class 1: intro Flashcards

Question

A bankers’ acceptance

Answer 1

starts as an order to a bank by a bank’s customer to pay a sum of money at a future date --> typically within six months --> similar to a postdated cheque second only to T-bills in terms of default security

Answer 2

because traders can substitute the bank’s credit standing for their own

Answer 3

U.S. dollar–denominated deposits at foreign banks or foreign branches of American banks

Answer 4

a form of short-term, usually overnight, borrowing The dealer sells government securities to an institutional investor on an overnight basis, with an agreement to buy back those securities the next day at a slightly higher price

Answer 5

same as repurchase agreements but the term of the implicit loan can be 30 days or more

Answer 6

because the loans are backed by the government securities

Answer 7

the mirror image of a repo the dealer finds an investor holding government securities and buys them, agreeing to sell them back at a specified higher price on a future date

Answer 8

Funds in the bank’s reserve account

Answer 9

primarily big banks in New York and other financial centers

Answer 10

they lend to those with a shortage --> usually overnight transactions --> arranged at a rate of interest called the federal funds rate

Answer 11

Individuals who buy stocks on margin borrow part of the funds to pay for the stocks from their broker --> The broker in turn may borrow the funds from a bank, agreeing to repay the bank immediately (on call) if the bank requests it

Answer 12

the rate at which large banks in London are willing to lend money among themselves

Answer 13

the bond equivalent yield

Answer 14

Rbey = ((1000 - P)/P) · 365/n

Answer 15

The compound interest annualized rate of return ((1000 - P)/P)^2 - 1

Answer 16

The quoted yields for U.S. T-bills a 360-day year and the par value of 1,000 in the denominator instead of P d = ((1000 - P)/1000) · 360/n

Answer 17

Rbey = (365 · d) / (360 - (d · n)) d: the discount yield

Answer 18

composed of longer-term borrowing instruments than those that trade in the money market said to make up the fixed-income capital market, because most of them promise either a fixed stream of income or a stream of income determined according to a specific formula

Answer 19

Canada Savings Bonds (CSBs) or Canada Premium Bonds (CPBs) Government of Canada bonds

Answer 20

nonmarketable securities ssued every year starting November 1, with a sale period of a few months perfectly liquid, since they can be cashed any time prior to maturity at face value plus accrued interest

Answer 21

longer-term marketable debt securities have varying maturities at issue date, ranging up to 40 years considered part of the money market when their term becomes less than three years

Answer 22

calculated by determining the semiannual yield and then doubling it the yield is quoted on an annual percentage rate (APR) basis, rather than as an effective annual yield also called the bond equivalent yield

Answer 23

payment / P

Answer 24

similar in their characteristics to federal government issues, with a variety of maturities and coupon rates, and are available to investors at any given time considered extremely safe assets, even though not as safe as comparable Canada bonds a small yield spread can be observed in the figure between Canada bonds and provincial bonds, as well as between the bonds of the various provinces

Answer 25

enable private firms to borrow money directly from the public similar in structure to government issues --> typically pay semiannual coupons over their lives and return the face value to the bondholder at maturity differ most importantly from government bonds in degree of risk --> Default risk is a real consideration in the purchase of corporate bonds,

Answer 26

unsecured bonds

Answer 27

have a lower-priority claim to the firm’s assets in the event of bankruptcy

Answer 28

give the firm the option to repurchase the bond from the holder at a stipulated call price

Answer 29

give the holder the option, respectively, to redeem the bonds earlier and later than the stated maturity date

Answer 30

give the bondholder the option to convert each bond into a stipulated number of shares of stock

Answer 31

a bond denominated in a currency other than that of the country in which it is issued For example, a dollar-denominated bond sold in Britain would be called a Eurodollar bond

Answer 32

usually written with a long-term (25-to-30-year maturity) amortization of the principal renewable at one-to-five-year intervals, at which point their interest rates may be renegotiated

Answer 33

because of the mismatching of the maturities of assets and liabilities hold long-term assets such as fixed-rate mort- gages --> Hence, they suffer losses when interest rates increase: the rates they pay on deposits increase while their mortgage income remains fixed --> The five-year renewal period helps to alleviate this problem

Answer 34

require the borrower to pay an interest rate that varies with some measure of the current market interest rate

Answer 35

either an ownership claim in a pool of mortgages or an obligation secured by such a pool represent securitization of mortgage loans

Answer 36

cause originator can sell it to someone else and he will give him the payments he receives

Answer 37

also known as equity securities or equities represent ownership shares in a corporation entitles its owner to one vote on any matters of corpo- rate governance that are put to a vote at the corporation’s annual meeting, as well as to a share in the financial benefits of ownership

Answer 38

no voting rights, or only restricted voting rights, but otherwise participates fully in the financial benefits of share ownership

Answer 39

is said to be closely held

Answer 40

residual claim and limited liability features

Answer 41

shareholders are last in line of all those who have a claim on the assets and income of the corporation

Answer 42

the greatest amount shareholders can lose in event of failure of the corporation is their original investment

Answer 43

bundles of stocks that are bought in one transaction

Answer 44

has features similar to those of both equity and debt --> promises to pay to its holder a fixed amount of income every year --> similar to an infinite-maturity bond, that is, a perpetuity --> does not convey voting power regarding the management of the firm --> an equity investment, however, in the sense that failure to pay the dividend does not precipitate corporate bankruptcy --> preferred dividends are usually cumulative; that is, unpaid dividends cumulate and must be paid in full before any dividends may be paid to holders of common stock ----> dividends they are not tax-deductible expenses for the firm

Answer 45

instruments with debt and equity features holds an underlying asset or group of assets that generate income, most of which is distributed to unitholders --> a variation on the structure of an REIT or a royalty trust

Answer 46

certificates traded in U.S. markets that represent ownership in shares of a foreign company most common way for U.S. investors to invest in and trade the shares of foreign corporations

Answer 47

Canada’s best-known stock market indicator contains over 270 of the largest securities (in terms of market value) traded on the TSX, regardless of industry group, but excluding control blocks composed of more than 20 percent of outstanding shares a market-value-weighted index based on a very broad set of companies The percentage increase in the total market value from one day to the next represents the increase in the index

Answer 48

shares of mutual funds that invests in all stocks in an index

Answer 49

price- weighted average 30 large blue-chip corporations

Answer 50

the Wilshire 5000 index