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Series 6 > Securities, Markets, Investment Secrities, and Economic Factors > Flashcards

Securities, Markets, Investment Secrities, and Economic Factors Flashcards

0
Q

What is equity (ownership) most commonly represented by?

A

Various forms of Stock.

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1
Q

What is a Security?

A

Constitutes an investment of money, in a common enterprise, with the expectation of profits to be derived primarily from the efforts of a person other than the investor.

(Any note, stock, bond, investment contract, variable annuity, profit-sharing or partnership agreement, certificate of deposit, option on a security, or other instrument of investment)

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2
Q

What is debt most commonly represented by?

A

Bonds & Notes.

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3
Q

Also considered equity securities are instruments that give enhanced access such as…

A

Rights, Warrants, & Options.

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4
Q

Who regulates the securities markets in the U.S.?

A

Securities and Exchange Commission (SEC). Created by the Securities Exchange Act of 1934.

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5
Q

The Maloney Act of 1938 gave the SEC authority to establish other self-regulatory organizations (SROs), the first was?

A

National Association of Securities Dealers (NASD)=membership, compromised the broker/dealer firms.

Financial Industry Regulatory Authority (FINRA) is the successor to the NASD.

Other SRO’s=municipal securities rule making board (MSRB) & the Chicago Board options exchange (COBE).

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6
Q

The self-regulatory organizations (SRO) regulates?

A

Participants in the over-the-counter market (OTC) in securities, as well as members of the New York Stock Exchange (NYSE).

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7
Q

SRO’S are not federal agencies but membership organizations that enforce federal securities laws on their members & are held accountable to the…?

A

Securities & Exchange Commission (sec).

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8
Q

Market Makers (broker/dealers) buy and customers sell at the bid price.

A

Market Makers (broker/dealers) sell and customers buy at the asked price.

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9
Q

Who is a Broker?

A

An individual or a firm that charges a fee or commission for executing buy and sell orders submitted by another individual or firm;

the role of a brokerage firm when it acts as an agent for a customer and charges the customer a commission for its services;

any person engaged in the business of effecting transactions in securities for the accounts of others that is not a bank.

compensated by a commission in securities transactions

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10
Q

Who is a Customer?

A

The Public. (Not a broker, dealer, or municipal securities dealer)

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11
Q

Who is a dealer?

A

The role of a brokerage firm when it acts as a principal.

A firm acts as a dealer when it buys or sells a security for its own account & at its own risk, then charges the customer a markup or markdown.

Any person engaged in the business of buying and selling securities for their own account, either directly or through a broker, that is not a bank.

compensated by a markup/markdown in securities transactions

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12
Q

Term “sale” or “sell” shall include…

A

Disposition of a security or interest in a security, for value.

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13
Q

Term “offer to sell” “offer for sale” or “offer” shall include…

A

Every attempt or offer to dispose of, or offer to buy, a security or interest in a security, for value.

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14
Q

What is prospectus?

A

any prospectus, notice, circular, advertisement, letter, or communication, written or by radio or television, which offers any security for sale or confirms the sale of any security.

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15
Q

Stocks represent…

A

Equity or ownership in a company.

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16
Q

Bonds are…

A

A loan to a company.

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17
Q

What is a balance sheet?

A

A company disclosing the composition of its total capitalization-debt & equity-by publishing a balance sheet.

The balance sheet summarizes the company’s: assets, liabilities, & net worth.

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18
Q

What are a company’s assets?

A

what the company owns: cash in the bank, accounts receivable (money it is owed), investments, property, inventory, etc.

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19
Q

What are company’s liabilities?

A

What the company owes: accounts payable (current bills it must pay), short-term and long-term debt and other obligations.

20
Q

What is a company’s net worth or (shareholders equity)?

A

the excess (let us hope) of the value of assets over the value of liabilities.

Assets-liabilities=net worth
Or
Assets=liabilities + net worth.

21
Q

A company’s total capitalization is…

A

It’s net worth plus it’s long term debt.

22
Q

Member…

A

A firm must apply to become one of these.

23
Q

Associated person…

A

Someone controlling or controlled by a member firm.

24
Q

What two types of stock can corporations issue?

A

Common stock & preferred stock.

When speaking of stock, people generally refer to common stock.

25
Q

What is common stock?

A company issues common stock as it’s primary means of rising capital

A

Investors who buy a share of ownership in the company’s net worth.

Whatever a business owns (it’s assets) less its creditors claims (liabilities) belongs to the business owners (it’s stockholders).

**all corporations issue common stock*

26
Q

Common stock can be classified in four ways:

A

Authorized, issued, treasury, & outstanding.

