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FINANCE > FIN 431: CH.1-3 > Flashcards

FIN 431: CH.1-3 Flashcards

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1
Q

Commitment of current resources in the expectation of deriving greater resources in the future.

A

investment

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2
Q

are land, buildings, and equipment that are used to produce goods and services.

A

real assets

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3
Q

stocks and bonds are claims to the income generated by real assets or claims on income from the government.

A

financial assets

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4
Q

A security such as a bond that pays a specified cash flow over a specific period.

A

fixed-income security

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5
Q

Ownership in a firm. Also, the net worth of a margin account.

A

equity

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6
Q

A security whose payoff depends on the value of other financial variables such as stock prices,

A

derivative security

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7
Q

Conflicts of interest among stockholders, bondholders, and managers.

A

agency problem

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8
Q

Choosing among broad asset classes such as stocks versus bonds.

A

asset allocation

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9
Q

Determining correct value of a security in the marketplace.

A

security analysis

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10
Q

Investors must take on greater risk if they want higher expected returns.

A

risk–return trade-off

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11
Q

Buying a well-diversified portfolio to represent a broad-based market index without attempting to search out mispriced securities.

A

passive management

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12
Q

Attempts to achieve portfolio returns more than commensurate with risk, either by forecasting broad market trends or by identifying particular mispriced sectors of a market or securities in a market.

A

active management

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13
Q

An institution such as a bank, mutual fund, investment company, or insurance company that serves to connect the household and business sectors so households can invest and businesses can finance production.

A

financial intermediaries

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14
Q

Firm managing funds for investors. An investment company may manage several mutual funds.

A

investment company

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15
Q

Firms specializing in the sale of new securities to the public, typically by underwriting the issue.

A

investment bankers

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16
Q

New issues of securities are offered to the public here.

A

primary market

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17
Q

Already existing securities are bought and sold on the exchanges or in the OTC market.

A

secondary market

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18
Q

Money invested to finance a new, not yet publicly-traded firm.

A

venture capital

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19
Q

Investment in a company that is not traded on a stock exchange.

A

private equity

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20
Q

Pooling loans for various purposes into standardized securities backed by those loans, which can then be traded like any other security.

A

securitization

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21
Q

Risk of breakdown in the financial system, particularly due to spillover effects from one mark into others.

A

systemic risk

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22
Q

Includes short-term, highly liquid, and relatively low-risk debt instruments.

A

money market

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23
Q

Includes longer-term, relatively riskier securities.

A

capital markets

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24
Q

The price at which a dealer will sell a security.

A

ask price

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25
Q

The price at which a dealer is willing to purchase a security.

A

bid price

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26
Q

The difference between a dealer’s bid and ask price.

A

bid–ask spread

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27
Q

A bank time deposit.

A

certificate of deposit

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28
Q

Short-term unsecured debt issued by large corporations.

A

commercial paper

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29
Q

A money market asset consisting of an order to a bank by a customer to pay a sum of money at a future date.

A

banker’s acceptance

30
Q

Dollar-denominated deposits at foreign banks or foreign branches of American banks.

A

Eurodollars

31
Q

Short-term, often overnight, sales of government securities with an agreement to repurchase the securities at a slightly higher price. A reverse repo is a purchase with an agreement to resell at a specified price on a future date.

A

repurchase agreements

32
Q

Rate that most creditworthy banks charge one another for large loans of Eurodollars in the London market.

A

London Interbank Offered Rate (LIBOR)

33
Q

Funds in a bank’s reserve account.

A

federal funds

34
Q

Debt obligations of the federal government that make semiannual coupon payments and are issued at or near par value.

A

Treasury bond or note

35
Q

A measure of the average rate of return that will be earned on a bond if held to maturity.

A

yield to maturity

36
Q

Tax-exempt bonds issued by state and local governments, generally to finance capital improvement projects. General obligation bonds are backed by the general

A

municipal bonds

37
Q

The pretax yield on a taxable bond providing an after-tax yield equal to the rate on a tax-exempt municipal bond

A

equivalent taxable yield

38
Q

Refers to the fact that shareholders are at the bottom of the list of claimants to assets of a corporation in the event of failure or bankruptcy

A

residual claim

39
Q

The fact that shareholders have no personal liability to the creditors of the corporation in the event of bankruptcy.

