Chapter Eleven Vocabulary: Financial Markets

Question 1

Investment

Answer 1

the act of redirecting resources from being consumed today so that they may create benefits in the future; the use of assets to earn income or profit

Question 2

Financial System

Answer 2

the system that allows the transfer of money between savers and borrowers

Question 3

Financial Asset

Answer 3

claim on the property or income of a borrower

Question 4

Financial Intermediary

Answer 4

institution that helps channel funs from savers to borrowers

Question 5

Mutual Fund

Answer 5

fund that pools the savings of many individuals and invests this money in a variety of stocks, bonds, and other financial assets

Question 6

Diversification

Answer 6

spreading out investments to reduce risk

Question 7

Portfolio

Answer 7

a collection of financial assets

Question 8

Prospectus

Answer 8

an investment report to potential investors

Question 9

Return

Answer 9

the money an investor receives above and beyond the sum of money initially invested

Question 10

Coupon Rate

Answer 10

the interest rate that a bond issuer will pay to a bondholder

Question 11

Maturity

Answer 11

the time at which payment to a bondholder is due

Question 12

Par Value

Answer 12

the amount that an investor pays to purchase a bond and that will be repaid to the investor at maturity

Question 13

Yield

Answer 13

the annual rate of return on a bond if the bond were held to maturity

Question 14

Savings Bond

Answer 14

low-denomination bond issued by the United States government

Question 15

Municipal Bond

Answer 15

a bond issued by a state of local government or municipality to finance such improvements as highways, state buildings, libraries, parks, and schools

Question 16

Corporate Bond

Answer 16

a bond that a corporation issues to raise money to expand its business

Question 17

Securities and Exchange Commission

Answer 17

an independent agency of the government that regulates financial markets and investment companies

Question 18

Junk Bonds

Answer 18

a lower-raised, potentially higher-paying bond

Question 19

Capital Market

Answer 19

marjet in which one is lent for periods of less than a year

Question 20

Secondary Market

Answer 20

market in which money is lent for periods of less than a year

Question 21

Shares

Answer 21

portion of stock

Question 22

Equities

Answer 22

claims of ownership in a corporation

Question 23

Capital Gain

Answer 23

the difference between a higher selling price and lower purchase price, resulting in a financial gain for the seller

Question 24

Stock Split

Answer 24

the division of a single share of stock into more than one share

Question 25

Brokerage Firm

Answer 25

a business that specializes in trading stocks

Question 26

Stock Exchange

Answer 26

a market for buying and selling stock

Question 27

OTC Market

Answer 27

an electronic marketplace for stocks and bonds

Question 28

Nasdaq

Answer 28

American Market for OTC securities

Question 29

Futures

Answer 29

contracts to buy or sell at a specific date in the future at a price specified today

Question 30

Options

Answer 30

contracts that give investors the choice to buy or sell stock and other financial assets

Question 31

Call Option

Answer 31

the option to buy shares of stock at a specified time in the future

Question 32

Put Option

Answer 32

the option to sell shares of stock at a specified time in the future

Question 33

Bull Market

Answer 33

a steady rise in the stock market over a period of time

Question 34

Bear Market

Answer 34

a steady drop in the stock at a specified time in the future

Question 35

The Dow

Answer 35

an index that shows how certain stocks have traded

Question 36

S&P 500

Answer 36

index that shows the price changed of 500 different stocks

Question 37

Great Crash

Answer 37

the collapse of the stock market in 1929

Question 38

Speculation

Answer 38

the practice of making high-risk investments with borrowed money in hopes of getting a big return