Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

BU 473: Investment Management > Lesson 1: Asset Classes & Financial Instruments > Flashcards

Lesson 1: Asset Classes & Financial Instruments Flashcards

1
Q

what do real assets do?

A

they produce the goods that make up the real economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

what are 4 examples of real assets?

A
  1. land
  2. buildings
  3. machines
  4. human capital
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the real economy?

A

the total amount of goods and services produced

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

what are financial assets?

A

contracts which define payments between parties

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

True or false. Financial assets don’t produce actual output

A

true

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what are the 3 main types of financial assets

A
  1. fixed income
  2. equities
  3. derivatives
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

what side of the balance sheet do financial assets appear on?

A

both sides

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

what are the 3 things that financial assets define

A
  1. retirement income
  2. student debt
  3. mortgages
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

what is a positive and negative exampe of financial assets?

A

positive - inflation targeting
negative - the financial crisis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

what is the fundamental relationship of risk and return

A

riskier assets need to have higher returns

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

what do the price of assets reflect? (for now)

A

their value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

what is mispricing?

A

when the price of the security does not reflect its underlying value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

what is asset allocation?

A

how we distribute holdings between different types of assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

what is security allocation?

A

how to we pick individual securities within each asset class?

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

what is debt (aka fixed income) ?

A

offers a fixed stream of payments to investors, as long as the issuer can afford

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

what do we say when debt is not paid?

A

we say that the issuer is in default

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is paid first: debt or equity?

A

dent

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

what are 3 issues in pricing debt?

A
  1. coupons vs. no coupons
  2. senior debt vs. junior debt
  3. secured vs. unsecured
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

how do we classify short term & long term debt?

A

short term - less than 1 year
long term - more than a year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

what is the market for short term debt called

A

the money market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

what are t bills?

A

they have no coupons and the yield is based on the difference between the purchase price, and the value at maturity

22
Q

what are commercial papers?

A

large corporations issue corporate debt (in under 1 year)

23
Q

what are bankers’ acceptances?

A

a small corporation establishes a line of credit at a bank and when the corporation draws from the line of credit, the bank issues a BA, which it may sell to its clients

24
Q

what are secured vs unsecured loans?

A

secured - loans where collateral is exchanged

25
Q

How is interbank lending done in Canada?

A

through repurchase and reverse repurchase agreements

26
Q

what is a repurchase agreement

A

when borrowers need money, they may use a repo. The borrower sells a bond to a lender and agrees to buy the bond back at a later date and price

27
Q

what is a reverse repurchase agreement

A

when borrowers need a specific bond. the borrower buys a bond from a lender, and agrees to sell the bond back at a later date and price

28
Q

how are key rates in financial markets set?

A

some by central banks and others by market data

29
Q

why does the government of canada issue a large volume of bonds?

A

to finance its operations

30
Q

what are inflation protected government bonds in canada called?

A

real return bonds

31
Q

what are the 2 inconveniences of government issuing large number of bonds

A

1.It can be difficult to report and interpret the yields of many bonds.
2.It can be difficult for traders to find someone willing to trade the exact same bond.

32
Q

do federal or provincial bonds pay a higher yield?

A

provincial

33
Q

how is corporate debt classified based on its order in payment if the firm defaults?

A

Senior debt is paid first, before other debt.
Junior (or subordinated) debt is paid after senior debt but before equities.

34
Q

what is equity?

A

Equity represents an ownership stake in a corporation

35
Q

what are common stocks? and 2 features of common stock?

A

-common share holderrs are able to vote for the managers of the firm
1. Common stock has a residual claim. If the corporation liquidates its assets, common stock holders are paid out after all other claimants.
2. Common stock has limited liability. Shareholders are generally not liable if the firm is unable to pay its debts.

36
Q

what are income trusts?

A

Income trusts hold some underlying assets which generate income. Most income is then distributed to the holders of the income trust units.

37
Q

what are preferred shares?

A

are similar to a combination of a bond and a common share.
-payment eachyear
-no voting interest
-unpaid dividends paid before dividends on common share
-if default –> preferred shares paid after debt but before common shares

38
Q

what are american depository receipts?

A

certificates which represent shares of foreign corporations.

39
Q

what are derivatives?

A

Derivatives are financial instruments that derive their value from other assets.

40
Q

what are options?

A

Options represent the opportunity to buy, or sell some underlying asset at a specific price (the strike price) at a specific date (the expiration date) in the future.

41
Q

what is a put&call option:

A

put: sell option
call: buy option

42
Q

2 common styles of options:

A

1.American Options: Can be exercised on any date up to the expiration date.
2.European Options: Can only be exercised on the expiration date.

43
Q

what are futures?

A

Futures represent a guarantee to deliver an asset (or the cash value of an asset) at a particular date in the future at a particular price.

44
Q

what are financial indices?

A

Indices offer a simple way of combining information and measuring performance in financial markets.

45
Q

what is the relationship between ETF’s and indicies?

A

ETFs) are designed to track specific financial indices. These ETFs allow
investors to “buy into the market” without actively managing their portfolios.

46
Q

what is are 2 weaknesses of bond indicies?

A

1) Unlike equities, bond trading prices can be very difficult for normal investors to access.
2) Some bonds trade infrequently, making it difficult to determine the “correct” price.

47
Q

what are 3 other types of indicies ?

A

1) currencies
2) commodities
3) market expectation

48
Q
A
49
Q
A
50
Q
A

BU 473: Investment Management (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions