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chapt2 C&&C > FINMAN5 > Flashcards

FINMAN5 Flashcards

1
Q

title of Chapter 1?

A

ORGANIZATION AND FUNCTIONS OF SECURITIES

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2
Q

TYPES OF INVESTMENT VEHICLES

A

Financial Assets
Real Assets
Public (publicly traded) securities

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3
Q

include securities (stocks and bonds), derivative contracts, and currencies.

A

Financial Assets

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4
Q

include real estate, equipment, commodities, and other physical assets.
Example of it are real estate, equipment, and machinery. Although they have been traditionally held by firms
for their us in production, real assets are increasingly held by institutional investors both directly and indirectly.

A

Real assets

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5
Q

are traded on exchanges or through securities dealer and are subject to
regulatory oversight.

A

Public (publicly traded) securities

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6
Q

Securities that are not traded in public markets are referred to as

A

private securities.

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7
Q

are often illiquid and not subject to regulation

A

Private securities

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8
Q

can be classified as fixed income or equity securities, and individual securities can be combined in pooled
investment vehicles.

A

Securities

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9
Q

are the most common issuers of individual securities.

A

Corporations and governments

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10
Q

The initial
sale of a security is called an ____ when the security is sold to the public.

A

issue

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11
Q

Financial securities can be classified as _____ or _____

A

debt or equity

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12
Q

are promises to repay borrowed funds.

A

Debt securities

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13
Q

represent ownership positions.

A

Equity Securities

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14
Q

typically refer to debt securities that are promises to repay borrowed money in the
future.

A

Fixed income Securities (debt securities)

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15
Q

generally have a maturity of less than one or two years;

A

Short-term fixed income securities

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16
Q

are
longer than five to ten years,

A

long-term maturities

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17
Q

fall in the middle of the maturity range.

A

intermediate term maturities

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18
Q

represent ownership in a firm and include common stock, preferred stock, and etc

A

Equity Securities

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19
Q

is a residual claim on a firm’s assets.

A

Common Stock

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20
Q

are paid only after interest is paid to
debt holders and dividends are paid to preferred stockholders.

A

Common stock dividends

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21
Q

Furthermore, in the event of firm liquidation, _________ and ________ have priority over common stockholders and are usually paid in full before common
stockholders receive any payment.

A

debt holders
and preferred stockholders

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22
Q

is an equity security with scheduled dividends that typically do not change over the security’s life
and must be paid before any dividends on common stock may be paid.

A

Preferred Stock

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23
Q

2 examples of equity securities

A

common stock and preferred stock

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24
Q

an equity instrument carrying ownership interest

A

stocks

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25
Q

a debt instrument with a promise to pay back the money with interest

A

bonds

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26
Q

return of stocks

A

dividends

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27
Q

return of bonds

A

interest

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28
Q

what is the additional benefits of stocks?

A

has a voting rights in the company

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29
Q

T/F

stocks has return guarantee while bonds don’t have

A

F, it’s the other way around

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30
Q

what is the additiona benefits of bonds

A

preferential treatment when bond matures

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31
Q

8 FINANCIAL INTERMEDIARIES:

A

BIBEDACI

BROKERS
INVESTMENT BANKS
BLOCK BROKERS
EXCHANGE
DEPOSITORY INSTITUTION
ARBITRAGEURS
CLEARING HOUSES
INSURANCE COMPANIES

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32
Q

stand between buyers and sellers, facilitating the exchange of assets, capital, and risk. Their services
allow for greater efficiency and are vital to a well-functioning economy

A

Financial Intermediaries

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33
Q

help their clients buy and sell securities by finding counterparties to trades in a cost- efficient manner. They
may work for large brokerage firms, for banks, or at exchanges.

A

brokers

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34
Q

help corporations sell common stock, preferred stock, and debt securities to investors. They also
provide advice to firms, notable about mergers, acquisitions, and raising capital.

A

Investment Banks

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35
Q

help with the placement of large trades. Typically, large trades are difficult to place without moving the
market.

