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23 Cards in this Set
- Front
- Back
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investment
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Commitment of current resources in the expectation of deriving greater resources in the future.
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real assets
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Land, buildings, and equipment that are used to produce goods and services.
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financial assets
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A claim such as stock or bond to the income generated by real assets or claims on income from the government.
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fixed-income security
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A security such as a bond that pays a specified cash flow over a specific period.
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equity
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Ownership in a firm. Also, the net worth of a margin account.
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primitive security
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An instrument such as a stock or bond for which payments depend only on the financial status of its issuer.
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derivative security
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An instrument that is created from the set of primitive securities to yield returns that depend on factors beyond the characteristics of the issuer and that may be related to prices of other
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agency problem
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Conflicts of interest among stockholders, bondholders, and managers.
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asset allocation
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Choosing among broad asset classes such as stocks versus bonds.
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security selection
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(also security selection decision) Choosing the particular securities to include in a portfolio.
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risk-return trade-off
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If an investor is willing to take on risk, there is the reward of higher expected returns.
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passive management
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Buying a well-diversified portfolio to represent a broad-based market index without attempting to search out mispriced securities.
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active management
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Attempts to achieve portfolio returns more than commensurate with risk, either by forecasting broad market trends or by identifying particular mispriced sectors of a market or securities in a market.
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financial intermediary
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An institution such as a bank, mutual fund, investment company, or insurance company that serves to connect the household and business sectors so households can invest and businesses can finance production.
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investment company
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Firm managing funds for investors. An investment company may manage several mutual funds.
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investment bankers
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Firms specializing in the sale of new securities to the public, typically by underwriting the issue.
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primary market
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New issues of securities are offered to the public here.
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secondary market
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Already existing securities are bought and sold on the exchanges or in the OTC market.
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globalization
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Tendency toward a worldwide investment environment and the integration of national capital markets.
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pass-through security
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Pools of loans (such as home mortgage loans) sold in one package. Owners of pass-throughs receive principal and interest payments made by the borrowers.
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securitization
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Pooling loans for various purposes into standardized securities backed by those loans, which can then be traded like any other security.
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financial engineering
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Creating and designing securities with custom-tailored characteristics.
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bundling, unbundling
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A trend allowing creation of securities either by combining primitive and derivative securities into one composite hybrid or by separating returns on an asset into classes.
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