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Flashcards in Business I Deck (59)
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1

Arbitrage

A trading strategy where you benefit from pricing discrepancies between similar or identical assets

2

Agflation

A spike in food prices that occurs as a result of increased usage of alternative fuel sources.

Example: producing greater ethanol and bio-diesel supplies requires more soybean and corn. This causes shortages, leading to increases in grain price, which bleeds into other grain products as people look for cheaper alternatives.

Farmers that require the grain for their livestock are hit hard and must then charge more for their dairy product to stay profitable.

These food price spikes are felt mostly by the lower class, and not by middle-class and college students (who tend to be more Eco-conscious).

3

Tariff

A tax on imported and exported goods.

4

APY

Annual percentage yield.

Based on compound interest.

The effective annual rate of return, taking into account the effect of compounding interest.

5

Annualized rate

A rate of return for a given period that is less than one year, but that is computed as if the rate were for a full year.

6

Compound interest

Interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.

Compound interest can be thought of as “interest on interest,” and will make a deposit or loan grow at a faster rate than simple interest.

7

Annualize

To convert a rate of any length into a rate that reflects the rate on an annual (yearly) basis.

Does not usually take into account compounding as it is just an estimate.

8

APR

Annual Percentage Rate

The annual rate that is charged for borrowing (or made by investing) expressed as a percentage number.

Includes fees and additional costs.

If a credit card company charges 1% a month, APR would be 12% (credit card companies have to disclose this).

Based on "simple interest".

9

Simple interest

A quick way of calculating interest rate on a loan.

Multiply interest rate by principal by number of periods.

10

Independent contractor

A self-employed taxpayer that controls his or her own employment.

Must file their own social security tax.

11

Earnings

Amount of net, after-tax profit a company produces during a certain time-period (usually quarterly).

The main determinant of a company's share price.

A business's quarterly and annual earnings are typically measured against analyst expectations and guidance by the company itself.

When earnings do not meet either of those estimates, a business's stock price tends to drop. And vice versa.

12

Private equity corporation

Company that raises funds from private investors to buy equity ownership in (usually faltering) businesses with the expectation that they will create a profit for their investors within 5-7 years.

13

Marketable security

Very liquid securities that can be converted into cash quickly at a reasonable rate.

They tend to have maturities of less than one year.

14

New Deal Programs

Social reform programs created by Franklin D. Roosevelt in 1933 as a response to the Great Depression.

Liberals loved it. Republicans hated it.

Is the blueprint for modern US liberalism.

Turned the US into a welfare state.

Created programs like welfare and social security, that gave govt assistance to people unable or unwilling to take care of themselves.

Also created:

- the REA (rural electrification administration), which supplied electricity to rural homes for reasonable costs.

- the SEC (securities and exchange commission), which watchdogs Wall Street.

- the FDIC (federal deposit insurance corporation), which insures people who have their money in banks against bank foreclosure.

15

Vertical integration

When a company expands it's business into areas that are at different points on the same production path.

There are two types of vertical integration:

- backward integration: when a manufacturer acquires it's supplier.
- forward integration: when a manufacturer acquires it's distributor.

16

Creditor

One to whom money is due.

17

Put

An option.

People who buy puts are bears (they think the price is going to drop)

Gives purchaser the right, but not the obligation, to sell a stock at a certain price, during a certain window of time. The longer the window of time, the more it costs.

There are two kinds of people who buy puts: speculators & people who buy them for security.

- speculator example: say the stock is at 30, and the speculator believes it is going to drop to 10. He can buy a put option with a strike price of 28. Then, if the stock drops to 10 he can sell it for 28, then buy the same stock back at the market price (10). He makes a profit.

- Security example: say this guy already owns stock that is at 30 and he is afraid it is going to drop to 10. He can buy a 28 strike price put. Then if it does drop he can still sell it for 28.

18

What are debt investment?

An investor loans money to a corporation or a govt in return for a financial vehicle that pays out regular interest payments to the investor (dividends) and has a fixed maturity (when the loan must be paid back in full).

19

When do interest rates fall?

When there is too little money in the market (deflation). Demand for goods and services drops, so loans drop, so banks lower interest rates.

Interest rates also are lowered during recessions, in order to offer people loans for cheaper rates, in an effort to increase liquidity.

20

Dubai/Oman

Oil benchmark used in the Middle East.

For oil going from Persian Gulf to the Asian Market.

This oil is heavy and high in sulfur.

21

Debt financing

How leveraged your company is.

Raising capital for expenditures by selling bonds, bills, or notes.

22

Debtor

One who owes money (a debt) to a creditor.

23

Dividend

A distribution of a company's earnings, decided by the board of directors, to its shareholders.

24

Trend

Any price movement that your indicator identifies.

25

Margin trading

Borrowing money from a broker to buy stock.

26

Position squaring

Exiting a stock position after a big move.

Causes a price move in the opposite direction of the trend.

27

Prime number

A number divisible only by one or itself.

28

Overbought

When a stock is on an upswing and everyone who wants to buy has bought.

29

Reversion to the mean

Assumption that high and low prices are temporary and that a price trend will go back to its average over time.

30

Key reversal

When an uptrend goes to a downtrend, and vice versa.