A

Block brokers

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36
Q

provide a venue where traders can meet. _____ sometimes act as brokers by providing electronic order
matching. They regulate their members and require firms that list on the exchange to provide timely financial
disclosures and to promote shareholder democratization

A

Exchanges

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37
Q

Examples include banks, credit unions, and savings and loans. They pay interest on customer
deposits and provide transaction services such as checking account

A

Depository Institutions

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38
Q

are intermediaries, in that they collect insurance premiums in return for providing risk reduction
to the insured. They can do this efficiently because it provides protection to a diversified pool of
policyholders, whose risks of loss are typically uncorrelated

A

Insurance Companies

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39
Q

In its pure (riskless) form, ____ refers to buying an asset in one market and reselling it in another at
a higher price. By doing so, __act as intermediaries, providing liquidity to participants in the marke

A

arbitrage - blank
meaning - arbitrageurs

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40
Q

TYPES OF FINANCIAL MARKETS

A

MONEY MARKETS
CAPITAL MARKETS
TRADITIONAL INVESTMENT MARKETS
ALTERNATIVE MARKETS

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41
Q

refer to markets for debt securities with maturities of one year or less.

A

MONEY MARKETS

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42
Q

refer to markets for
longer-term debt securities and equity securities that have no specific maturity date

A

CAPITAL MARKETS

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43
Q

refer to
those for debt and equity such as commercial and universal banks.

A

TRADITIONAL INVESTMENT MARKETS

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44
Q

refer to the modern ways of investing
such as crypto, play-to-earn games, etc.

A

ALTERNATIVE MARKETS

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45
Q

BASIC INVESTMENT OBJECTIVES

A

SECURITY
LIQUIDITY
YIELD

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46
Q

Central to any investment objective, we have to basically ensure
the safety of the principal. One can afford to lose the returns at any
given point of time but s/he can ill afford to lose the very principal
itself.

A

SECURITY

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47
Q

Because we may have to convert our investment back to cash or
funds to meet our unexpected demands and needs, our investment
should be highly ___

A

Liquidity

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48
Q

is best described as the net return out of any investment.

A

Yield

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49
Q

CHARACTERISTICS OF INVESTMENTS

A

Risk
Return
Liquidity
Marketability
Concealability
Capital Growth
Purchasing power stability
Stability of income
Tax benefits

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50
Q

refers to the loss of principal amount of an investment. It is one of the major characteristics of an investment

A

risk

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51
Q

The
risk depends on the following factors:

A

When investment maturity period is longer; investor will take larger risks.
* Government or Semi-Government bodies issue securities, which have lesser risks.

52
Q

refers to expected rate of return from an investment

A

return

53
Q

refers to investments ready to be converted into cash. In other words, it is available immediately in the cash
form. it means that investment is easily realizable, saleable or marketable

A

Liquidity

54
Q

is another essential characteristic of the investment. ___means investment to be safe from
social disorders, government confiscations or unacceptable levels of taxation.

A

Concealability

55
Q

refers to appreciation of investment.

A

Capital growth

56
Q

refers to the buying capacity of investment in market.

A

Purchasing power stability

57
Q

is the last characteristic feature of the investment. Planning an investment programme without considering
the tax burden may be costly to the investor.

A

Tax benefits

58
Q

TYPES OF INVESTORS

A

Conservative investors
Moderate investors
Aggressive investor

59
Q

often invest in cash. They put their money in interest bearing savings accounts, money market accounts,
mutual fund

A

Conservative investors

60
Q

often also invest in real estate, providing that it is low risk real estate.

A

Moderate investors

61
Q

tends to invest in business ventures as well as higher risk real estate. These people are considered as high risk takers

A

Aggressive investor

62
Q

TYPES OF RISKS

A

Systematic risk
Unsystematic risk

63
Q

is caused by factors external to the particular
company and uncontrollable by the company. The _______
affects the market as a whole.

