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85 Cards in this Set

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Define Money.
anything that is generally accepted as a means of payment
Define Liquidity.
ease w/ which an asset may be converted into money (w/out loss, depth of fin mkt.)
Define M-1.
sum of coins, currency, & demand deposits, traveler’s checks (in circulation)
Define M-2.
M1 + savings accounts, & small certificates of deposit (less than $100k)
Yield Curve
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)
IPO
Initial Public Offering – first sale of common stock to the general public
SEC
Securities & Exchange Commission – govt. agency that enforces the fed. securities laws.
SIPC
Securities Investor Protection Corporation – fed agency that insures investors against failure by brokerage firms
Investment banker
middleman who brings together investors & firms (& govts) issuing new securities.
Underwriting
purchase of an issue of new securities for subsequent sale by investment bankers; the guaranteeing of the sale of a new issue of securities.
Best efforts agreement
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.
Private placement
nonpublic sale of securities to a financial institution
Specialist
market maker on an organized exchange
Bid & Ask
prices quoted by market makers at which they are willing to buy & sell securities
Spread
difference between the bid & ask prices
Money
anything that is generally accepted as a means of payment.
Liquidity
ease w/ which an asset may be converted into money (w/out loss, depth of fin mkt.)
Money supply
total amount of money in circulation (traditional measure = M1; broad def = M2)
M1
sum of coins, currency, & demand deposits, traveler’s checks (in circulation)
M2
M1 + savings accounts, & small certificates of deposit (less than $100k)
Term structure of interest rates
relationship between yields (int. rates) & time to maturity (term) for debt w/ a given level of risk
Yield curve
graph relating int. rates & the term to maturity. Y-axis = % , X-axis = term
Neg slope =
short-term rates exceed long-term rates – expect lower int rates (returns)
Pos slope =
Expecting Higher int rates (returns)
Short-term =
1 year or less
Long-term =
more than a year
Role of interest rates
cost of credit (as a %), long-term &/or high risk = high interest rates
Investment banker
middleman who brings together investors & firms (& governments) issuing new securities.
IPO
(Initial Public Offering) first sale of common stock to the general public
Underwriting
purchase of an issue of new securities for subsequent sale by investment bankers; the guaranteeing of the sale of a new issue of securities.
Originating house
investment banker who makes an agreement to sell a new issue & forms a syndicate to sell the securities.
Syndicate
selling group formed to market a new issue of securities
Best efforts agreement
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.
Preliminary prospectus (red herring)
initial doc detailing fin condition of a firm that must be filed w/ SEC to register new issue of securities.
SEC
(Securities & Exchange Commission) govt. agency that enforces fed. securities laws.
Registration
process of filing info w/ SEC concerning a proposed sale of securities to general public
Private placement
nonpublic sale of securities to a financial institution
Full disclosure laws
fed. securities laws requiring timely disclosure of info that may affect value of a firm’s securities.
10-k report
required annual report filed w/ the SEC by publicly held firms
SIPC
(Securities Investor Protection Corporation) fed agency that insures investors against failure by brokerage firms
Specialist
market maker on an organized exchange
Bid & Ask
prices quoted by market makers at which they are willing to buy & sell securities
Round lot
normal unit of trading in a security (usually 100 shares)
Odd lot
unit of trading that is less than a round lot
Spread
difference between the bid & ask prices
Market order
order to buy or sell a security at the best current price
Day order
order to buy/sell at specified price, canceled at end of day if not executed
Good-till-cancelled order
order to buy/sell at specified price, remains effective until broker executes or investor cancels
Commission
payment to broker for executing an investor’s buy/sell orders.
Settlement date
date by which payment for the purchase of securities must be made; date by which delivery of securities sold must be made
Margin
investor’s equity in a security position
Margin requirement
min % set by Fed. Reserve, of the total price that must be put up to buy securities
Financial leverage
use of borrowed funds to magnify the % return on an investment
Street name
registration of securities in broker’s name instead of in the buyer’s name
Long position
purchase of securities in anticipation of a price increase
Short position
sale of borrowed securities in anticipation of a price decrease
ADR's
(American Depository Receipts) receipts issued for foreign securities held by a trustee (not foreign shares but receipts for stock)
Eurobonds
bonds sold in a foreign county but denominated in the currency of the issuing firm
EMH
(Efficient market hypothesis) theory that securities prices correctly measure current value of a firm’s future earnings & divs
CD
(Certificate of deposit) time deposit issued by a bank w/ a specified int rate & maturity
Negotiable CD
CD issued in amounts of $100K or more whose terms are individually negotiated between bank & saver & for which there exists a 2ndary mkt.
Required reserves
funds that banks must hold against deposit liabilities
Excess reserves
reserves held by a bank in excess of those it must hold to meet its reserve requirement
Correspondent bank
major bank w/ which a smaller bank has a relationship to facilitate check clearing & to serve as a depository for reserves
Secondary reserves
short-term securities, especially Treasury bills, held by banks to increase their liquidity
Money market mutual fund
investment company that invests solely in short-term money market instruments
T-bill
(U.S. Treasury bill) short-term debt instrument issued by the fed. govt.
Commercial paper
unsecured short-term promissory notes issued by the most creditworthy corporations
Repurchase agreement (repo)
sales of short-term security where seller agrees to buy back security at a specified price
Banker’s acceptance
short-term promissory note guaranteed by a bank
Tax anticipation note
short-term govt. security secured by expected tax revenues
Monetary policy
mgt of money supply for purpose of maintaining stable prices, full employment, & economic growth.
Board of governors
controlling body of Fed Reserve, members appointed by Pres of U.S.
District bank
1 of 12 banks that compose the Federal Reserve
FOMC
(Federal Open Market Committee) part of Fed. Res., establishes & executes monetary policy
Federal funds market
market in which banks borrow & lend excess reserves
Federal funds rate
interest rate charged by banks on overnight loans of reserves
Discount rate
interest rate charged banks for borrowing reserves from Fed. Res.
Open market operations
buying/selling of U.S. Treasury securities by the Fed. Res.
Fiscal policy
taxation, expenditures, & debt management by the federal govt.
Deficit
disbursements exceeding receipts
Surplus
receipts exceeding disbursements
Inflation
general increase in prices w/ special emphasis on increases in consumer prices
Deflation
general decline in prices
Recession
period (at least 6 mo) of increase unemployment & negative economic growth