MONEY, FINANCIAL INSTITUTIONS, AND SECURITIES MARKETS

Question 0

Money is?

Answer 0

simply a medium of exchange that people agree on.

something generally accepted as a medium of exchange, a measure of value, or a means of payment

Question 1

Barter is?

Answer 1

to trade by exchanging one commodity for another.

Example: The tribes use a system of barter.

Question 2

the word “salary” comes from the?

Answer 2

the Latin sal, meaning “salt.” Roman legionaries built roads and hacked away at barbarians to “earn their salt.” Salt, beads, and so on can, in principle, still be money.

Question 3

In the United States, the money supply is?

Answer 3

the amount of currency made available for circulation by the Federal Reserve.

Question 4

There are three Federal Reserve money categories?

Answer 4

1. M-1includes coins, paper notes, and money represented by checks, bank drafts, and traveler’s checks. M-1 is a ready source of money for conducting financial transactions, like buying or selling.
2. M-2is equal to all the M-1 money plus all kinds of holdings that aren’t quite as readily accessible as M-1. M-2 includes money in savings accounts, certificates of deposit, mutual funds, retirement accounts, and similar places where money is held in trust, so to speak.
3. M-3is M-2 plus very large deposits represented by institutional money-market funds and agreements among banks.

Question 5

Securities are?

Answer 5

stocks and bonds that are traded in a securities market. The New York Stock Exchange (NYSE)and the NASDAQ (electronic exchange) are American examples of securities exchanges.

Question 6

The two major functions of securities exchanges are?

Answer 6

providing capital to publicly owned companies and permitting individual or institutional investors to buy and sell securities.

Question 7

Primary securities markets handle?

Answer 7

the sale of new securities. An initial public offering (IPO)of stock from a company is handled by the primary securities market. Secondary markets handle the trading of securities among investors.

Question 8

Investment bankers specialize in?

Answer 8

helping companies attain initial capital requirements through IPOs. They can also handlenew issues of stock (representing ownership) or bonds (representing debt) from companies that have already gone public. They do so by way of buying up the new issue—or pledging a goodfaith intent to do so—and then reselling the securities to the private sector, thereby being compensated by a commission on such sales.

Question 9

The activities of investment bankers are regulated by?

Answer 9

the Securities and Exchange Commission (SEC).

Question 10

A bond is?

Answer 10

a corporate certificate specifying that some legal party has loaned money to a company. Law requires that bondholders be paid regular interest on their bond holdings up to some specified maturity date. On maturity, a bond must be redeemed in full for its face value.

Question 11

When you buy stock in a company, you get?

Answer 11

a stock certificate that notes the number of shares purchased, the name of the company, and the type of stock being issued. Some stock certificates designate the par value of the stock. The par value is the value of shares as established by the corporate charter. However, since a stock’s par value and its market value on securities exchanges are pretty much unrelated, most shares are designated as “no-par”.

Question 12

Dividends paid to stockholders, generally on a?

Answer 12

a quarterly basis, reflect a company’s profits. Dividends may be paid in cash or in additional shares of stock. In some companies, potential dividends aren’t paid out; they’re reinvested in the company. There are some advantages and disadvantages to issuing stock.

Question 13

Preferred stock is?

Answer 13

a bit like a bond, but without a legal obligation for repayment. There are a number of possible differences between common and preferred stock. Among these, preferred stock dividends are to be paid to preferred stockholders before the common stockholders get paid. Also, the dividend rate is fixed, usually based on a formula extrapolated from share par value, making it a bit like a bond in that way.

Question 14

What is a Common Stock?

Answer 14

A company can choose to raise money through debt financing, based on loans from banks or investors. Alternatively, a company can go the route of equity financing and sell stock. Common stockis the basic capital-raising security. If a company offers only one form of stock, it must be common stock. Common stockholders normally have the right to vote and to participate in gain derived from corporate profits through declared dividends.

Question 15

A mutual fund is?

Answer 15

an investment company. It pools investor money to buy and maintain a portfolio of stocks and bonds. Because a mutual fund is varied and adaptable, and based on the judgments of skilled investors, investing in a mutual fund is one of the best and safest ways for an individual to increase equity or prepare for retirement.

Question 16

An index fundinvests in?

Answer 16

stocks that follow the S&P 500 or some other similar index, like Moody’s. In any case, the S&P 500 is a basket of 500 stocks that are thought to represent the overall market. Index fund trading is passive; it simply follows the index. By contrast, mutual fund managers actively assess securities to select investments that promise the highest level of return. To create a hedge against losses, they carry a diversified portfolio consisting of bonds and stocks representing a variety of industries.

Question 17

A stock exchange is?

Answer 17

an organization made up of people who are licensed to buy and sell securities for companies, institutions, or individual investors. Stocks, bonds, and mutual funds are traded on stock exchanges.

Question 18

Brokerage firms, like the erstwhile Merrill Lynch and A.G. Edwards, purchase seats on?

Answer 18

on major exchanges—the most important of which is the New York Stock Exchange (NYSE),founded in 1792. The second-largest so-called floor exchange is the American Stock Exchange (AMEX). In these exchanges, actual buying and selling can take place on the floor of the exchange or, increasingly, electronically.

Question 19

The over-the-counter market (OTC) provides?

Answer 19

a way for investors to buy and sell securities that aren’t listed on the major exchanges.

Question 20

the NASDAQ is?

Answer 20

Originally known as the National Association of Securities Dealers Automated Quotations, theNASDAQevolved from the OTC. Today, however, it’s independent of the OTC. The NASDAQ is a telecommunications network.It links brokers and dealers across the nation, allowing them to buy and sell stocks over their e-network.

Question 21

Securities exchange regulationsdeveloped in response to?

Answer 21

the “Wild West” approach to trading that led to the stock market collapse of 1929, plunging the nation and the world into the Great Depression. The first of these, enacted under theadministration of Franklin Roosevelt, was the Securities Act of 1933. It required full disclosure of corporate financial information to potential investors. The Securities and Exchange Act of 1934 created the Securities and Exchange Commission (SEC). The SEC is a quasi-judicial agency of the executive branch responsible for regulating the various exchanges with respect to disclosure and the use of privileged information that might encourage insider trading.