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Financial economics > Financial Instruments > Flashcards

Financial Instruments Flashcards

(69 cards)

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0
Q

Certificates of deposit (CD)

A

Time deposit with a bank

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1
Q

Treasury bills

A

Sold at discount, highly liquid, short term (up to 52w), face value paid at maturity
Can be in small denomination, $100000 common
Income exempt from all state and local taxes

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2
Q

Commercial papers

A

Maturity up to 270d, can be backed by a bank line of credit,

Smaller regulation requirements that for the stocks, don’t require listings

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3
Q

Bankers’ acceptances

A

Order to a bank by a bank’s client to pay a sum of money at a future date

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4
Q

Eurodollars

A

Dollar denominated deposits at foreign banks or for. branches of american banks
Riskier than domestic CDs, offer higher yield

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5
Q

Repurchase agreements (repos, RP)

A

A dealer buys (sells) government security on the overnight basis with the agreement to sell (buy) back those securities the next day at a slightly higher price

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6
Q

Repo

A

A short term implicit loan (<90d)

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7
Q

Federal funds

A

Banks’ funds in a reserve account with FED

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8
Q

Broker’s calls

A

In case of trading on the margin, a buyer borrows part of the funds to pay for the stock

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9
Q

LIBOR (London Interbank Offered Rate)

A

The rate at which large banks in London are willing to lend money to each other
Similarly, EURIBOR, PRIBOR, federal funds rate

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10
Q

Bond market

A

Fixed income capital market

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11
Q

Treasury notes and bonds

A

Maturities up to 10 years (notes), 10-30 (bonds)
Stream of coupon payments
T-bonds are callable - the treasury has the right to buy back the bond at par value

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12
Q

Federal agency debt

A

Securities issued by government agencies

Potentially safe, ase the government will step in

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13
Q

Eurobond

A

A bond denominated in currency other than of the country it is traded in
Bonds issued by foreign companies but in the currency of investors

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14
Q

Municipal bonds

A

Issued by state and local governments, interes income is tax-exempt
General obligation bond: backed by “full faith and credit”
Revenue bond: issued to finance a particular project, backed by revenues from it
Industrial development bond - revenue bond issued to finance commercial enterprises

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15
Q

Secured bonds

A

backed by collateral
Debentures - unsecured bonds
Subordinated debentures - give the lower-priority claim to the firm’s asset in the event of bankruptcx
Callable bonds - firm has the right to repurchase the bond
Convertible bonds

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16
Q

Debentures

A

Unsecured bonds

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17
Q

Subordinated debentures

A

give the lower-priority claim to the firm’s asset in the event of bankruptcy

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18
Q

Convertible bond

A

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

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19
Q

Mortgage-backed securities

A

Ownership claim secured by pool of mortgages

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20
Q

Conforming mortgages

A

Loans must satisfy certain anderlying guidelines

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21
Q

Subprime mortgages

A

Riskier loans made to financially weaker borrowers

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22
Q

Common stocks

A

Residual claims, give the voting rights, limited liability

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23
Q

Preffered stock

A

Features similar to equity and debt: property rights but no voting rights, first priority to dividends
Redeemable - callable by issuing firm
Convertible into common s. at a spec. conversion ratio
Adjustable-rate - ties the dividend to current market interest rates

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24
Closely held corporations
Corporations the stock of which are not publicly traded
25
American depository receipts
Certificates traded in Us markets that represent ownership in shares of a foreign company
26
DJIA
Measures the return (excluding dividends) on a portfolio that invests in each each stock
27
Equally weighted indeces
The value invested in each company should be the same
28
Derivative
Financial instrument the payoff of which depends on other, more basic, underlying variables
29
Call option
Gives the holder the right to by at the exercise or strike price
30
Put options
Give the holder the right to sell at the exercise or strike price
31
European vs. American option
Eu: can be exercised at the expiration date Am: can be exercised at any date before and including expiration date
32
Forward contracts
An obligation to buy (long position) or sell (short position) an asset at certain time for a certain price: traded on over the counter markets
33
Future contracts
Like forward contracts, only traded on exchanges and more standardized
34
Initial public offering
Issuance of stocks by a formerly privately owned company
35
Seasonal equity offerings
Issued by companies that already have floated equity
36
Private placement
Securities sold to a couple of institutional investors, hold to maturity
37
Wah are underwriters for?
Road shows - publicity Generating interest Collecting data about the prices (process of polling investors = book-building, book=indication of interest)
38
What do the underwriters receive?
Spread as a compensation | Shares of the firm
39
Types of markets
Direct search Brokered (underwriters are brokers) Dealer (profit = spread between bid and ask price) Electronic communication networks
40
Specialist markets
Specialist manages the trading of the security assigned to him Executes the orders of other brokers as well as his own
41
Block houses
Aid in the placement of block transactions (exceeding 10 000 shares)
42
Market orders
Orders to be executed immediately at current market price
43
Price-contingent order: a limit buy (sell) order
Buy (sell) the share if a price is at or below (above) the stipulated price
44
Limit order book
Collection of limit orders
45
Inside quotes
The highest buy and the lowest sell orders in the limit order book
46
Stop loss (buy) order
The stock is to be sold if the price falls below (rises above) the stipulated level
47
Short-selling
The investor borrows a share from a broker and sells it
48
Svoering the short position
The purchase of securities which were previously sold
49
Naked short selling
A trader sells shares that have not yet been borrowed
50
Discount brokers
Execute orders Hold securities for safe-keeping Extend margin loans Facilitate short sales
51
Bull service brokers
Apart from what discount brokers do, they Provide information Give advice related to investment alternatives
52
Discretionary account
The broker can buy and sell prespecified security whenever deemed fit
53
Buying on margin
Process of buying securities partially finances by broker's call loans
54
Margin
The part of the security holdings finances by investor's own money
55
Maintenance margin
The minimum amount of investor's own cash; if below, the broker will issue a margin call
56
Margin call
The reauest to add new cash or securities to the margin account
57
Managed companies
Portfolio securities are constantly bought and sold, i.e mutual funds
58
Net asset value
Market value of assets minus liabilities/shares outstanding
59
Closed-end
Shares issued by these companies are traded on stock exchanges, OTc; investors buy and sell to each other at market price, which may differ from net asset value
60
Open-end
Firms redeem or issue at net asset value, purchase and redemption may involve sale charges; investors buy from or sell directly to a company
61
Commingled funds
Partnership of investors that pool funds (money market/bond/common stock fund)
62
Real estate investment trusts (REITs)
Invest in real estate or loans secured by real estate
63
Hedge funds
Structures as private partnerships Allow private investors to pool assets to be invested by a fund manager Strategies: heavy use of derivatives, short sales, leverages (usually not open to mutual funds)
64
Income funds
Tend to hold shares of firms with consistently higher dividend yields
65
Growth funds
May forgo current income and focus on prospects for capital gains Riskier than income funds
66
Balanced funds
Hold both equities and fixed-income securities | Life-cycle funds - asset mix can range from aggressive (young inv) to constervative (older inv)
67
Asset allocation and flexible funds
Also hold equities and bonds but the proportion depends on forecast and relative performance - try to exploit timing Riskier
68
Index funds
Try to match the performance of a broad market index

Financial economics (2 decks)

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