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Intro To Finance Flashcards

(60 cards)

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1
Q

What is common stock?

A

Common stock is a type of equity security that represents ownership in a corporation. It typically grants shareholders voting rights and the potential to earn dividends and benefit from capital appreciation.

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2
Q

What is preferred stock?

A

Preferred stock is a type of equity security that represents ownership in a corporation but typically does not offer voting rights. It provides a fixed dividend payment, paid out before dividends to common stockholders.

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3
Q

What are dividends?

A

Dividends are distributions of a company’s profits to shareholders, typically paid out in cash or additional shares of stock. They are often issued on a regular schedule and vary depending on profits.

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4
Q

What is capital appreciation?

A

Capital appreciation is an increase in the value of an investment over time, such as when a stock’s price rises. It is a primary way investors can profit from owning stocks or other assets.

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5
Q

What is capital?

A

Capital is money used to grow a business, with common sources being investors and banks.

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6
Q

What is capitalization?

A

Capitalization is the size of a company as measured by market value, calculated by multiplying the number of outstanding shares by the price per share. Companies with market capitalization over $10 billion are called large-cap.

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7
Q

What are debt securities classified by?

A

Debt securities are classified by the issuer and the term.

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8
Q

What is principal in debt securities?

A

Principal, also called the face amount, is the amount that was borrowed and must be paid off at the end of the term.

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9
Q

What is maturity in debt securities?

A

Maturity is the date when the principal must be paid off.

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10
Q

What is interest in the context of debt securities?

A

Interest is the amount of money the borrower pays the investor, representing the cost of borrowing the money.

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11
Q

Who are the three main issuers of debt securities?

A

The three main issuers are the Federal Government, municipalities, and corporations.

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12
Q

What are ‘govies’?

A

Govies refer to debt securities sold by the Federal Government and its agencies.

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13
Q

What are ‘munis’?

A

Munis refer to debt securities issued by municipalities, such as states, counties, and cities.

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14
Q

How are debt securities classified by maturity?

A

Debt securities are classified as long-term (10 years or more), medium-term (5 to 10 years), and short-term (under 5 years).

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15
Q

What are money market securities?

A

Money market securities are debt securities that always mature in one year or less.

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16
Q

What do corporations also do?

A

They sell bonds and other types of debt securities to raise capital for growth and expansion

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17
Q

What is Diversification?

A

A way to reduce the ups and downs of investing by owning several different securities

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18
Q

What does the Investment Company Act of 1940 do?

A

Defines what an investment company is and classifies them into three categories: face amount certificates, unit investment trusts, and management companies

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19
Q

What does Liquidity mean?

A

An investment is easy to buy and sell

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20
Q

What are mutual funds?

A

Mutual funds build portfolios of many other securities, allowing investors to choose investments that meet their needs.

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21
Q

What are Equity Funds?

A

Equity Funds invest primarily in stocks, aiming for capital appreciation. They can be categorized by market capitalization, investment style, or industry focus.

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22
Q

What are the categories of Equity Funds?

A

Equity Funds can be categorized based on market capitalization (large-cap, mid-cap, small-cap), investment style (aggressive, passive), or industry focus (technology, healthcare, energy).

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23
Q

What are Bond Funds?

A

Bond Funds invest primarily in bonds, seeking income and stability. They can be classified by maturity, credit quality, or type of issuer.

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24
Q

What classifications exist for Bond Funds?

A

Bond Funds can be classified based on maturity (short-term, intermediate-term, long-term), credit quality (investment-grade, high-yield), or type of issuer (government, corporate, municipal).

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25
What are Money Market Funds?
Money Market Funds invest in short-term, low-risk debt securities, aiming to preserve safety and liquidity.
26
What are Hybrid Funds?
Hybrid Funds combine stocks and bonds in varying proportions, offering a balance of growth and income potential.
27
What is an option in finance?
An option is a contract between two parties where one party (the buyer) pays for the right to buy or sell a stock at a preset price (called the strike price) before a certain date (called expiration).
28
What is a call option?
A call option is a contract that grants the buyer the right to buy the stock.
29
What is a put option?
A put option is a contract that gives the buyer the right to sell the stock.
30
What is a premium in the context of options?
A premium is the money paid by the buyer to gain the right to exercise the option.
31
What does the seller of an option hope for?
The seller hopes that the actual price of the stock doesn't move in the direction the buyer wants it to and that the buyer lets the option expire without exercising.
32
What must the seller do if the option is exercised?
If the option is exercised, the seller must be on the other side of the trade, selling the stock if it's a call, or buying the stock if it's a put.
33
What are the uses of options in investing?
Options can be used for hedging, speculation, or generating income from premiums.
34
What is hedging in the context of options?
Hedging is protecting against losses for an investor's existing investment.
35
What is speculation in the context of options?
Speculation involves taking on higher risk in hopes of big gains.
36
How can options generate income?
Options can generate income from premiums the second party collects.
37
What is Prospectus?
A detailed disclosure document
38
What is the issuer in securities law?
The issuer is the corporation or government that is selling the security in the primary market to raise capital.
39
What is a broker dealer?
A broker dealer is a firm that buys and sells securities for itself and for its customers as its primary business.
40
What is an underwriter?
An underwriter is a broker dealer that assists an issuer in selling a new security to investors.
41
What is a syndicate?
A syndicate is a group of underwriters that form a joint venture to sell a new issue.
42
Who are investors in the context of securities?
Investors are the persons that actually buy the security and provide capital to issuers selling the securities.
43
What are retail investors?
Retail investors are those who buy and sell securities for their own accounts, often smaller investors with less market knowledge.
44
What are institutional investors?
Institutional investors are larger investors, like pension plans, mutual funds, and insurance companies, often more knowledgeable about the market.
45
What are accredited investors?
Accredited investors are institutional investors and certain retail investors considered more knowledgeable about securities.
46
What is the role of investors in the secondary market?
All the same people investing in the primary market are involved in the secondary market.
47
What do broker-dealers (BDs) do?
Broker-dealers provide services to investors, helping them buy and sell the investments they need to achieve their financial goals.
48
Who are registered representatives?
Registered representatives are employees of broker-dealers that provide service and advice to investors.
49
What are trading venues?
Trading venues are the exchanges and the OTC market where investors come together to buy and sell securities.
50
What is the role of regulators in the secondary market?
Regulators work to keep the markets fair and efficient for all investors.
51
What do investment advisors do?
Investment advisors provide investment advice for a fee to investors and are required to put the best interests of their clients before their own, known as fiduciary duty.
52
What is the function of trustees, custodians, and guardians?
Trustees, custodians, and guardians manage investments on behalf of others and are also fiduciaries.
53
What are transfer agents?
Transfer agents are firms hired by issuers to maintain a record of investors who own the issuer's securities.
54
What services do depositories and clearing corporations provide?
Depositories and clearing corporations provide the services needed to settle trades.
55
What are Self-Regulating Organizations (SROs)?
SROs are non-government membership organizations that enforce industry regulations and standards.
56
What do SROs do?
They create and enforce rules for their members, conduct investigations, and impose disciplinary actions for violations.
57
What is the Financial Industry Regulatory Authority (FINRA)?
FINRA is the primary SRO overseeing broker-dealers and their registered representatives in the U.S.
58
What is the Municipal Securities Rulemaking Board (MSRB)?
MSRB regulates the underwriting and trading of municipal securities.
59
What is the Chicago Board Options Exchange (CBOE)?
CBOE is an exchange and SRO that regulates options trading.
60
What is the Securities Investor Protection Corporation (SIPC)?
SIPC protects investors if a broker-dealer firm fails and is a not-for-profit organization.

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