Ba 3303 - Finance - E1-A

Front 1

Define Money.

Back 1

anything that is generally accepted as a means of payment

Front 2

Define Liquidity.

Back 2

ease w/ which an asset may be converted into money (w/out loss, depth of fin mkt.)

Front 3

Define M-1.

Back 3

sum of coins, currency, & demand deposits, traveler’s checks (in circulation)

Front 4

Define M-2.

Back 4

M1 + savings accounts, & small certificates of deposit (less than $100k)

Front 5

Yield Curve

Back 5

graph relating int. rates & the term to maturity.

Y-axis = percent, X-axis = term

Negative slope = short-term rates exceed long-term rates – expect lower interest rates (returns)

Positive slope = Expecting Higher interest rates (returns)

Front 6

IPO

Back 6

Initial Public Offering – first sale of common stock to the general public

Front 7

SEC

Back 7

Securities & Exchange Commission – govt. agency that enforces the fed. securities laws.

Front 8

SIPC

Back 8

Securities Investor Protection Corporation – fed agency that insures investors against failure by brokerage firms

Front 9

Investment banker

Back 9

middleman who brings together investors & firms (& govts) issuing new securities.

Front 10

Underwriting

Back 10

purchase of an issue of new securities for subsequent sale by investment bankers; the guaranteeing of the sale of a new issue of securities.

Front 11

Best efforts agreement

Back 11

contract w/ investment banker for sale of securities in which investment banker does not guarantee sale but does agree to make best effort to sell the securities.

Front 12

Private placement

Back 12

nonpublic sale of securities to a financial institution

Front 13

Specialist

Back 13

market maker on an organized exchange

Front 14

Bid & Ask

Back 14

prices quoted by market makers at which they are willing to buy & sell securities

Front 15

Spread

Back 15

difference between the bid & ask prices

Front 16

Money

Back 16

anything that is generally accepted as a means of payment.

Front 17

Liquidity

Back 17

ease w/ which an asset may be converted into money (w/out loss, depth of fin mkt.)

Front 18

Money supply

Back 18

total amount of money in circulation (traditional measure = M1; broad def = M2)

Front 19

M1

Back 19

sum of coins, currency, & demand deposits, traveler’s checks (in circulation)

Front 20

M2

Back 20

M1 + savings accounts, & small certificates of deposit (less than $100k)

Front 21

Term structure of interest rates

Back 21

relationship between yields (int. rates) & time to maturity (term) for debt w/ a given level of risk

Front 22

Yield curve

Back 22

graph relating int. rates & the term to maturity. Y-axis = % , X-axis = term

Front 23

Neg slope =

Back 23

short-term rates exceed long-term rates – expect lower int rates (returns)

Front 24

Pos slope =

Back 24

Expecting Higher int rates (returns)

Front 25

Short-term =

Back 25

1 year or less

Front 26

Long-term =

Back 26

more than a year

Front 27

Role of interest rates

Back 27

cost of credit (as a %), long-term &/or high risk = high interest rates

Front 28

Investment banker

Back 28

middleman who brings together investors & firms (& governments) issuing new securities.

Front 29

IPO

Back 29

(Initial Public Offering) first sale of common stock to the general public

Front 30

Underwriting

Back 30

purchase of an issue of new securities for subsequent sale by investment bankers; the guaranteeing of the sale of a new issue of securities.

Front 31

Originating house

Back 31

investment banker who makes an agreement to sell a new issue & forms a syndicate to sell the securities.

Front 32

Syndicate

Back 32

selling group formed to market a new issue of securities

Front 33

Best efforts agreement

Back 33

contract w/ investment banker for sale of securities in which investment banker does not guarantee sale but does agree to make best effort to sell the securities.

Front 34

Preliminary prospectus (red herring)

Back 34

initial doc detailing fin condition of a firm that must be filed w/ SEC to register new issue of securities.

Front 35

SEC

Back 35

(Securities & Exchange Commission) govt. agency that enforces fed. securities laws.

Front 36

Registration

Back 36

process of filing info w/ SEC concerning a proposed sale of securities to general public

Front 37

Private placement

Back 37

nonpublic sale of securities to a financial institution

Front 38

Full disclosure laws

Back 38

fed. securities laws requiring timely disclosure of info that may affect value of a firm’s securities.

