interest of 4.5% or 450 points, the floating bond would be at 7%. If the US TB rates changed, the floating bond would change by the same amount.

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69
Q

Collateral Trust Bonds

A

A type of bond that is supported by an underlying assets in case of default. In case of default, the bondholder would claim the underlying assets.

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70
Q

Mortgage Bond

A

Bonds that are backed by the issuers real estate, factories, office buildings, etc

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71
Q

Equipment Trust Bonds

A

Bonds backed by the rolling stock a company, such as vehicles, computers, etc.

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72
Q

Debenture Bonds

A

Bonds backed by nothing.

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73
Q

Adjustment Bonds

A

Bonds issued when a company is facing bankruptcy and needs to restructure their capitalization. They are often stated to only make payouts when the company has earnings

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74
Q

Receiver’s Certificates

A

A certificate issued by a receiver in case of bankruptcy to allow the company to finish its operating cycle and therefore repay more obligations or protect the company’s assets during bankruptcy.

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75
Q

Covered Bonds

A

A package of loans issued by a bank and sold to financial institutions to be issued as bonds. If the bond issuer defaults, then the bondholders are covered by the loans.

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76
Q

Junk Bonds

A

Bonds not backed by anything or issued by companies that do not live up to their obligations

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77
Q

Corporate Notes

A

Short-term debt instruments with maturity between 1-10 years with all the same characteristics
of a bond.

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78
Q

Taxable/Nontaxable Interest

A

Corporate Bonds - Interest is considered taxable income at the federal, state, and sometimes local levels

Municipal Bonds - Interest is considered tax free at federal, state, and local levels if the owner resides in the state of issuance - “triple tax free”

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79
Q

Municipal Bonds

A

Issued by state and local governments to fund various activities. Bonds that fund projects for the larger population are tax-free while bonds issued for smaller groups are not tax-free.

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80
Q

Underwriting

A

Buyers of securities (in this case bonds) from the issuer with intent to resell.

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81
Q

Serial Offering

A

The process of structuring the maturity of bonds so that the number of outstanding decreases as time goes on.

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82
Q

General Obligations Municipal Bond Offering

A

Bonds that are backed by the issuers creditworthiness and its ability to repay debt using taxes generated

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83
Q

Revenue Bond

A

A bond backed by the income that could be generated from the finished project such as tolls, fees, etc. from bridges, roads, stadiums, etc.

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84
Q

Insured Municipal Bonds

A

Bonds that are insured against default. Broker-dealers/banks will insure lower rated bonds, insure them with a bond insurance company like MBIA or AMBAC, and then sell them at a higher rating.

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85
Q

Municipal Notes

A

Short-term debt instruments issued by municipal.

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86
Q

Bond Anticipation Notes

A

Bonds issued when the state or municipality is expecting a fall in interest rates in the near-future

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87
Q

Tax Anticipation Notes

A

Issued when expecting tax revenue in the near-future. The notes are payed off after the tax is collected

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88
Q

Revenue Anticipation Notes

A

Issued when anticipating revenues generated from things such as tolls from bridges, roads, etc. in the near-future. The notes are payed off after collection fo the fees.

89
Q

Project Notes

A

Issued to temporary fund construction of hospitals, schools, etc., After the project is completed, bonds are issued and the proceeds are used to payoff the notes

90
Q

Treasury Bonds, Notes, Bills

A

Issued as an obligation of the federal government.

Bonds - 10-30 years
Notes - 1-10 years
Bills - <1 year

91
Q

Cash Management Bills

A

Short-term debt instruments issued by the Federal Reserve for temporary funding until regular funding is in place

92
Q

Treasury Inflation-Protected Bonds

A

Treasury bonds that compensate for inflation by increasing coupon payment and principal amount by changes in consumer price index

93
Q

Separate Trading of Registered Interest and Principal of Securities (STRIPS)

A

Treasury derivative product that is a treasury bond that a financial institution spilts into the principal portion and interest portion.

94
Q

Mortgage-Backed Securities

A

Securities that consist of mortgages, either alone or pooled up, that are sold by banks. The mortgage holder will receive the regular payments by the mortgagee minus a service fee put on by the bank.

95
Q

Government National Mortgage Association (GNMA)

A

Division of Housing and Urban Development

Pools government-insured mortgages known as pass-throughs

Guarantees the payment of principal and interest but not the mortgage itself

96
Q

To Be Announced (TBAs)

A

Pending pools of mortgages sold to a GNMA dealer that consist of mortgages that have not started regular payments by the homeowner yet.

