Chapter 1 Flashcards

(52 cards)

1
Q

What are these items describing?

  • Used to produce goods and services
  • Can be tangible or intangible
  • Have innate productive capacity
  • Examples: Buildings, land, machines, and intellectual property
A

Real Assets

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

What are these items describing?

  • Claims to the income generated by real assets or claims on income from the government
  • Do not directly contribute to the productive capacity of the economy
  • Examples: Stocks and bonds
A

Financial Assets

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

What are these item describing?

  • Fixed-Income/Debt Securities
  • Equity
  • Derivative Securities
A

Types of Financial Assets

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

Promises either a fixed stream of income or a stream of income determined by a specified formula (e.g., corporate bonds)

A

What are Fixed-Income/Debt Securities?

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

Represents ownership share in a firm (e.g., common stock)

A

What is Equity?

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

Payoff depends on the value of other financial variables such as stock prices, interest rates, or exchange rates.

A

What are Derivative Securities?

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are these items describing?

  • Currency
  • Commodities
A

Other Types of Financial Markets

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

Below are the characteristics of _________

  • $2 trillion of currency traded each day in London alone
  • Worldwide trading volume exceeds $6 trillion
A

Currency Markets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Below are the characteristics of _________

  • Corn, wheat, and natural gas
  • Multiple exchanges including the New York Mercantile Exchange and the Chicago Board of Trade
A

Commodity Markets

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

Conflicts of interest between managers and owners (shareholders)

A

What are Agency Problems?

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

What are the items below describing?

  • Compensation plans tie the income of managers to the success of the firm
  • Monitoring from the board of directors
  • Monitoring by large investors and security analysts
  • Threat of takeover for poor performers
A

Ways to Mitigate Potential Agency Problems

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

Below are the characteristics of _________

  • Passed in 2002 in response to ethics scandals
  • Focused on corporate governance
A

The Sarbanes-Oxley Act (SOX)

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

What are the items below describing?

  • Choice among broad asset classes
  • Example: stocks, bonds, real estate, etc.
A

Asset Allocation

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

What are the items below describing?

  • Choice of securities within each asset class
  • Example: Ford, Alphabet, Microsoft, General Mill, etc.
A

Security Selection

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

Involves the valuation of particular securities that might be included in the portfolio

A

What is a Security Analysis?

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

What are the items below describing?

  • “Top-down” approach
  • “Bottom-up” approach
A

Types of Security Analyses

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

Asset allocation followed by determination of particular securities to be held in each asset class

A

What is the “Top-down” Approach Security Analysis?

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

Investment based on attractively priced securities without as much concern for asset allocation

A

What is the “Bottom-up” Approach Security Analysis?

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

True or False?

Financial markets are highly competitve

A

True

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

True or False?

Financial markets are mildly competitive

A

False

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

Higher-risk assets are priced to offer higher expected returns than lower-risk assets

A

What is Risk-Return Tradeoff?

22
Q

What are the items below describing?

  • The prices of securities fully reflect available information
  • If true, there would exist neither underpriced nor overpriced securities
A

Efficient Market Hypothesis

23
Q

What are the items below describing?

  • Highly diversified portfolio
  • No attempt to improve investment performance by identifying mispriced securities
A

Passive Management

24
Q

What is this describing?

  • Focus on improving performance by finding mispriced securities or by timing the performance of broad asset classes
A

Active Management

25
What are the items below describing? - Net demanders of capital - Raise capital now to pay for investments in plan and equipment
Firms
26
What are the items below describing? - Typically, net suppliers of capital - Purchase securities issued by firms that need to raise funds
Households
27
What is this describing? - Can function as borrowers or lenders, depending on the relationship between tax revenue and government expenditures
Governments
28
Bring the suppliers of capital (investors) together with the demanders of capital (primarily corporations and the federal government) Examples: - Investment companies - Banks - Insurance companies - Credit unions
What are Financial Intermediaries?
29
What are the items below describing? - Specialize in the sale of new securities to the public. Typically, by underwriting the issue - Advise the issuing corporation on appropriate price, interest rate, etc.
Investment Bankers
30
Market where new issues of securities are offered to the public for the first time
What are Primary Markets?
31
Market where investor trade previously issued securities among themselves
What are Secondary Markets?
32
The application of technology to financial markets
What is FinTech?
33
Provide record of transactions securely added to a public distributed ledger
What are Blockchains?
34
Payment systems that use blockchain technology
What is Cryptocurrency?
35
What are the items below describing? - Digital Tokens - Digital Currency
Types of Cryptocurrencies
36
Issues in an initial coin offering and can eventually be used to purchase products or services from the start-up
What are Digital Tokens?
37
Sovereign cryptocurrency
What is Digital Currency?
38
Pooled, regulated, and professionally managed money open to the public
What are Mutual Funds?
39
Pooled, private, and professionally managed money open only to institutional investors or wealthy individuals
What are Hedge Funds?
40
Professionally managed money invested in new, not yet publicly traded firms. Commonly take an active role in the management of a start-up firm
What is Venture Capital?
41
Refers to investments in companies whose shares are not publicly traded in a stock market Examples: Venture capital, buyout funds (professionally managed money that enlists debt to take public firms private)
What is Private Equity?
42
What are the items below describing? - Mortgage loans came from a local lender - a neighborhood savings bank or credit union - Typical thrift institution would have as its major asset a portfolio of these long-term home loans - Thrift's main liability were depositors' accounts
The Old Way of Housing Finance
43
What are the items below describing? - Securitization: the pooling of loans into standardized securities backed by those loans; can be traded like any other security - Fannie Mae and Freddie Mac became the behemoths of the mortgage market
The New Way of Housing Finance
44
The pooling of loans into standardized securities backed by those loans; can be traded like any other security
What is Securitization?
45
True or False? Conforming mortgages were pooled almost entirely through Freddie Mac and Fannie Mae
True
46
True or False? Conforming mortgages were entirely separated from Freddie Mac and Fannie Mae
False
47
First claim on repayments from the entire pool
What are Senior Tranches?
48
Paid only after the senior tranches
What are Junior Tranches?
49
An insurance contract against the default of one or more borrowers. Purchaser of the swap pays an annual premium for protection from credit risk.
What are Credit Default Swaps?
50
The risk of breakdown in the financial system, particularly due to spillover effects from one market into others
What is Systemic Risk?
51
What are the items below describing? - Mechanisms to mitigate systemic risk - Stricter rules for bank capital, liquidity, and risk management practices - Creation the Office of Credit Ratings within the SEC to oversee the credit rating agencies
The Dodd-Frank Reform Act
52