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Finance Flashcards

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1
Q

Indirect investing

A

The buying and selling of the shares of investment companies which, in turn, hold portfolios of securities.

Indirect: Investors Holding

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2
Q

Direct investing

A

Investors buy and sell securities themselves, typically through brokerage accounts.

Directing(Taking action): Investors buy/sell

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3
Q

Examples of non-marketable securities

A

1) Savings deposits
2) Certificates of deposit (This)
3) Money market deposit accounts (This)
4) US savings bonds
I don’t live in (SD) San Diego)
Non-Marketable=Deposits and 2 saves
Save (deposit) (US savings bonds)
Certificates
and
Money Markets

Certificate:
Fixed maturity
Maybe penalty if withdrawal
More $ Then Savings

Money Market:
Limited Checks
By bank but insured by government

US Saving bonds:
By government
For small companies
Cannot be sold or exchanged

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4
Q

Examples of money market securities

A

1) Treasury Bills
2) Negotiable certificates of deposit
3) Commercial paper
4) Repurchase agreements
5) Bankers acceptances

Money Market is the rest
Treasury Bill:
Debt by gov
Short maturity
Discount to Face value

Negotiable certificate of (deposit):

  • Exchange for deposit of funds)
  • Mature
  • Can be sold before maturity

Commercial Paper:

  • Short Term
  • Large Companies

Repurchase agreements

  • Buy Securities
  • Buyer+Lender repurchases Gov securities
  • Repurchase is higher then selling.
  • Short term

Bankers Acceptances

  • Pay back by certain time
  • You are able to sell to others
  • Trade internationally
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5
Q

Examples of capital market securities

A

1) Bonds
2) Common Stock
3) Preferred Stock

Capital Market= Only one with stocks. And there’s 1 bond

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6
Q

Savings deposits

A

1) Account at commercial bank or similar institution
2) Very safe; insured by the government
3) Highly liquid

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7
Q

Certificates of deposit

A

1) Account at commercial bank or similar institution
2) Fixed maturity
3) May be penalty if you withdraw money before maturity
4) Very safe; insured by the government
5) Typically offers higher yields than savings accounts

Fixed maturity
Maybe penalty if withdrawal
More $ Then Savings

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8
Q

Money market deposit accounts

A

1) Account at commercial bank or similar institution
2) Similar to savings accounts but can make a limited number of payments by check.
3) Very safe; insured by the government

Limited Number of checks
Insured by government

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9
Q

US savings bonds

A

1) Debt issued by the US government
2) Cannot be sold or transferred to others
3) Designed for small investors

Cannot be sold/transferred
Small investors

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10
Q

Treasury Bills

A

1) Debt issued by US government
2) Issued at discount to face value
3) Very safe asset
4) Short maturity

Short maturity
Issued by gov and at discount to face value

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11
Q

Negotiable certificates of deposit

A

1) Issued by a bank in exchange for deposit of funds.
2)Fixed maturity
3) Can be sold in the open market before maturity.
Issued by bank in exchange for deposit of funds
Fixed Maturity
Can be sold to open market before maturity

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12
Q

TIPS

A

1) Treasury Inflation-Protected Security
2) Designed to protect investors against unexpected inflation
3) Principal is adjusted for inflation so you will earn more (in dollars) if inflation is higher

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13
Q

Government agency securities

A

1) Issued by agencies of the Federal Government or government-sponsored agencies
2) Often associated with mortgage programs
3) Often known by nicknames: Ginnie Mae, Fannie Mae and Freddie Mac

Often known as mortgage programs
Ginnie Mae: Most important agency
Fannie/Freddie: Offered stock to public

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14
Q

Repurchase agreements

A

1) An agreement between a borrower and lender to sell and then repurchase US government securities.
2) The repurchase price is slightly greater than the selling price effectively making this a short-term loan.

(Repurchase) agreement

  • Borrower+Lender to sell then repurchase US Gov securities
  • Repurchase is higher then selling.
  • Short term
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15
Q

Bankers acceptances

A

1) A note where a bank promises to pay a specific amount at a specified date.
2) The holder can sell to others (they are negotiable)
3) Generally used in international trade as a way to guarantee payment

  • The bank accepts they have to pay back
  • They can sell to others
  • Good for international
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16
Q

Commercial paper

A

A short- term promissory note, generally issued by large companies, often by financial companies.

  • Short term
  • Large Companies
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17
Q

Money market securities

A

1) Short-term (maturity of a year or less)
2) Highly liquid
3) Relatively low risk
4) Relatively low return

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18
Q

Why do investors hold money market securities?