Front 39

10-k report

Back 39

required annual report filed w/ the SEC by publicly held firms

Front 40

SIPC

Back 40

(Securities Investor Protection Corporation) fed agency that insures investors against failure by brokerage firms

Front 41

Specialist

Back 41

market maker on an organized exchange

Front 42

Bid & Ask

Back 42

prices quoted by market makers at which they are willing to buy & sell securities

Front 43

Round lot

Back 43

normal unit of trading in a security (usually 100 shares)

Front 44

Odd lot

Back 44

unit of trading that is less than a round lot

Front 45

Spread

Back 45

difference between the bid & ask prices

Front 46

Market order

Back 46

order to buy or sell a security at the best current price

Front 47

Day order

Back 47

order to buy/sell at specified price, canceled at end of day if not executed

Front 48

Good-till-cancelled order

Back 48

order to buy/sell at specified price, remains effective until broker executes or investor cancels

Front 49

Commission

Back 49

payment to broker for executing an investor’s buy/sell orders.

Front 50

Settlement date

Back 50

date by which payment for the purchase of securities must be made; date by which delivery of securities sold must be made

Front 51

Margin

Back 51

investor’s equity in a security position

Front 52

Margin requirement

Back 52

min % set by Fed. Reserve, of the total price that must be put up to buy securities

Front 53

Financial leverage

Back 53

use of borrowed funds to magnify the % return on an investment

Front 54

Street name

Back 54

registration of securities in broker’s name instead of in the buyer’s name

Front 55

Long position

Back 55

purchase of securities in anticipation of a price increase

Front 56

Short position

Back 56

sale of borrowed securities in anticipation of a price decrease

Front 57

ADR's

Back 57

(American Depository Receipts) receipts issued for foreign securities held by a trustee (not foreign shares but receipts for stock)

Front 58

Eurobonds

Back 58

bonds sold in a foreign county but denominated in the currency of the issuing firm

Front 59

EMH

Back 59

(Efficient market hypothesis) theory that securities prices correctly measure current value of a firm’s future earnings & divs

Front 60

CD

Back 60

(Certificate of deposit) time deposit issued by a bank w/ a specified int rate & maturity

Front 61

Negotiable CD

Back 61

CD issued in amounts of $100K or more whose terms are individually negotiated between bank & saver & for which there exists a 2ndary mkt.

Front 62

Required reserves

Back 62

funds that banks must hold against deposit liabilities

Front 63

Excess reserves

Back 63

reserves held by a bank in excess of those it must hold to meet its reserve requirement

Front 64

Correspondent bank

Back 64

major bank w/ which a smaller bank has a relationship to facilitate check clearing & to serve as a depository for reserves

Front 65

Secondary reserves

Back 65

short-term securities, especially Treasury bills, held by banks to increase their liquidity

Front 66

Money market mutual fund

Back 66

investment company that invests solely in short-term money market instruments

Front 67

T-bill

Back 67

(U.S. Treasury bill) short-term debt instrument issued by the fed. govt.

Front 68

Commercial paper

Back 68

unsecured short-term promissory notes issued by the most creditworthy corporations

Front 69

Repurchase agreement (repo)

Back 69

sales of short-term security where seller agrees to buy back security at a specified price

Front 70

Banker’s acceptance

Back 70

short-term promissory note guaranteed by a bank

Front 71

Tax anticipation note

Back 71

short-term govt. security secured by expected tax revenues

Front 72

Monetary policy

Back 72

mgt of money supply for purpose of maintaining stable prices, full employment, & economic growth.

Front 73

Board of governors

Back 73

controlling body of Fed Reserve, members appointed by Pres of U.S.

Front 74

District bank

Back 74

1 of 12 banks that compose the Federal Reserve

Front 75

FOMC

Back 75

(Federal Open Market Committee) part of Fed. Res., establishes & executes monetary policy

Front 76

Federal funds market

Back 76

market in which banks borrow & lend excess reserves

Front 77

Federal funds rate

Back 77

interest rate charged by banks on overnight loans of reserves

Front 78

Discount rate

Back 78

interest rate charged banks for borrowing reserves from Fed. Res.

Front 79

Open market operations

Back 79

buying/selling of U.S. Treasury securities by the Fed. Res.

Front 80

Fiscal policy

Back 80

taxation, expenditures, & debt management by the federal govt.

Front 81

Deficit

Back 81

disbursements exceeding receipts

Front 82

Surplus

Back 82

receipts exceeding disbursements

Front 83

Inflation

Back 83

general increase in prices w/ special emphasis on increases in consumer prices

Front 84

Deflation

Back 84

general decline in prices

Front 85

Recession

Back 85

period (at least 6 mo) of increase unemployment & negative economic growth