97
Q

Asset-Backed Securities

A

Financial securities backed by income generating assets such as credit card receivables, student loans, etc.

98
Q

Real Estate Investment Conduits (REMIC)

A

Pools of residential and commercial mortgages that are placed in a trust, securitized, and sold to the public. Structured as a CMO type with tranches.

99
Q

Collateralized Debt Obligations (CDOs)

A

Financial products that are backed by a pool of loans and other assets and sold to institutional investors

100
Q

Collateralized Bond Obligations

A

A pool of corporate junk bonds that are rated as investment grade due to the risk being spread over a the entire pool

101
Q

Collateralized Mortgage Obligations

A

A mortgage-backed security that contains a pool of mortgages bundled together and sold as an investment

102
Q

Banker’s Acceptance

A

A short-term issuance by a bank that guarantees the payment at a later date.

It is often used in importing and exporting, where the importer’s bank issues banker acceptance to the exporter

103
Q

Commercial Paper

A

An unsecured debt (without collateral) issued by corporations that has maturity lasting up to 270 days.

104
Q

Asset-Backed Commercial Paper (ABCP)

A

Backed by receivables due to the company and can be outstanding between 90 to 180 days.

105
Q

“Jumbo” Certificates of Deposits

A

A CD that requires a minimum deposit, $100,000

106
Q

Foreign Exchange

A

The conversion of one currency to another

107
Q

Spot Market (Foreign Exchange)

A

Buying the foreign currency today for delivery two days from the trade date.

108
Q

Forward Market (Foreign Exchange)

A

Sets the rate at which currency will be converted at a later date

109
Q

Currency Options (Foreign Exchange)

A

A contract that allows the buyer to convert their currency at a determined rate up until expiration

110
Q

Currency Futures

A

Exchange traded future contracts that specify the conversion rate of two currencies that the buyer must exercise at delivery

111
Q

Open-End Mutual Funds

A

A fund that consist of pooled investors money for which shares are sold directly to the investor and can be redeemed by the investor at any time by the mutual fund.

The open-end means that there are an unlimited number of shares that can be issued

112
Q

Close-End Mutual Funds

A

A mutual fund that sets a target amount to raise, usually through an initial public offering. Once achieved, no new cash flow comes into the fund, the number of shares stays constant, and the shares are traded on an exchange.

113
Q

Joint Ventures

A

A type of mutual fund that consist of participants pooling their resources in order to achieve a specific task, event, or outcome.

114
Q

Unit Investment Trusts

A

A type of mutual fund that use pooled funds to acquire a portfolio of securities. They are usually issued through an IPO and are not traded on an exchange. Unlike open/closed end mutual funds, UIT have an expiration date and the underlying securities are not traded.

115
Q

Balanced Funds

A

A type of mutual fund that invests in multiple asset types of a market, usually socks and bonds.

116
Q

Equity Funds

A

Mutual funds that invest primarily in stocks

117
Q

Bond Funds

A

A mutual fund that invest in bonds.

118
Q

Foreign Funds

A

A mutual fund that invests in foreign companies, governments, financial institutions, etc.

119
Q

Index Funds

A

Mutual funds that replicate the performance of indexes such as the SP500 and DJI

120
Q

Derivative Funds

A

Mutual funds that specialize in derivative products like options and futures.

121
Q

Fund of Funds

A

A type of mutual fund that consist of a pool of different types of funds

122
Q

Mutual Fund Board of Directors

A

Oversees the activity of the fund and makes sure that the investments and policies are maintained in accordance to the fund’s charter.

Must compose of at-least 75% of people who are not affiliated with the fund.

123
Q

Mutual Fund Investment Advisors

A

A group that advises management on the state of the market, economy, investments, etc., and recommends strategies.

124
Q

Mutual Fund Custodian

A

A group, usually a bank, that is responsible for the safekeeping of the portfolio. This includes issuing payouts to the fund holder and keeping up-to-date records

125
Q

Mutual Fund Transfer Agent

A

Responsible for the issuance of new shares when bought by customers and the surrender of shares when sold by clients.

Also is responsible for keeping registered owners’ records up to date and distributing dividends/capital gains to the owners.

126
Q

Investment Company Act of 1940

A

1) determines how the fund is to calculate the net asset value and requires it to update the value by the next business day
2) at-least 75% of the board of directors must be disinterested members
3) establishes the criteria in determining whether a person qualifies as a disinterested member
4) mandates the timely filing of reports
5) sets the requirements for timeliness and accuracy of information in sales information
6) sets the requirements for custodial activity
7) capital gains must not exceed once per taxpayer year and that dividends should be distributed in the period received
8) contains other provisions aimed at protecting the investing public

127
Q

Mutual Fund Sales: Front-End Load Funds

A

A sales charge paid by mutual fund investor paid to the broker-dealer at the when the investor purchases the mutual fund

128
Q

Mutual Fund Sales: Break-Point Sales

A

The point/level at which the sales charge is lowered.

129
Q

Mutual Fund Sales: Rights of Accumulation

A

Allows the investor to be charged lower sales charges after accumulating enough of the mutual fund over time to meet the break-point.

130
Q

Mutual Fund Sales: Letter of Intent

A

Allows the investor to be charged a rate at which they intend to invest over the next 13 months

131
Q

Mutual Fund Sales: Voluntary Plan

A

A sales charge based on what an investor attempts to reach a certain predetermined goal. Similar to a letter of intent but for the duration of years rather than months

132
Q

Mutual Fund Sales: Contractual Plan

A

The sales charge is based on a total commitment with the majority taken up in the first few years

133
Q

Mutual Fund Sales: Back-End Load

A

Mutual Funds with sales charge imposed when the investor sells/redeems their shares

134
Q

Mutual Fund Sales: ABC Funds

A

Mutual Funds that offer the option of how investors want their sales charge:
A - front-end load
B - back-end load
C- a small back end load charge that may be removed if the investor holds on to their investment for a predetermined amount of time

135
Q

Family of Funds

A

A set of mutual funds managed by a particular investment management firm

136
Q

Option

A

A contract that allows the owner certain privileges for a specified period of time

137
Q

Option: Call

A

The privilege to buy the underlying asset

138
Q

Option : Put

A

The privilege to sell the underlying asset

139
Q

“In/At/Out the Money”

A

In - when an options strike price has been surpassed
At - when an options strike price has been reached
Out - when an options strike price has yet to be reached

140
Q

Listed Options

A

Options traded on an exchange and have a fixed structure

141
Q

OTC Options

A

Options that are traded over the counter and whose terms are negotiated between buyer and seller

142
Q

Option: Buy Write

A

A strategy consisting of the investor buying a security with options available on it and then selling call options on it with a higher striking price than the current price so that if the underlying price goes down, the investor will be able to keep their premiums on the option

143
Q

Option: Spread

A

Buying one or more options while simultaneously selling another option/options

144
Q

Bull Call Spread

A

Buying call options while simultaneously selling the same number of call option at a higher striking price.

145
Q

Bear Put Spread

A

Buying put options while simultaneously selling the same number of put options at a lower striking price.

146
Q

Vertical Spread

A

A technique of trying to benefit from differing striking prices of options with the same expiration date

147
Q

Time/Horizontal/Calendar Spread

A

Spreads that have the same striking price but different expiration dates.

148
Q

Straddle Spread

A

Owning equal number of put and call options of the same underlying in the hopes of some event changing the price enough, up or down, to cover the cost of both the puts and calls.

149
Q

Deep-in-the-Money Options

A

Options that have a striking price farther away from the current price so that the time-value is lessoned in comparison with the intrinsic value.

150
Q

Synthetics

A

A combination of owning shares, put, and call options to minimize risk.

151
Q

Index Options

A

Options that are derived from indexes. The price of the option is the difference between the strike price and the current price.

152
Q

Currency Option

A

Options on currency exchange rate

153
Q

Interest Rate Options

A

Cash settled option that derives it value from changes in interest rates of Treasury bills

154
Q

Debt Options

A

Options that use bonds as the underlying asset

155
Q

Binary Options

A

An option that is exercised for a predetermined if the underlying asset has reached some price at the time of expiraition.

156
Q

Capped Options

A

An option that is automatically exercised if the capped price is reached or surpassed at the close of the trading price.

157
Q

Exchange Traded Fund

A

A financial instrument that tracks an index and is backed up by securities or assets from that index.

158
Q

ETF Creation Units

A

When banks or large financial institutions buy a large blocks of securities that replicate an index, they place those in a trust and then form creation units, which are bundles of stock typical consisting of 50,000 shares. Shares are then issued on the creation unit, offering a small ownership of it.

