FInance chapter 3 and 4 note cards Flashcards
(31 cards)
Financial market
A system that includes individuals, institutions, instruments, and procedures that bring together borrowers and savers. Primary role: facilitate flow of surplus funds to entities that need funds
Direct transfer
When businesses sells its securities directly to savers
Investment bank
Indirect transfer through an investment banker who recieves fees .Facilitates issuance of securities by buying and reselling them to investors. Design securities to make them attractive.
Financial Intermediary
Indirect trasnfer through financial intermediary. Specialized financial firms that facilitate the indirect transfer of funds from savers to borowers by offering savings instruments, such as pension plans, Certificate of deposits etc. Helps reduce costs, risk diversification, funds divisibility/pooling, financial flexibility and other related services. Commercial banks,credit unions, mutual funds, insruance ompanies,.
Commercial banks
“department stores of finance” that offer a variety of deposits, loans and other products ans services to a variety of customers especially businesses. Is a depository intermediary.
Credit Union
A depsoitory insitution owned by depositors who have a common association such as an occupation or religion. Not for profit.
Thrift Institutions ( Savings and loans associations, mutual savings banks)
cater to savers who have small amounts of money to depsoit or need long term loans to purchase houses
Mutual funds
Investment comoanies that accept funds from saver to invest in financial assets such as stocks and bonds
Money market mutual fund
A mutual fund that invests in short-term, low risk securities and allows investors to write checks against their accounts –> popular during economic downturn
Whole life insurance companies
Firms that receive premiums from individuals; a portion of the funds is invested and a portion is used to cover the dependents of the insured
Pensions
Employe retirement plans funded by corporations or govt. agencies
economic efficiency 3
Funds are allocated to thgeir optimal use at the lowest costs in financial markets. Invest funds in assets that yeld highest returns and costs of searching for such opportunities is low
Informational efficiency 3
The stock prices are at equilibrium and reflect existing information and adjust quickly when new information enters the markets. Weak form: past price movements fully reflected in current market prices. Semistrong: current market prices reflect all publically available info. Storng form: market prices reflect all pertinent info, public and private Many participants who
Efficient market hypothesis 3
Securities are at equilibirum and fairly priced. One cannot consistently beat the market
Money market vs. capital market 3
Short term (
Debt markets vs. equity markets 3
Where loans are traded vs. where stocks are traded
Derivatives market 3
Financial markets where options, future, and similar financial instruments are traded
Primary markets 3
markets where firms isue new securities
Secondary markets 3
markets where financial assets that have previously been issuued by various organizations are traded among investors
Initial Public offering (IPO) 3
selling stock to general public for the first time by a corporation
Physical security exchanges 3
formal organizations with physical locations that facilitate trading in designated( “listed”) securities e.g New Yrok Stock Exchange
Over the Counter (OTC) market 3
a collection of brokers and dealers, connected electronically by telephones and computers that provides for trading in securities not listed in physical exchanges.
NASDAQ 3
separate market and Computerized tarding system used by national association of security dealers licenses brokers and oversees trading practices. Included market makers who continuously monitor trading to ensure stocks are available to traders who want to buy them and ensures demand for those who want to sell
Securities and Exchange Commission 3
The. U.S. govt. agency that regulates the issuance and trading of securities. Firms have to file for registratio statement and prospectus with SEC to issue new stock.