A

limited liability

40
Q

The amount by which the sale price of a security exceeds the purchase price.

A

capital gains

41
Q

The ratio of a stock’s price to its earnings per share. Also referred to as the P/E multiple.

A

price–earnings (P/E) ratio

42
Q

Nonvoting shares in a corporation, paying a fixed or variable stream of dividends.

A

preferred stock

43
Q

Weighted average with weights proportional to security prices rather than total capitalization.

A

price-weighted average

44
Q

An index of a group of securities computed by calculating a weighted average of the returns of each security in the index, with weights proportional to outstanding market value

A

market-value-weighted index

45
Q

A mutual fund holding shares in proportion to their representation in a market index such as the S&P 500.

A

index fund

46
Q

Securities providing payoffs that depend on or are contingent on the values of other assets such as commodity prices, bond and stock prices, or market-index values. Examples are futures and options.

A

derivative asset/contingent claim

47
Q

The right to buy an asset at a specified exercise price on or before a specified expiration date.

A

call option

48
Q

Price set for calling (buying) an asset or putting (selling) an asset.

A

exercise or strike price

49
Q

The right to sell an asset at a specified exercise price on or before a specified expiration date.

A

put option

50
Q

Obliges traders to purchase or sell an asset at an agreed-upon price on a specified future date. The long position is held by the trader who commits to purchase. The short position is held by the trader who commits to sell. Futures differ from forward contracts in their standardization, exchange trading, margin requirements, and daily settling (marking to market).

A

futures contract

51
Q

Primary offering in which shares are sold directly to a small group of institutional or wealthy investors.

A

private placement

52
Q

Stock issued to the public for the first time by a formerly privately owned company.

A

initial public offering (IPOs)

53
Q

Investment bankers who help companies issue their securities to the public

A

underwriters

54
Q

A final and approved registration statement including the price at which the security issue is offered.

A

prospectus

55
Q

A market where traders specializing in particular commodities buy and sell assets for their own accounts. The OTC market is an example.

A

dealer market

56
Q

A market where all traders in a good meet at one place to buy or sell an asset. The NYSE is an example.

A

auction market

57
Q

An order specifying a price at which an investor is willing to buy or sell a security.

A

limit order

58
Q

Order to trade contingent on security price designed to limit losses if price moves against the trader.

A

stop orders

59
Q

An informal network of brokers and dealers who negotiate sales of securities (not a formal exchange).

A

over-the-counter market (OTC)

60
Q

The automated quotation system for the OTC market, showing current bid ask prices for thousands of stocks.

A

NASDAQ

61
Q

A computer-operated trading network offering an alternative to formal stock exchanges or dealer markets for trading securities

A

electronic communication network (ECN)

.

62
Q

A trader who makes a market in the shares of one or more firms and who maintains a “fair and orderly market” by dealing personally in the stock

A

specialist

63
Q

Secondary markets where already-issued securities are bought and sold by members.

A

stock exchanges

64
Q

The time it takes to accept, process, and deliver a trading order.

A

latency

65
Q

The use of computer programs to make trading decisions

A

algorithmic trading

66
Q

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

A

high-frequency trading

67
Q

A transaction of more than 10,000 shares of stock.

A

blocks, block sale

68
Q

Electronic trading networks where participants can anonymously buy or sell large blocks of securities

A

dark pools

69
Q

Describes securities purchased with money borrowed from a broker. Current maximum margin is 50%

A

margin

70
Q

The sale of shares not owned by the investor but borrowed through a broker and later repurchased to replace the loan. Profit is earned if the initial sale is at a higher price than the repurchase price.

A

short sale

71
Q

Nonpublic knowledge about a corporation possessed by corporate officers, major owners, or other individuals with privileged access to information about a firm.

A

inside information

FINANCE (4 decks)

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