Fin 322: Chapter 2 -- Asset Classes And Financial Instruments

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Money Markets

Back 1

Include short-term, highly liquid, and relatively low-risk debt instruments.

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Treasury Bills

Back 2

Short-term government securities issued at a discount from face value and returning the face amount at maturity.

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Certificate of Deposit

Back 3

A bank time deposit

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Commercial paper

Back 4

Short-term unsecured debt issued by large corporations.

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Banker's acceptance

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An order to a bank by a customer to pay a sum of money at a future date.

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Eurodollars

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Dollar-denominated deposits at foreign banks or foreign branches of American banks.

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Repurchase agreements (repos)

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Short-term sales of government securities with an agreement to repurchase the securities at a higher price.

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Federal funds

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Funds in the accounts of comercial banks at the Federal Reserve Bank.

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LIBOR

Back 9

Lending rate among banks in the London market.

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Treasury notes or bonds

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Debt obligations of the federal government with original maturities of one year or more.

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Municipal bonds

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Tax-exempt bonds issued by state and local governments

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Corporate bonds

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Long-term debt issued by private corporations typically paying semi-annual coupons and returning the face value of the bond at maturity.

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Common stocks

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Ownership shares in a publicly held corporation. Shareholders have voting rights and may receive benefits

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Preferred stocks

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Nonvoting shares in a corporation, usually paying a fixed stream of dividends.

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Price-weighted average

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An average computed by adding the prices of the stocks and dividing by a "divisor."

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Market value-weighted index

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Computed by calculating a weighted average of the returns of each security in the index, with weights proportional to outstanding market value.

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Equally weighted index

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An index computed from a simple average of returns.

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Derivative asset or contingent claim

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A security with a payroll that depends on the prices of other assets.

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Call option

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The right to buy an asset at a specified price on or before a specified expiration date.

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Put option

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The right to sell an asset at a specified exercise price on or before a specified expiration date.

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Futures contract

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Obliges traders to purchase or sell an asset at an agreed-upon at a specified future date.