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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.

31

Short sale

Selling borrowed securities high then buying them back low, then returning them to their owner (so you bed up profiting).

People who do short sales are bears (they think the price is going to drop)

32

Monopoly

When a single company owns all of the market for a given type of product or service.

33

Default

Failure to pay principal or interest payments on a debt when they are due.

34

ARM

Adjustable rate mortgage

Mortgage where the interest rate is fixed for an initial term (at a lower than average rate) but then fluctuates with market interest rates (or consumer price index).

You may end up paying more if interest rates go up (or less, if they go down)

35

Fixed rate mortgage

a.k.a. traditional mortgage

A mortgage where the borrower pays the same interest rate for the life of the loan.

Most have a 15 or 30 year term.

36

Mortgage

A loan used to purchase a home, where the home acts as the borrower's collateral.

Example: if Joe wants to buy a million dollar house but only has half that much he can go to a lender (bank), and apply for a 15-year, fixed-rate mortgage loan that will cover the rest.

The bank runs Joe's credit and if it looks good they will grant him the loan and he can move into the house.

Joe will need to make monthly payments to the bank, as he pays back the loan. The loan payments are what they have loaned him (principal) plus the amount they charge him for borrowing the money (interest). These payments are fixed (do not change).

Also, the bank will put a lien on the house so if Joe stops making his payments the bank can evict him, seize the house, and sell it to another buyer (foreclosure).

37

FICO score

Stands for "fair issac corporation" (company that created the score).

The primary score that goes on your credit report.

Lenders use it to assess how great a credit risk an applicant is and whether or not to grant them a loan.

The score ranges between 300 and 850.

A score above 650 is good. Below 620 is bad.

38

Brent blend

Oil benchmark used everywhere in the world (except the US).

This oil is light, sweet, and water-borne, making it easier to extract and transport.

39

Why do interest rates rise?

They rise when more money comes into the economy: people buy more so demand for product increases. Companies jack up prices (inflation) and start to grow. As companies grow and expand they need loans from banks to do so. When more companies want loans they become more competitive and banks raise their rates.

40

Bid

An offer made by an investor to buy a security.

Offer includes the price they are willing to pay and the number of shares.

41

Pivot point

When an uptrend goes to a down trend. And vice versa.

42

What are the 3 operation stages in the oil and gas industry?

Upstream: location, drilling, extraction

Midstream: refining, testing

Downstream: distribution

- most operations are "integrated" (combination of all 3).

43

Deductible

Amount you have to pay out-of-pocket before insurance kicks in and pays the rest.

Example: if you have a $300 deductible and your hospital bill is $2,000, you would have to pay $300 out-of-pocket first, then insurance would pay the remaining $1,700.

Or, if your bill was $300, you would have to pay the whole thing out-of-pocket and insurance would cover nothing.

44

Fibonacci sequence

A self-replicating sequence of numbers.

The sum of two adjacent in the sequence forms the next higher number in the sequence.

45

Backward integration

A type of vertical integration where a manufacturer expands to acquire its supplier.

46

Forward integration

Type of vertical integration where a manufacturer acquires it's distributor.

47

Standard deviation

A unit of measurement that describes how far away from a stock's average (higher or lower) its price is likely to go.

48

Accumulation

During a bull market when people are buying up all the shares.

49

Real yield

The actual yield you receive (yield minus inflation).

50

Inflation

The rate at which the general level of prices for goods and services is rising and, subsequently, purchasing power is falling.

As inflation rises every dollar will buy a smaller percentage of a good (if the inflation rate is 2%, then a $1 pack of gum will cost $1.02 next year)

Inflation is often caused by a country printing more money than is justified by a country's wealth. When more money is available for a limited number of assets the value of the dollar decreases.

51

What are the different types of debt investments?

Bill: money is loaned to a govt or a corporation for 1 year or less. Pay out is received at maturity.

Note: money is loaned to a govt or corporation for 2-10 years. Makes regular interest payments and has a fixed maturity.

Bond: money is loaned to a corporation for 10 or more years. Makes regular interest payments and has a fixed maturity.

52

Oligopoly

Like a monopoly, but this is when a small group of firms owns or controls a certain market or industry.

53

Liquidity

The ease with which an asset or security can be converted into cash with little or no loss of value to the asset or security.

54

Nominal yield

Face-value yield (yield pre-inflation).

55

Index fund

A type of mutual fund with a portfolio constructed to match or track a market index, such as the S and P 500.

This means that it mirrors the ebb and flow of an index.

56

Primary trend

A trend that lasts months or years.

57

What are the different oil types?

Oil does not come out of the ground in the same form everywhere.

It is graded by its viscosity (light to heavy) and by the amount of impurities it contains (sweet to sour).

The price for oil that is widely quoted is for light/sweet crude.

58

What are the different types of natural gas?

traditional natural gas - an odorless, gaseous mixture of hydrocarbons (mostly methane). Is considered a fossil fuel.

RNG - renewable natural gas (a.k.a. "biomethane"): produced from organic materials - such as waste from landfills and livestock. Considered an advanced biofuel (renewable). RNG is basically the gaseous product of the decomposition of organic matter.

The two forms of natural gas used in vehicles (the two ways natural gas is compressed as vehicle fuel) are:

- CNG (compressed natural gas):
- LNG (liquified natural gas)

59

What are debt investments for govts?

Treasuries.

These are the only type of financial vehicle that can't be called away by the issuer.

You only pay taxes at the federal level for income made off these.

There are:
T-bonds - 10 yr or greater maturity
T-note - 1-10 yr maturity
T-bill - 1 year or less maturity