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127 Cards in this Set
- Front
- Back
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New York Stock Exchange (NYSE)
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the biggest and most important of these exchanges. Known as the "Big Board", the NYSE is located at 11 Wall Street in New York City and handles roughly three-fourths of all exchange transactions. Stocks listed on the NYSE can also be listed on the regional exchanges.
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American Stock Exchange AMEX
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handles about 1/5 of the daily total of listed securities trades in the United States. AMEX stocks cannot be listed on the NYSE, while stocks from the regional exchanges can list on the NYSE. These regional exchanges focus primarily on the securities of companies within their regions. These companies are usually the smallest and newest in their industries; otherwise, they would meet the listing requirements of the larger exchanges and trade at greater volumes.
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Regional Exchanges
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Boston Stock Exchange
Chicago Stock Exchange Cincinnati Stock Exchange Pacific Stock Exchange Philadelphia Stock Exchange |
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Trading on the floor of the NYSE occurs around a
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Specialist
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When was the NYSE founded?
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1792
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How many specialists are there?
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500
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What are the primary roles of a specialist?
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Auctioneer, sets the opening bid, maintains continuous auction throughout the day, makes sure that the best bid and offer prices are transmitted all over teh world until the end of trading.
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What else can a specialist act as?
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Principal- buys and sells from his own account and Matchmaker- keeps track of interests in a particular stock.
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What is an OTC market?
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An OTC is an over the counter market with unlisted securities.
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What trades in the OTC market?
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unlisted stocks and bonds, all municipal bonds and U.S. government securities
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What is the role of an agent/broker in the OTC market?
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The firm will buy or sell a security on the client's behalf and charge a commission for the service.
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What is the role of a principal/dealer in the OTC market?
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buys or sells the security for itself, assuming actual ownership and, therefore, taking on more risk. The firm might sell the security to a customer from its own inventory or it may buy a security for its proprietary account. The firm's profit comes from the commissions earned in the agent's role.
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What is the trade date?
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the date on which the transaction is executed.
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What is the settlement date?
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the date on which the transaction must be completed, or the date on which the buyer pays for the securities and the seller delivers them.
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What is Regular-way settlement for stocks, bonds and municipal securities?
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Three days after the trade date (T+3)
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What is the Regular-way settlement for treasury securities and options?
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One day after the trade date (T+1)
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What is the settlement for cash transactions?
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The same day.
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What is an ex-dividend date?
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If you buy the stock on or after the ex dividend date, you do not receive dividends. Also, you have to take T+3 into account.
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What is the record date?
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the date by which an investor must own the stock and be registered on the company's records as a shareholder in order to receive the dividend.
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What is the payment date?
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The date that the dividend is paid to the shareholders.
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The current bid and ask prices for are security is called the
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Market Value
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The price a market maker will pay for a security is called the
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Bid
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The price the investor would receive if he sold the security
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Bid
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Asked or Offering price is the
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price an investor would pay when buying the security.
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What is the NAV?
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Net asset value, and it refers to the pricing of a mutual fund.
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How do you calculate the NAV?
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Total Value of the funds portfolio-Liabilities
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Price at which the security was originally issued is called the
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Par
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Bonds that are sold less than par are
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purchased at a discount
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Bonds that are sold more than par are
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offered at a premium
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What is the nominal yield?
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The yield stated on the bond's coupon
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What is the current yield?
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Annual interest payment/market price
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investor's total return if the bond is held to its maturity date is called the
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Yield to maturity
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What is a market order?
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instructs the broker to buy or sell a stock at whatever price is available when the order reaches the floor of the exchange.
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What is a limit order?
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A limit order is executed at a specified price or better. A buy limit order is executed at the order price or lower, while a sell limit order is filled at the specific limit price or higher. Unlike a market order, a limit order might not be executed if the price never reaches the specified limit price.
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What is a stop order?
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A stop order becomes a market order to buy or sell a security once the stock reaches a certain price, called the stop price. Again, as with the market order, there is no price guarantee, but the investor order will be executed once the stop is activated.
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What is a combination of a stop and limit order?
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Stop-Limit
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What is a day order?
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the order is cancelled at the end of the trading day if it has not been executed.
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This type of order remains in place until it is executed or cancelled by the customer.
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GTC Order or Good till cancelled
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Not Held (NH) Orders:
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the floor broker has discretion on price and timing of trade execution.
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Fill or Kill (FOK) Orders:
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The order is either executed immediately in full or killed.
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Immediate or Cancel Orders
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The order is executed immediately in full or in part, and any part of the order that remains unfilled is cancelled.
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All-or-None Orders
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The order is executed in full, but not necessarily immediately.
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The three basic types of investment securities are
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money market, debt (bonds) and equities (stock).
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What type of securities can a corporation issue?
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Stocks and bond
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What types of securities can governments issue?
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money markets and debt securities.
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What is a corporate bond?
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contract between a corporation and the investor, whereby the investor lends the corporation money, in return for a legal promise that the corporation will pay the principal back to the investor on a specified date, with interest.
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Secured bonds that are backed by assets owned by the issuing corporation are called
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Secured Debt
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WHat are the three types of secured bonds?
