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Intro to Investments > Midterm 1 > Flashcards

Midterm 1 Flashcards

0
Q

Real Assets

A

Assets used to produce goods and services.

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1
Q

Investment

A

Commitment of current resources in the expectation of deriving greater resources in the future.

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2
Q

Financial Assets

A

Claims on real assets or the income generated by them.

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3
Q

Fixed-Income (debt) Securities

A

Pay a specified cash flow over a specific period.

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4
Q

Equity

A

An ownership share in a corporation.

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5
Q

Derivative Securities

A

Securities providing payoffs that depend on the values of other assets.

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6
Q

Agency Problems

A

Conflicts of interest between managers and stockholders.

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7
Q

Asset Allocation

A

Allocation of an investment portfolio across broad asset classes.

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8
Q

Security Selection

A

Choice of specific securities within each asset class.

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9
Q

Security Analysis

A

Analysis of the value of securities.

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10
Q

Risk-return Trade-off

A

Assets with higher expected returns entail greater risk.

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11
Q

Passive Management

A

Buying and holding a diversified portfolio without attempting to identify mispriced securities.

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12
Q

Active Management

A

Attempting to identify mispriced securities or to forecast broad market trends.

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13
Q

Financial Intermediaries

A

Institutions that “connect” borrowers and lenders by accepting funds from lenders and loaning funds to borrowers.

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14
Q

Investment Companies

A

Firms managing funds for investors. An investment company may manage several mutual funds.

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15
Q

Investment Bankers

A

Firms specializing in the sale of new securities to the public, typically by underwriting the issue.

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16
Q

Primary Market

A

A market in which new issues of securities are offered to the public.

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17
Q

Secondary Market

A

Previously issued securities are traded among investors.

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18
Q

Venture Capital (VC)

A

Money invested to finance a new firm.

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19
Q

Private Equity

A

Investments in companies that are not traded on a stock exchange.

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20
Q

Securitization

A

Pooling loans into standardized securities backed by those loans, which can then be traded like any other security.

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21
Q

Systemic Risk

A

Risk of breakdown in the financial system, particularly due to spillover effects from one market into others.

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22
Q

Money Markets

A

Include short-term, highly liquid, and relatively low-risk debt instruments.

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23
Q

Treasury Bills

A

Short-term government securities issued at a discount from face value and returning the face amount at maturity.

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24
Q

Certificate of Deposit

A

A bank time deposit.

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25
Q

Commercial Paper

A

Short-term unsecured debt issued by large corporations.

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26
Q

Bankers’ Acceptance

A

An order to a bank by a customer to pay a sum of money at a future date.

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27
Q

Eurodollars

A

Dollar-denominated deposits at foreign banks or foreign branches of American banks.

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28
Q

Repurchase Agreements (repos)

A

Short-term sales of government securities with an agreement to repurchase the securities at a higher price.

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29
Q

Federal Funds

A

Funds in the accounts of commercial banks at the Federal Reserve Bank.

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30
Q

LIBOR

A

Lending rate among banks in the London market.

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31
Q

Treasury notes or bonds

A

Debt obligations of the federal government with original maturities of one year or more.

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32
Q

Municipal Bonds

A

Tax-exempt bonds issued by state and local governments.

33
Q

Corporate Bonds

A

Long-term debt issued by private corporations typically paying semi-annual coupons and returning the face value of the bond at maturity.

34
Q

Common Stocks

A

Ownership shares in a publicly held corporation. Shareholders have voting rights and may receive dividends.

35
Q

Preferred Stock

A

Nonvoting shares in a corporation, usually paying a fixed stream of dividends.

36
Q

Price-weighted Average

A

An average computed by adding the prices of the stocks and dividing by a “divisor”.

37
Q

Market Value-weighted Index

A

Index return equals the weighted average of the returns of each component security, with weights proportional to outstanding market value.

38
Q

Equally Weighted Index

A

An index computed from a simple average of returns.

39
Q

Derivative Asset

A

A security with a payoff that depends on the prices of other securities.

40
Q

Call Option

A

The right to buy an asset at a specified price on or before a specified expiration date.