A

Money market securities are used by investors as a safe and liquid place to store wealth. Generally not used for long-run investing.

  • safe
  • liquid
  • Long-Run
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19
Q

What is the purpose of the capital market?

A

To connect the suppliers and demands of funds.
Capital Marketing. C stands for Connect
Connects Suppliers and demands of funds.

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20
Q

Fixed-Income Security

A

An investment that provides fixed payments known in advance, e.g., a bond.

*Fix payments known in advance such as a bond

21
Q

Bond

A

A debt security or “IOU”

The issuer promises to make regular interest payments and/or a single lump-sum payment at maturity

22
Q

Par value (face value)

A

Amount paid at maturity to holder of a bond

the value printed or depicted on a coin, banknote, postage stamp, ticket, etc., esp. when less than the actual or intrinsic value

23
Q

Maturity (bond)

A

When final payment is made

24
Q

Coupon (bond)

A

Periodic interest payment made to a bond holder

25
Q

Discount (bond)

A

A bond that sells for less than its par value

26
Q

Premium (bond)

A

A bond that sells for more than its par value

27
Q

Callable (bond)

A

Gives the issuer of the bond the right to buy it back at a predetermined price.

Call to buy back at predetermined price

28
Q

Zero-coupon bond

A

A bond without coupons. Will be sold at a discount.

29
Q

Major Types of Domestic Bonds

A

1) Treasury Bonds
2) Corporate Bonds
3) Municipal Bonds

Municipal- Issued by state and local government

Corporate Bonds-

  • Long term
  • Sold by corporations
30
Q

Corporate Bonds

A

Long-term debt securities of various types sold by corporations

  • Long term
  • Sold by corporations
31
Q

Debt of the US Government

A

1) Treasury Bills - Maturity of a year or less
2) Treasury Notes - Maturity of more than a year and less than 10 years
3) Treasury Bonds - Maturity of 10 years or more

32
Q

Municipal Bonds

A

Bonds issues by state and local governments

33
Q

Junk Bonds

A

Bonds with higher probability of default that offer higher expected yields. Sometimes called high-yield bonds.

Junk Bonds
*Things you throw away. High yield.

34
Q

Convertible bond

A

Bond with an option to convert into stock

Convert bonds to stocks

35
Q

Asset-backed securities

A

A security whose value is derived from a pool of underlying income-generating assets such as auto loans, credit card receivables or mortgages.

Derived=Traced
*A security traced from income

36
Q

Mortgage-backed security

A

A type of asset-backed security whose value is derived from an underlying pool of mortgages.

  • Backed up income traced from mortages
37
Q

Preferred stock

A

1) Is considered a hybrid security
2) Dividends are fixed and known in advance (like debt)
3) Has an infinite life (like equity)
4) Dividends do not have to be paid, but unpaid dividends may have to be made up in future years
5) Preferred stockholders are paid before common stockholders but after bondholders

  • Dividends dont have to be paid but it may take many years to pay back
  • Paid before common stockholders but bafter bondholders
38
Q

Common stock

A

1) An “equity” security
2) Represents an ownership interest in the company
3) Shareholders have limited liability
4) Shareholders get return from dividends and/or capital gains (increases in the value of the stock)

39
Q

Dividend

A

Cash payments made by corporations to stock holders

Divided up cash payments from corporations to stock holders

40
Q

Stock dividend

A

A payment by the corporation in stock rather than cash. Generally does not increase the value of stock to the shareholders.

*Divide stock in cash. Rather pick stock

41
Q

Stock split

A

The issuance by a corporation of shares in common stock in proportion to the existing shares outstanding. Generally does not increase the value of stock to the shareholders.

42
Q

American Depositary Receipt (ADR)

A

Securities representing an ownership interest in the equities of large foreign companies.

*Ownership in large foreign companies

43
Q

Derivatives securities

A

Securities that derive their value in whole or in part by having a claim on some underlying security

*

44
Q

Examples of derivative securities

A

1) Options
2) Futures
3) Warrants

45
Q

Option

A

Right to buy or sell a stated number of shares of a security within a specified period at a specified price.

*To buy/sell shares within time limit at specified price

46
Q

Futures Contract

A

Agreement providing for the future exchange of a particular asset at a currently determined market price.
*Future exchange

47
Q

Warrant

A

Gives the holder the option to buy stock from the company at a specified price
*Able to buy stock from company at specified price

48
Q

Hybrid security

A

A security having aspects of both debt and equity securities

49
Q

Corporation bonds and commercial paper

A

Commercial paper: Short term. Large companies

Corporation: Long term. Large corporations

Finance (10 decks)

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