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34 Cards in this Set

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investment bankers
-a securities firm that specializes in helping other business firms obtain the money they need on the most advantageous terms possible
-firms which sell new securities to the general public
-do not carry out other activities considered to be banking activities
-also known as an underwriter
-conduit through which securities sold to public
firm commitment
-an underwriting where the underwriter (investment banker) buys the entire issue from the issuer at an agreed upon price & then proceeds to sell the issue
-issuer has a firm commitment because the entire issue is sold to the underwriter
-re-offer to the general public
-risk of selling rests with the underwriter & not with the firm issuing the securities
best effort agreement
-the investment banker makes his best effort to sell the securities acting on behalf of the issuer, but does not guarantee the specified amount of money will be raised
-not guarantee corporation money for unsold portion
best efforts underwriting
-underwriters make no commitment to buy or sell the issue
-no syndicate formed
-form a selling group, with each member doing his best to sell his allotment
primary offering
-authorized but previously unissued stock (new stock) offered to the public
-also known as Initial Public Offering (IPO)
-original sale of security
-always raises new capital for issuer
secondary offering (distribution)
-offering of outstanding stock
-stock that has previously been & is now beng re-sold by investors
-corporation resells treasury stock
-this is what occurs every day on the exchanges & in the OTC market
-does not raise new capital for the issuer
Securities Act of 1933
-nickname is Act of Full Disclosure
-legislation that protects the public against the issuance & distribution of fraudulent securities by requiring the filing of a revealing reistration statement with the SEC
registration statement
-a document required to be filed with the SEC by the issuer of securities before a public offering may be attempted
-Securities Act of 1933 mandates that it contain all material information
-also required of affiliated persons intent upon offering sizeable amounts of securities in the secondary market
cooling-off period
-20 day period (minimum) that the SEC examines the statement, seeking obvious omissions or misrepresentations of fact, but specifically does not approve the issue
in registration
what the issue is said to be during the cooling-off period
preliminary prospectus (red herring)
-only form of written communication allowed between a broker/dealer & a potential purchaser before the effective date
-has red lettering on the front page
-describes company & the securities to be issued (includes firm's financial statements, its current activities, regulatory bodies to which it is subject, nature of its competition, mgmt of corporation, & what the expected proceeds will be used for
-missing is public offering price & the effective date of the issue
-used to acquaint prospect with the essential information about the offering
indication of interest
when prospect is interested in purchasing an issue after reviewing the red herring
due diligence meeting
-meeting held close to end of colling-off period between underwriter & corporation
-discuss any amendments that are going to be necessary to make the registration statement complete & accurate
final (statutory) prospectus
-similar to red herring without the red ink & with the missing numbers filled in
-all purchasers will receive
syndicate
-a group of investment bankers, usually organized along historical or social lines, with one member acting as manager, that collectively insures the successful offering of a corporation's securities
tombstone ad
containing only the key facts relating to the issue...name of issuer, number of shares being offered, price per share & the names of the members of the syndicate where a prospectus may be obtained
all-or-none underwriting
-unless all of the shares can be distributed within a specified period of time, the offering will terminate & no subscriptions or orders will be accepted
-underwriter must set up an escrow account for any money received before the closing date, in the event it is necessary to return the money
rights offering (standby underwriting commitment)
underwriter agrees to stand by & when rights offering time period is over, he will purchase any portion of stock not subscribed to by existing stockholders
agent
-role of a broker/dealer firm when it acts as an intermediary, or broker, between its customer and market-maker or contra broker
-firm receives a stated commission or fee
-buys or sells securities for the account & risk of someone else & charges a commission for service rendered
-investment banking firm acts as with best efforts
principal
-one who acts as a dealer rather than an agent or broker
-dealer buys & sells for his own account & risk
-dealers make money by buying at one price & selling at a higher price
-investment banking firm acts as in a firm commitment
exempt securities
-not all securities required to be registered with the SEC prior to sale
major types of exempt securities
-any security issued by the US Govt or any of its agencies
-any securities issued by any state or local government (municipals)
-commercial paper with a maturity not in excess of 270 days (9 mths)
-private placements
-intra-state offerings - issues sold only within one state to residents of tha that state - no federal jurisdiction
fiduciaries
-regulation of investments made by fiduciaries are regulated by state laws
-one in financial trust
legal list
-many states, the state banking authorities publish a list of investments which are considered legal investments for fiduciaries
Prudent Investor Rule
-1st written in 1992
-most states have adopted this rule
-a successor to the old Prudent Man Rule of 1830
-deals with investments made by fiduciaries & holds them to standards of prudence & good judgement when investing money for others
-newer vestion takes into consideration modern portfolio theory such as asset allocation& generally permits investments into mutual funds & variable annuities
general types of investing risks
-liquidating at inappropriate times
-marketability
-taxability
-social and political risk
-currency exchange risk
types of risks with stocks
-market risk (systematic)-market may go down
-business risk-thecompany (business) may not do well
types of risks with bonds
-credit risk-risk of default
-interest-rate risk (money-rate)-interest rates up, bond prices down
-purchasing power risk (inflation)-present value of money
business cycles
prosperity
contractino
recession
expansion
What is the effects of business cycles on the securities markets?
-bond markets are primarily affected by the resulting inflation-deflation of the cycle
-equities markets rise in value during moderate inflation
Explain the inflatin/deflation cycle for bond markets
-short-term debt securities react most immediately to changes in interest rates
-long-term debt securities experience a greater price change
-yield spread widens in bad times and narrows in good times
monetary policy
practicies followed by the Federal Reserve Board which affect the money supply, interest rates, and bond prices
Federal Open Market Committee (FOMC)
buying and selling securities
types of issues
-blue chip-seasoned securities with steady earnings and secure dividends
-defensive-makes money in both good times and bad times (utilities, supermarkets, clothing, alcohol, tobacco, cosmetics)
-cyclical-wide fluctuations in earnings, dividends, and stock prices based upon business cycles
-growth-bought for capital gains, not income
-public utilities-bought for income, not capital gains
-small cap vs large cap-speculative vs conversative