A

Systematic risk

64
Q

In case of __________, the factors are specific, unique and
related to the particular industry or company.

A

Unsystematic risk

65
Q

SOURCES OF RISK

A

Personal Risks
Company Risks
MARKET RISKS
NATIONAL AND INTERNATIONAL RISKS

66
Q

This is a category of risk which deals with the personal level of investing. The investor is likely to have more control over this
type of risk compared to others.

A

Personal Risks

67
Q

what are under personal risks?

A

Timing risk
Tenure risk

68
Q

is the risk of buying the right security at the wrong time. It also refers to selling the right security at the
wrong time. For example, there is the chance that a few days after you sell a stock it will go up several dollars in value.
There is no surefire way to time the market.

A

Timing risk

69
Q

is the risk of losing money while holding onto a security.

A

Tenure risk

70
Q

There are two common risks on the company-wide level.

A

Financial risk
Management risk

71
Q

is the danger that a corporation will not be able to repay its debts. This has a great effect on its bonds,
which finance the company’s assets.

A

Financial risk

72
Q

is the risk that a company’s management may run the company so poorly that it is unable to grow
in value or pay dividends to its shareholders.

A

Management risk

73
Q

is the chance that the entire market will decline, thus affecting the prices and values of securities. _____, in turn, is influenced by outside factors such as embargoes and interest rate changes.

A

MARKET RISK

74
Q

Fluctuation in the market as a whole may be caused by the following risks:

A

Market risk
Liquidity risk
Interest rate risk
Inflation risk

75
Q

is the risk that an investment, when converted to cash, will experience loss in its value.

A

Liquidity risk

76
Q

is the risk that interest rates will rise, resulting in a current investment’s loss of value.

A

Interest rate risk

77
Q

is the danger that the dollars one invests will buy less in the future because prices of consumer
goods rise.

A

Inflation risk

78
Q

can profoundly affect investment markets.

A

National and world events

79
Q

type of NATIONAL AND INTERNATIONAL RISKS

A

Economic risk
Industry risk
Tax risk
Political risk

80
Q

is the danger that the economy as a whole will perform poorly.

A

Economic risk

81
Q

is the chance that a specific industry will perform poorly. When problems plague one industry, they
affect the individual businesses involved as well as the securities issued by those businesses.

A

Industry risk

82
Q

is the danger that rising taxes will make investing less attractive

A

Tax risk

83
Q

is the danger that government legislation will have an adverse effect on investment. This can be in the
form of high taxes, prohibitive licensing, or the appointment of individuals whose policies interfere with investment
growth. This include wars, changes in government leadership, and politically motivated embargoes.

A

Political risk

84
Q

title of chapter 2

A

RISK AND RETURN

85
Q

T/F

risk and rate-of-return are not directly related.

A

F, they are related

86
Q

T/F

As the risk level of an investment increases, the potential return
usually increases as well.

A

TRUE

87
Q

The __________ illustrates the risk and return associated with various types of
investment options

A

pyramid of investment risk

88
Q

T/F

As investors move up the pyramid, they do not incur a greater risk of loss of principal along with the potential for
higher returns.

A

F, they incur

89
Q
  • The uncertainty of future outcomes.
  • Part of our daily lives
  • Manageable in certain situations
A

Risk

90
Q

Levels of Risk

A

Low Risk
Medium Risk
High Risk

91
Q

Example of High Risk

A

Futures Contracts and Collectibles

92
Q

Examples of Medium Risk

A

Aggressive Growth
Real Estate
High Quality Contracts

93
Q

Examples of Aggressive Growth

A

Junk Bonds
Stocks
Mutual Funds

94
Q

Examples of Low Risk

A

Life Insurance
Government Securities
Insured Savings Account
Savings Bonds EE & HH
Money Market Funds
Certificate of Deposit

95
Q

Represents the cost of money; it is the opportunity cost of money:

It shows the return lost from not investing in a comparable risk investment.

