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18 Cards in this Set
- Front
- Back
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What is the major distinction of the secondary market?
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issuer of the asset does not receive funds from the buyer; gives issuer information about the value of the asset; offers liquidity and information
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What are examples of secondary markets?
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1. stock exchanges; specific locations
2. over-the-counter or OTC market, like Nasdaq and LSE; traders linked via telecommunication |
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What does it mean that many secondary markets are continuous?
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prices determined continuously throughout the day as buyers and sellers submit orders; prices may vary because of differences in order flows not supply and demand
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What is a call market?
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orders are batched or grouped together for simultaneous execution at the same price (fix price); market maker holds an auction; NYSE begins trading at 9:30 with a call auction
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What is a perfect market for a financial asset?
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number of buyers and sellers is sufficiently large, no single individual is large enough to influence the commodity's price; all price takers, price determined by supply and demand; no frictions; product usually has to be homogenous for a perfect market (corn or wheat)
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What are frictions?
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transaction costs; commissions charged by brokers, taxes, bid-ask spreads charged by dealers, costs of acquiring information, restrictions to market makers, restrictions and regulations on how much a buyer can buy and a seller sell
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What does a broker do?
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receives, transmits, and executes investor's orders with other investors
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What is the price of immediacy?
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when buyers and sellers do not want to wait for the arrival of sufficient orders on the other side of the trade; transact at a price other than the consensus price
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What does a dealer or market maker do?
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stands ready to buy and sell a security and provide price stability in the presence of short-term order imbalances; provide reliable price information and bring order and fairness to a market
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What are limit orders?
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orders that are executed only if the market price of the asset changes in a specified way
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What does an auctioneer do?
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provides order and fairness but does not take a position in the traded asset as a dealer in a continuous market does
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What are the risks of a dealer's position?
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1. uncertainty of future price of the security
2. how thick is the market? when can he unwind a position 3. other traders may have better information |
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What is an operationally (or internally) efficient market?
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transaction services are cheap
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What is a pricing (or externally) efficient capital market?
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market where prices at all times fully reflect all available information
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What is an active strategy?
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investors seek to capitalize on what they perceive to be the mispricing of a security
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What is indexing?
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policy of matching the performance of some financial index from the market
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How does electronic trading help a market?
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1. provides liquidity
2. price discovery 3. utilization of new technologies 4. trading and portfolio management efficiencies |
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What is short sale?
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the sale of an asset that the seller has borrower and must repay to the lender
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