159
Q

Future

A

A contract that determines the price at which delivery will l occur at a future date. Futures are traded on exchanges

160
Q

Forward

A

A contract the determines the price of a delivery at a future date. Forwards are traded over the counter

161
Q

Structure of a Future Product

A
  1. Underlying Product
  2. Quantity required
  3. Quality level
162
Q

Structure of a Forward Product

A
  1. Underlying Product
  2. Negotiated quantity
  3. Negotiated quality
  4. Agreed-to delivery dates
  5. Agreed to location for delivery
  6. Agreed -to payment vehicle
  7. Agreed-to payment location
163
Q

Hedge

A

An investment that is intended to reduce risk of adverse price movements of an asset

164
Q

Speculator

A

One who sees and opportunity and takes advantage of it

165
Q

Futures: Fundamental Research

A
  1. Demand for the product in the future

2. How demand affects each step of the flow from raw material to finished product

166
Q

Interest-Rate Futures

A

A futures contract with an underlying asset being interest-bearing.

167
Q

Index Futures

A

A cash-settling product that delivers cash at the time of delivery. The amount delivered is the difference between the closing price of the index and the contract at the time of the trade.

168
Q

Currency Futures

A

Futures on currency with the one of the currencies as the commodity and the other currency as the cash to pay for the commodity

169
Q

TRAKRs (Total Return Asset Contracts)

A

Exchange traded product with a duration of 3-5 years. Trades on the Chicago Mercantile Exchange Global Platform.

170
Q

Options on Futures

A

Exercising an option on a future during its life will involve ownership of the future.

Exercising an option on a future at the end of the future’s life will involve the underlying product of the future.

171
Q

SPAN Margin (standardized portfolio analysis of risk)

A

Based on a software that uses algorithms to analyze complex future and option-on-futures positions to determine the minimum risk associated with that holistic position.

Margin requirements are then based the risk assesment.

172
Q

Swaps

A

A derivatives product in which two parties exchange cash flows from two different financial instrunments.

Regulated by Commercial Code rather then the SEC (securities) or Commodity Futures Trading Commission (Futures).

173
Q

Currency Swaps

A

When two different currencies are exchanged between two parties without the use of a foreign exchange.

For example, a company from country A expanded its operations in country B, and a company in country B expanded its operations in country A. Since they both need the other countries currency, they can swap currencies without taking on the foreign-exchange risks.

174
Q

Cash Flow Swaps

A

When two parties exchange cash flows.

For example, if company A has high cash flows in season A but low cash flows in season B, and Company B has low cash flows in season A but high cash flows in season B, the two companies can loan extra cash during the high season to supplement for the low season.

175
Q

Commodity Swap

A

Exchanging a commodity for another asset such as a future.

176
Q

Currency Default Swaps (CDS)

A

A contract that allows financial institutions (loaner) to swap their credit risk with an investor in the case that the borrower defaults.

For a fee, the investor agrees to pay the debt in the case that the borrower defaults

177
Q

Credit Default Indexes

A

Indexes that track the credit default market

178
Q

Alternative Investments

A

An investment in any product other than a stock or bond

179
Q

Hedge Funds

A

Actively managed investment pools that use not-traditional strategies to try to gain higher returns than the market. A high minimum investment means that few are able to invest but the wealthy.

180
Q

Leveraged Buyouts (LBOs)

A

The acquisition of another company using a significant amount of borrowed money to meet the cost of the acquisition

181
Q

Venture Capital

A

A form of private equity and a type of financing that investors provide to startup companies and small businesses which are believed to have long-term growth.

182
Q

Special Purpose Vehicles (SPVs) or Special Purpose Entities (SPEs)

A

Formed and funded by financial institutions as a subsidiary or a stand=alone entity who:

  • can buy assets from the institution, pool the loans securitize the pools, and sell them into the market as CDOs.
  • Obtain assets from the parent company
  • save taxes for the parent company
183
Q

Structured Investment Vehicle (SIV)

A

Funds in longterm assets are financed by issuing short-term securities. They try to profit from the credit spread between the short-term interest and the long-term interest.

In order to continue making payments on the long-term assets, the issuance of short-term securities must continually be rolled over.

184
Q

Day Orders

A

Orders that expire at the end of the day if not executed

185
Q

Good Till Canceled Orders

A

Orders that remain in the marketplace until executed or canceled by the owner

186
Q

Good Thru (time period)

A

Orders that expire after a time period if they are not executed by then

187
Q

Market Order

A

An order that buys at the current ask price or sells at the current bid price.

188
Q

Limit Order

A

An order that executes only if it executed above a certain asking price or below a certain bid price.

189
Q

Stop Order

A

An order that becomes activated once a price level is reached, which the becomes a market order. For example, a buy order will execute at the market ask after the market ask has reached the stop price.

190
Q

Stop Limit

A

A stop order that becomes a limit order once it is activated.

191
Q

Short Sale

A

The use of borrowed stock to sell at the current price with the intentions of buying it back later at a lower price

192
Q

Short Against the Box

A

Entering a short position to hedge against a current long position so that the current profits of the long position wont change in value

193
Q

Fill or Kill (FOK)

A

Orders that must be filled immediately in entirety or else they are cancelled.

194
Q

Immediate or Cancel

A

Orders that must be immediately filled, with any quantity available, and canceling the rest

195
Q

All or None

A

An order that must be filled in its entirety but has a specified time period to be filled

196
Q

Not Held

A

An order that relieves the broker-dealer from executing at the next best price and allows them a period of time to search for the best price.

For example, if a large enough order buys all of the lowest ask, the broker-dealer would have to buy the the second lowest ask price after, and so on, until the order is filled. With a Not Held order, the broker-dealer can wait until the ask price goes back down.

197
Q

Step

A

A series of limit orders entered at ever-increasing buy orders or ever-decreasing sell orders

198
Q

Spread Order

A

Entering equal numbers of long and short positions on an investment product and benefiting from the gain on one minus the loss on the other

199
Q

Straddle Order

A

Longing or shorting an equal number of calls as puts on an option.

200
Q

Principal Trading

A

When a broker-dealer uses its own inventory to full-fill a clients order. They will profit off both commissions and the bid-ask spread

201
Q

Agency Trading

A

The broker-dealer acts as an intermediary between buyer and seller and only profiting from the commission

202
Q

Intermarket Trading System

A

A system that posts the best bid and best offer among all the exchanges

203
Q

Over-the-Counter (Principal-Type) Market

A

A dealer market in which trades are satisfied by dealers or market makers, while an exchange is a broker market.

204
Q

Municipal Bond Market

A

Bought and sold through brokers or banks that are municipal securities dealer.

205
Q

The Third Market

A

Consist of non-exchange member broker-dealers and institutional investors of exchange listed stocks trading over the counter

206
Q

The Fourth Market

A

Institution to institution trading without the use of broker-dealers. They trade through ECN

207
Q

Dark Pools

A

A market area within financial instituions and block-trading firm’s network that allow large orders to have negotiated prices and moved all in one block

208
Q

Margin

A

Money borrowed from a broker to purchase an investment

209
Q

Minimum Equity Requirment

A

According to FINRA rules, an account must have $2,000 before it can be considered for margin.

The margin rate is 50% for stocks, meaning an investor must pay at least half of the total investment.

210
Q

Buying on Margin: Equity

A

The amount that an investor would receive if they converted all their securities to cash on a position:

Equity = Market Value - Debit Balance (money borrowed with margin)

211
Q

Buying on Margin: Maintenance

A

FINRA rules state that equity cannot go lower than 25% of the market value, or that the debit balance cannot surpass 75% of market value.

212
Q

Call for Collateral

A

When a margin account goes under the maintenance requirements and the broker calls the client to deposit enough cash to meet 25% equity level.

213
Q

Special Memorandum Account

A

A dedicated investment account in which excess margin generated from a clients margin account is deposited.

214
Q

Margin: Buying Power

A

The amount of money an investor has in a margin account plus the margin they have available to them.

215
Q

Option Margin

A

Used as collateral to secure a position.

Margin requirements differ based on the type of option.

216
Q

Futures Margin

A

Used as leverage to buy a bigger postion.

217
Q

Committee for Uniform Security Identification Procedures (CUSIP) number

A

A nine-digit security identification code:

  • first six digits identify the issuer
  • the next two identify the issue
  • the last is the check digit
218
Q

Dated Date

A

The day that interest on a newly issued debt instrument begins to accrue

219
Q

Deed of Trust

A

A document describing the terms and features of a debt issue

Trading (2 decks)

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