27
Q

What is authorized stock?

A

A corporation receives authorization from the state to issue, or sell, a specific number of shares of stock.

Often, a company sells only a portion of the authorized shares, raising enough capital for its foreseeable needs. (The company may sell the remaining authorized shares in the future or use them for other purposes)

Should the company decide to sell more shares than are authorized, it must amend its charter thru stockholder vote that approves more shares.

28
Q

What is issued stock?

A

Once authorized, issued stock can be distributed to investors.

(Such as voting rights & the right to receive dividends)

29
Q

Unissued shares, when a corporation issues or sells fewer shares than the total number authorized, it normally reserves the unissued shares for future needs:

A

Raising capital
Paying stock dividends
Providing stock purchase plans for employees or stock options for corporate officers
Exchanging common stock for outstanding convertible bonds or preferred stock
Satisfying the exercise of outstanding stock purchase warrants

authorized but unissued stock does not carry the rights and privileges of issued shares & is not considered in determining a company’s total capitalization

30
Q

What is treasury stock?

A

Stock a corporation has issued and subsequently repurchased from the public. (Outstanding stock before it was repurchased by the issuer)

The corporation can can hold this stock in indefinitely or can reissue or retire it. - to fund employee bonus plans, distribute it to stockholders as a stock dividend or redistribute to the public.-

(Treasury stock does not carry the rights of outstanding common shares, such as voting rights & the right to receive dividends)

31
Q

A corporation buys back it’s stock for reasons that include:

A

Increase earnings per share
Hav an inventory of stock available to distribute as stock options, fund an employee pension plan
Use for future acquisitions

32
Q

What is outstanding stock?

A

Includes any shares that a company has issued but has not repurchased-that is, investor-owner stock.

Issued stock - treasury stock = outstanding stock

33
Q

The most familiar measure of stock’s value is it’s market price or current market value (cmv).

The price investors must pay to buy the stock.

A

Market value is influenced by a company’s business prospects & the consequent effect on supply & demand.

Supply=the # of shares available to investors

Demand=the # of shares investors want to buy

34
Q

Measure of value…

A

Market value=supply & demand price (most familiar to investors)

Book value=current hypothetical liquidation value of a share

par value=an arbitrary accounting value

35
Q

What is stocks book value per share?

A

How much a common stockholder could expect to receive for each share if the corporation were liquidated.

Historical value of a corporations tangible assets and liabilities / divided by the # of shares outstanding.

36
Q

what is a common stock’s par value?

A

It is an arbitrary value the company gives the stock in its articles of incorporation, it has no effect on the stock’s market price.

par value is meaningless to investors

If a stock has been assigned a par value for accounting purposes…it is usually printed on the face of the stock certificate. ($1, $.01).

When the corporation sells stock, the money revived exceeding par value is recorded on the corporate balance sheet as…capital in excess of par, paid in surplus, capital surplus or paid in capital.

37
Q

Voting Rights? (Common stockholders are owners of a company, they hav certain rights that protect their ownership interests.)

A

Stockholders exercise control by electing a board of directors & by voting at annual meetings on corporate policy matters, such as:

  • issuance of convertible securities or additional common stock
  • substantial changes in the corporations business (mergers & acquisitions)
  • election of board of directors.

stockholders do NOT vote on anything with dividends

38
Q

Statutory Voting?

A

Allows a stockholder to cast one vote per share owned for each item on a ballot.

39
Q

Cumulative Voting?

A

Allows stockholders to allocate their votes in any manner they choose. Cumulative voting may be advantageous for small shareholders by giving them a greater opportunity to offset the votes of large shareholders by combining all their shares on a single seat.

40
Q

Proxies?

A

A form of absentee ballot.

41
Q

Anti dilution Provision?

A

Required by law or it’s corporate charter to Offer securities to its common stockholders before the general public when a corporation raises capital thru the sale of additional common stock.

42
Q

Preemptive rights?

A

Gives investors the right to maintain a proportionate interest in a company’s stock.

43
Q

Limited Liability means…

A

A shareholder of common stock cannot lose more than what was invested-a shareholder can lose the original value of his stock only.

44
Q

Common Stock is non-assessable

A

There is no such thing as assessable common stock in today’s marketplace.

45
Q

Investors buys shares of stock with the intent of selling them at a higher price at some point in the future.

A

Buy low now, sell high later.

46
Q

Short Sale?

A

Sell high now, buy back low later, borrowing shares to sell that the investor must eventually replace.

47
Q

Long=act of buying

A

Short=act of selling

Series 6 (1 decks)

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