41
Q

Put Option

A

The right to sell an asset at a specified exercise price on or before a specified expiration date.

42
Q

Futures Contract

A

Obliges traders to purchase or sell an asset at an agreed-upon price at a specified future date.

43
Q

Private Placement

A

Primary offerings in which shares are sold directly to a small group of institutional or wealthy investors.

44
Q

Initial Public Offering (IPO)

A

First sale of stock by a formerly private company.

45
Q

Underwriters

A

Underwriters purchase securities from the issuing company and resell them to the public.

46
Q

Prospectus

A

A description of the firm and the security it is issuing.

47
Q

Dealer Markets

A

Markets in which traders specializing in particular assets buy and sell for their own accounts.

48
Q

Auction Market

A

A market where all traders meet at one place to buy or sell an asset.

49
Q

Bid Price

A

The price at which a dealer or other trader is willing to purchase a security.

50
Q

Ask Price

A

The price at which a dealer or other trader will sell a security.

51
Q

Bid-ask Spread

A

The difference between the bid and asked prices.

52
Q

Limit Buy (sell) Order

A

An order specifying a price at which an investor is willing to buy or sell a security.

53
Q

Stop Order

A

Trade is not to be executed unless stock hits a price limit.

54
Q

Over-the-Counter (OTC) Market

A

An informal network of brokers and dealers who negotiate sales of securities.

55
Q

NASDAQ Stock Market

A

The computer-linked price quotation and trade execution system.

56
Q

Electronic Communication Networks (ECNs)

A

Computer networks that allow direct trading without the need for market makers.

57
Q

Specialist

A

A trader who makes a market in the shares of one or more firms and who maintains a “fair and orderly market” by dealing personally in the market.

58
Q

Stock Exchanges

A

Secondary markets where already-issued securities are bought nd sold by members.

59
Q

Latency

A

The time it takes to accept, process, and deliver a trading order.

60
Q

Algorithmic Trading

A

The use of computer programs to make rapid trading decisions.

61
Q

High-frequency Trading

A

A subset of algorithmic trading that relies on computer programs to make very rapid trading decisions.

62
Q

Blocks

A

Large transactions in which at least 10,000 shares of stock are bought or sold.

63
Q

Dark Pools

A

Electronic trading networks where participants can anonymously buy or sell large blocks of securities.

64
Q

Margin

A

Describes securities purchased with money borrowed in part from a broker. The margin is the net worth of the investor’s account.

65
Q

Short Sale

A

The sale of shares not owned by the investor but borrowed through a broker and later purchased to replace the loan.

66
Q

Inside Information

A

Nonpublic knowledge about a corporation possessed by corporate officers, major owners, or other individuals with privileged access to information about the firm.

67
Q

Premium

A

The purchase price of an option.

68
Q

Investment Companies

A

Financial intermediaries that invest the funds of individual investors in securities or other assets.

69
Q

Net Asset Value (NAV)

A

Assets minus liabilities expressed on a per-share basis.

70
Q

Unit Investment Trusts

A

Money pooled from many investors that is invested in a portfolio fixed for the life of the fund.

71
Q

Open-end Fund

A

A fund that issues or redeems its shares at net asset value.

72
Q

Closed-end Fund

A

Shares may not be redeemed, but instead are traded at prices that can differ from net asset value.

73
Q

Load

A

A sales commission charged on a mutual fund.

74
Q

Hedge Fund

A

A private investment pool, open to wealthy or institutional investors, that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds.

75
Q

Funds of Funds

A

Mutual funds that primarily invest in shares of other mutual funds.

76
Q

12b-1 Fees

A

Annual fees charged by a mutual fund to pay for marketing and distribution costs.

77
Q

Soft Dollars

A

The value of research services that brokerage houses provide “free of charge” in exchange for the investment manager’s business.

78
Q

Turnover

A

The ratio of the trading activity of a portfolio to the assets of the portfolio.

79
Q

Exchange-traded Funds

A

Offshoots of mutual funds that allow investors to trade index portfolios.

Intro to Investments (2 decks)

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