A

Interest Rates

96
Q

A quantitative measure of the rate at which the average price level of a and services in an economy increases over some
period of time. It is the rise in the general level of prices where a unit of currency effectively buys less than it did in prior
periods

A

Inflation Rate

97
Q

This is the income received on an investment plus any change in market price, usually expressed as a percent of the beginning
market price of the investment.

A

Holding Period Return

98
Q

The return that an investor expects to earn on an asset, given its price, growth potential, etc.

Based on expected cash flows (not accounting profits)

Can be expressed as cash flows / percentage return

In an uncertain world future cash flows are not known with certainty

A

Expected Return

99
Q

is less the expected rate of inflation over the maturity of the fixed income security.
It is the actual interest rate given by financial institutions.

A

nominal rate of interest / real interest rate

100
Q

also known as a financial return, in its simplest terms, is the money made or lost on an investment over some
period of time

A

return

101
Q

difference between return OF investment and return ON investment

A

return OF - puhunan
return ON - kita sa investment

102
Q

title of chap 3

A

BASICS OF PORTFOLIO MANAGEMENT

103
Q

Art and Science
➢ Maximization of return at a given risk
➢ Meeting specific goals for the benefit of the investors
➢ Selection of the best investment vehicles that will provide the expected rate of return for a given degree
of risk

A

Portfolio Management

104
Q

usually use their financial reports as their portfolio assets.

A

Private securities / businesses

105
Q

expresses all their financial related records on their portfolio

A

listed companies

106
Q

Purpose of Portfolio Management

A
  1. Present the most appropriate investment plan as per income, risk tolerance, objectives and expectations
  2. Risk reduction and optimal return from investment depending on risk appetite
  3. Continuous planning to evaluation process
107
Q

Factors under PLANNING

A

➢ Investor’s Risk Tolerance
➢ Return Objectives
➢ Time Horizon
➢ Tax Exposure
➢ Income Needs
➢ Unique Circumstances

108
Q

TYPES OF INVESTORS

A
  1. Defensive Investor
  2. Conservative Investor
  3. Moderate Investor
  4. Growth Investor
  5. Aggressive Investor
  6. High Alpha Investor
109
Q

your investment style suggests you do not wish to take on any investment risk

A

Defensive Investor -

110
Q

your investment style suggests you are prepared to accept a small amount of risk

A

Conservative Investor

111
Q

your investment style suggests you are prepared to sacrifice short-term safety to maximize
the value of your investments

A

Moderate Investor

112
Q

your investment style suggests you are seeking a greater growth component in your
investment portfolio with some long-term investment returns

A

Growth Investor

113
Q

your investment style suggests you are actively looking for stocks with higher risk—but
a chance for higher reward

A

Aggressive Investor

114
Q

a sub-class of the aggressive investment style which takes all investment opportunities
regardless of the level of risk

A

High Alpha Investor

115
Q

Analysis of the risk and return characteristics of various asset classes to determine how funds will be allocated to
the various asset types

A

EXECUTION

116
Q

Examination of current economic condition
➢ Forecast of microeconomic variables such as GDP growth, inflation and interest rates.
➢ To identify the asset classes that are most attractive

A

TOP-DOWN ANALYSIS

117
Q

what is the result of the planning and execution

A

FEEDBACK

118
Q

THE PORTFOLIO MANAGEMENT PROCESS

A
  1. PLANNING
  2. EXECUTION
  3. FEEDBACK
119
Q

fixed income securities

A

BONDS

120
Q

hedge funds

A

future stocks

121
Q

commodities

A

natural resources like gold

122
Q

major element of portfolio management

A

financial report

123
Q

portfolio management is also called

A

profile

124
Q

TYPES OF INVESTOR’S RISK TOLERANCE

A

RISK TAKER - AGGRESSIVE
RISK NEUTRAL - MODERATE
RISK AVERSE - CONSERVATIVE

125
Q

it can earn interest after 30 years

A

EE BONDS

126
Q

it can earn interest after 20 years

A

HH BONDS

chapt2 C&&C (10 decks)

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