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37 Cards in this Set

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  • Back
What are money markets instruments?
short-term, marketable, liquid, low-risk debt securities
What are capital markets?
longer-term, riskier securities; securities are much more diverse; 4 markets: longer-term bond markets, equity markets, derivative markets for options and futures
Are t-bills taxed?
no they are exempt from all state and local taxes
What is the asked price?
the price you have to pay to buy a T-bill from a securities dealer
What is the bid price?
the slightly lower price you would recieve if you wanted to sell a bill to a deal; as a listed percent, it is higher than ask
What is the bid ask spread?
the difference in the asked and bid price; the dealers source of profit
What is a certificate of deposit or CD?
issued in denominations greater than $100k; bank pays interest and principal to the depositor only at the end of the fixed term of the CD; highly marketable when less than 3 months
What is commercial paper?
well-known, large companies issue their own short-term unsecured debt notes rather than borrowing from the bank; less than 270 days, otherwise registration with SEC would have to be filed
What is a banker's acceptance?
bank endorses a check allowing traders to substitute the bank's credit for their own
What are Eurodollars?
dollar denominated deposits at foreign banks or foreign branches of American banks
What are repurchase agreements or repos?
short-term, usually overnight, borrowing; dealer sells securities to an investor, buys back the securities the next day at a higher price; mirror image is a reverse repo
What are federal funds?
member banks of the Federal Reserve System are required to maintain a minimum balance in the Fed; banks with excess loans tend to lend to those with a shortage
What is a broker's call?
when individuals buy stocks partly funded by margin, brokers borrow money from a bank, agreeing to repay the bank immediately when the bank requests it; rate on such loans is usually 1% higher than rate on T-bills
What is the LIBOR?
London Interbank Offered Rate; rate at which large banks in London are willing to lend money among themselves; quoted on dollar denominated loans
What are TIPS?
Treasury Inflation-Protected Securities; tied to CPI
What is Federal Agency Debt?
government agencies (like FHLB- Federal Home Loan Bank; lends money to saving and loan institutions) issue their own securities to finance their activities
What is a Yankee/Samurai bond?
Yankee bond- dollar denominated bond sold in the US by a non-US issuer
Samurai- same thing in Japan
What are general obligation munis?
backed by taxing power of the issuer
What are revenue bond munis?
issued to finance a particular project; backed by the projected revenues of that project or by the agency operating the project; airports, hospitals, etc..
What are industrial development bonds?
revenue bond that is issued to finance commercial enterprises, such as the construction of a factory that can be operated by a private firm; government limits the amount of these bonds
What are debentures?
unsecured bonds; have no collateral
What are subordinated debentures?
bonds that have a lower-priority claim to the firm's assets in the event of bankruptcy
What are callable bonds?
gives the firm the option to repurchase the bond from the holder at a stipulated price
What is a convertible bond?
gives the bondholder the option to convert each bond into a stipulated number of shares of stock
What are equities?
represent ownership shares in a corporation
What are the 2 most important characteristics of common stock?
1. residual claim- stockholders are last in line of all those who have a claim on the assets and income of the corporation
2. limited liability- shareholders can at most lose their original invest; no personal liability
What are capital gains?
price increases
What is the price-earnings ration?
ratio of current stock price to last year's earnings per share
What is preferred stock?
promises to pay fixed amount; no voting power; dividends to preferred stock must be paid before it is paid to common stock
What type of average is the DJIA?
price-weighted; gives high-priced stocks more influence than low price stocks; $1 increase in small stock can be offset by $1 decrease in big stock; diviser is employed in case of stock splits to maintain average; 30 blue chip stocks
What type of index is the S&P 500?
market-value-weighted index; influence depends on market value of outstanding equite (price*shares)
What are exchange-traded funds?
portfolio of shares that can be bought or sold as a unit, just as one can buy a single share of stock
What are derivative assets/contingent claims?
instruments that derive their values from values of other assets
What is a call option?
gives holder the right to buy an asset for a specified price, called the exercise or strike price, on or before a specified expiration date
What are put options?
give the holder the right to sell an asset for a specified exercise price on or before a specified expiration date
What is a futures contract?
calls for the delivery of an asset (usually cash value) at specified delivery or maturity date for an agreed upon price, called the futures price, to be paid at contract maturity
What is the long vs. short position?
long position- held by the trader who commits to purchasing the asset on the delivery date; hope price increases; also obliged to purchase the asset
short position- trader who commits to delivering the asset at contract maturity; hopes price decreases