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40 Cards in this Set
- Front
- Back
- 3rd side (hint)
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What is Investment?
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The act of redirecting resources from being consumed today so that they may create benefits in the future.
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The use of assets to earn income or profit.
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What is a Financial System?
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Includes savers and borrowers and allows the transfer of money between them to take place.
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Required for investments to take place in an economy
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What is a Financial Asset?
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Claim on the property or income of a borrower.
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Also called Securities. In case of default by the borrower these documents can serve as proof in court that money was borrowed and that repayment is expected.
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What is a Financial Intermediary?
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An Institution that helps channel funds from savers to borrowers.
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Include Banks, Saving & Loan Associations & Credit Unions; Finance Companies; Mutual Funds; Life Insurance Companies; & Pension Funds
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What are Mutual Funds?
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A fund that pools the savings of many individuals and invests this money in a variety of stocks, bonds, and other financial assets.
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Allows people to invest in a broad range of companies in the stock market & don't risk their savings by purchasing stock in one or two companies that might do poorly.
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What is Diversification?
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Spreading out your investments to reduce risk.
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Depositing into savings or shares of mutual funds allows the institution to pool your money with others savings & allows your money to work by making a variety of investments.
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What are Portfolios?
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A collection of financial assets.
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Financial intermediaries develop these to show how client investments are performing.
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What is a Prospectus?
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An investment report to potential investors.
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The law requires intermediaries to provide information in a _________ to tell investors how stocks are performing.
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What is the Coupon Rate?
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The interest rate that a bond issuer will pay to a bondholder.
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A 3rd component of bonds along with maturity & par value.
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What is Maturity?
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The time at which payment to the bondholder is due.
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Different bonds have different lengths of __?_____
of 10,20 or 30 yrs. |
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What is Par Value?
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The amount that an investor pays to purchase a bond and that will be repaid to the investor at maturity.
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Also called "face value or principal"
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What is Yield?
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The annual rate of return on the bond if the bond were held to maturity.
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Bonds may change in price and be bought & sold before they reach maturity which determines their ____?____
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What are Savings Bonds?
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Low-denomination bond issued by the United States government. Ex. a $50 bond will cost $25 & earn $25 interest at maturity yielding $50 payout
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Used by government to pay for public works projects; no risk of default/failure; lower denominations of $50 to $10,000.
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What are Municipal Bonds (Munies)?
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Bonds issued by a state or local government or municipality to finance such improvements as highways, state buildings, libraries, parks, and schools.
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considered safe investments; interest earned isn't subject to income taxes at federal level or issuing state.
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What is a Corporate Bond?
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A bond that a corporation issues to raise money to expand its business.
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Issued in larger denominations of $1000, $5000 & $10,000, taxable as income, moderate risk, paid back by corporate profits in sales of goods/services.
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What is the Securities and Exchange Commission?
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An independent agency of the government that regulates financial markets and investment companies.
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Enforces laws prohibiting fraud and other dishonest investment practices.
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What is a Junk Bond?
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A lower-rated, potentially higher-paying bond with higher risk.
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Also called "high-yield securities" ; popular investments during 1980's - 1990's, some pay >12% interest when gov. bonds paid 8%, higher risk of some issuing firms defaulting
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What is a Capital Market?
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A market in which money is lent for periods longer than one year.
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Include long-term CDs & Corporate/Govmt. bonds requiring over a year to mature.
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What is a Money Market?
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A market in which money is lent for periods of less than a year.
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Include short-term CDs, Treasury Bills, & Money Market Mutual Funds
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What is a Primary Market?
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A market for selling financial assets that can only be redeemed by the original holder.
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Include savings bonds(non-transferable) and small certificates of deposit (CDs)
because investors would rather cash than sell them to someone else |
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What is a Secondary Market?
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A market for reselling financial assets. More liquid for investors needs.
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Assets that can be resold fairly quickly w/o penalty providing the investor with ready cash.
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What is a Share?
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Portion of stock
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Corporations raise funds by selling ____?____ of stock
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What are Equities?
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Claims of ownership in a corporation.
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synonym for Shares; sold by corporations to raise money to start, run & expand their businesses.
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What is Capital Gain?
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The difference between a higher selling price and a lower purchase price, resulting in a financial gain for the seller.
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method of earning higher profit for investor
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What is Capital Loss?
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An investor who sells stock at a price lower than the purchase price yielding a loss.
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Done to unload stock quickly
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What is a Stock Split?
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The division of a single share of stock into more than one share. Favorable to investors as the price of stock tends to rise after this happens.
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Company stockholders may vote to _____ a stock when the its price becomes so high that it discourages potential investors from buying it.
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What is a Brokerage Firm?
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A business that specializes in trading stocks.
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Cover their costs by charging commissions or fees on each stock transaction.
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What is a Stock Exchange?
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A market for buying and selling stock.
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Secondary markets for stocks and bonds. Include the NYSE and Nasdaq. Also people trade stocks on Internet.
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What is the OTC (Over the Counter) Market?
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An electronic marketplace for stocks and bonds.
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Allows investors to buy directly from a dealer or from a broker who will search the market for the best price.
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What is Nasdaq ( National Association of Securities Dealers Automated Quotations)
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American market for OTC securities. Trading information broadcast to some 360,000 computer terminals worldwide.
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Created in 1971 to help solve fragmentation problems in the OTC market for OTC securities.
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What are Futures?
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Contracts to buy/sell at a specific time in the future at a price specified today. Mostly grain & livestock exchanges.
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Buyer pays some portion of agreed upon price today & seller will deliver the goods in the future. Ex. Chicago Board of Trade & N.Y. Mercantile Exchange
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What are Options?
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Contracts that give investors the choice to buy or sell stock and other financial assets.
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Investors can buy/sell a particular stock at a certain price up until a certain time in the future (i.e., 3-6 mos.)
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What is a Call Option?
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The option to buy shares of stock at a specified time in the future.
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Allows but doesn't obligate a buyer to purchase stock at a specified price in the future regardless of increases in price.
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What is a Put Option?
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The option to sell shares of stock at a specified time in the future.
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ex. a seller pays $5 for the right to sell a particular stock for $50 a share. If price falls to $40 a share, you can buy it at the reduced price and require the contracted buyer to pay the agreed upon $50. If it rises to $60 a share you can discard the option & sell for $60 a share
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What is a Bull Market?
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A steady rise in the stock market over a period of time.
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Investors expect an increase in profits and buy stock.
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What is a Bear Market?
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A steady drop in the stock market over a period of time.
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Investors sell stock with the expectation of lower profits.
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What is "The Dow"?
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Index that shows how certain stocks have traded. Represent 30 large companies in various industries like food, entertainment & technology
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Dow Jones Industrial Average has shown how certain stocks have traded daily since 1896.
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What is the " S & P 500 "?
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(Standard & Poor's 500) An Index that shows the price changes of 500 different stocks.
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Reports mainly on stocks listed on NYSE but some are traded on Nasdaq & OTC markets
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What was the Great Crash?
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The collapse of the stock market in 1929. Black Tuesday (Oct. 29th 1929) a record 16.4 million shares sold compared with 4-8 million shares earlier in yr.
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A few companies and families held much of nation's wealth, farmers were suffering financially, ordinary people went into debt to buy consumer goods like refrigerators & radios on credit. Industry produced more goods than consumers could buy (i.e., cars) leading to surplus & prices fell. High risk investments were made with borrowed money on the stock market. Rich and Ordinary people were investing heavily in stocks (buying on margin)with money borrowed from brokerage firms
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What is Speculation?
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The practice of making high-risk investments with borrowed money in hopes of getting a return.
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Investor debt accumulated while playing stock market & life savings were lost. Brokerage firms loans to investors increased from $5M in mid-1928 to $850M in Sept. 1929.
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