Quiz2 Flashcards
Real asset
a. Used to produce goods and services
b. Example: Property, plants and equipment, goods, materials, etc.
Financial asset
a. Claims on real assets or claims on income deriving from real assets
b. Example: stocks, bonds,
Fixed income security
a. Promise either a fixed stream of income or a stream of income that is determined according to a specified formula.
b. Example: Corporate bonds
Equity
a. An ownership share of a corporation
b. Tied to success of the company
c. No promised payment, but company may issue dividends
Derivative security
a. Securities providing payoffs that depend on the values of other assets
b. Example: price of an option will depend on the stock price
Glass-Steagall Act
a. Prohibited banks from both accepting deposits and underwriting securities
b. Separation of investment and commercial banks
Risk allocation
a. Chance of repayment of the initial investment
b. Bonds have a low risk because they pay back what is agreed, whereas, stockholders will have more risk, but more potential to reap higher rewards.
Proxy fight
a. Majority of shareholders vote against the current board.
b. Example: Yahoo and Microsoft when Carl Icahn’s purchased 59 million shares and got 10 other large shareholders to vote against the current board. He was unsuccessful.
Active management
a. Attempting to identify mispriced securities or to forecast broad market trends
Passive management
a. Buying and holding a diversified portfolio without attempting to identify mispriced securities
Insurance company
An insurer, or insurance carrier, is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy.
Hedge fund
a. Financial intermediary
b. Pool and invest the money of many clients
c. Only open to institutional investors such as pension funds, endowment funds, or wealthy individuals
Pension fund
A fund established by an employer to facilitate and organize the investment of employees’ retirement funds contributed by the employer and employees. The pension fund is a common asset pool meant to generate stable growth over the long term, and provide pensions for employees when they reach the end of their working years and commence retirement.
Investment bank
a. Firms specializing in the sale of new securities to the public (primary market transactions), typically by underwriting the issue
b. A financial intermediary that performs a variety of services. Investment banks specialize in large and complex financial transactions such as underwriting, acting as an intermediary between a securities issuer and the investing public, facilitating mergers and other corporate reorganizations, and acting as a broker and/or financial adviser for institutional clients. Major investment banks include Barclays, BofA Merrill Lynch, Warburgs, Goldman Sachs, Deutsche Bank, JP Morgan, Morgan Stanley, Salomon Brothers, UBS, Credit Suisse, Citibank and Lazard. Some investment banks specialize in particular industry sectors. Many investment banks also have retail operations that serve small, individual customers.
Exchange Traded Fund
a. A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold