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Mortgage, equipment trust certificates, and collateral trust bonds.
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What is another name for an unsecured bond?
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Debenture
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Unsecured Debts are
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secured only by the companies good faith and credit not by assets.
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High Yield/ Junk Bonds
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Unsecured corporate bonds that are not considered investment grade by credit rating companies - those rated BBB or below by Standard & Poor's (S&P) or Baa or below by Moody's,
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Convertible Bonds
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allow investors to convert a bond into shares of the company's common stock at a predetermined ratio.
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What are zero coupon bonds?
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debt securities issued at a deep discount from par, with the difference between the discount and the face value paying out at maturity. These bonds do not make regular interest, or coupon, payments. Corporations, municipalities and the U.S. government all offer zero-coupon bonds.
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What provides very short-term funds to corporations, municipalities and the United States government.
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Money Market instruments
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What are the characteristics of money market instruments?
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Liquidity, Safety, Discount pricing
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Who issues treasury bills?
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US government and federal agencies, municipal governments
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What Treasury bills are issued by the US Govt?
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Treasury bills (T-bills)
Treasury and agency securities with remaining maturities of less than a year Federal National Mortgage Association (Fannie Mae) short-term discount notes Federal Home Loan Bank short-term discount notes and interest-bearing notes Federal Farm Credit Bank notes and bonds maturing in one year Short-term discount notes issued by other smaller agencies |
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What ways do corporations and banks raise short term funds in the money market?
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Repurchase Agreements (repos)
Reverse Repurchase Agreements Banker's Acceptance notes (BAs) Commercial Paper Certificates of Deposit Negotiable Certificates of Deposit (NCDs) Federal funds Brokers' and dealers' loans |
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time deposits with a minimum face value of $100,000
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Negotiable CD's
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Banker's acceptance notes
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short-term time draft drawn on a bank with a specified payment date, usually between one and 270 days. U.S. corporations typically use bankers' acceptances to buy goods and services in foreign countries.
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Commercial Paper
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Corporations use short-term, unsecured commercial paper to raise cash to finance accounts receivable and seasonal inventory declines. Paper maturity usually ranges from 30 to 270 days, although most paper matures within 90 days. It is issued in bearer form at a discount to the face value.
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Who is the largest and safest issuer of debt securities?
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US Government
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Treasury issues include
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T Bills, T Notes, T Bonds
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Government sponsored enterprise issues include
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Securities issued by Freddie Mac, Fannie Mae, Federal Land Banks, Ginnie Mae.
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Which type of investment is the most liquid?
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Treasuries
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How are govt securities sold?
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Directly to investors through the primary market.
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Describe Treasury Bills
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direct, short-term debt obligations of the U.S. government. They are issued every week using a competitive bidding process in maturities of one month, three months and six months. Once per quarter, the U.S. government issues Treasury bills with one-year maturities. T-bills have minimal interest-rate risk, since they have very short-term maturities. Treasury bills are issued at a discount from their par value. That is, they do not pay interest. They are sold with a minimum denomination of $1,000 and in multiples of $1,000 thereafter.
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Describe Treasury Notes
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Treasury notes are direct debt obligations of the U.S. Treasury that pay semiannual interest as a percentage of the stated par value, have intermediate-term maturities (1-10 years) and mature at par value.
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Describe treasury Bonds
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Treasury bonds are the direct debt obligations of the U.S. Treasury that pay semiannual interest as a percentage of par value and mature at par, like Treasury notes. They differ from T-notes in the length of their maturities, which are generally 10 to 30 years. They are also usually callable at par beginning 25 years after issue.
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Which one of the treasury securities are known as discount securities?
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Treasury Bills
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Which T Securities pay interest?
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T Notes and T Bonds
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How are T securities taxed?
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The interest earned on all Treasury securities is subject to federal taxation but exempt from state and local taxes.
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When is the tax paid on the different T Securities?
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An owner of a T-bill pays federal tax on interest in the year in which the T-bill matures, while the T-note and T-bond owner pays federal tax on the interest in the year in which it is paid.
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What is the minimum denomination of T notes and T bonds?
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$1000
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What are federal agency securities backed by?
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Full faith and credit
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How do states and local govts raise money?
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They issue municipal bonds.
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What are the two classifications of municipal bonds?
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General Obligation and revenue bonds.
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Who can issue a GO bond?
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Only entities that have the ability to levy and collect taxes
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Under what circumstance is a revenue bond issued?
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To fund projects such as stadiums, toll roads, airports. etc.
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How are the investors paid back on a revenue bond?
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From the proceeds of the project
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Net revenue pledge
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revenues are allocated to operating and maintenance expenses first, and to the debt service (i.e. to the bondholders) next.
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Gross revenue pledge
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bondholders will be paid first. An analyst will also compare the revenue available to pay debt service to the amount of interest due (called debt service coverage).
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How do you calculate the tax equivalent yield?
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Muni Bond Yield divided by th100%-Tax bracket
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What is a corporation owned by?
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Its shareholders
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Who oversees a corporation?
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Board of directors
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What are the types of stocks that corps issue?
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Common and preferred
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What is a stock certificate?
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proof of ownership of a stock. Each certificate will state the name of the corporation, the owner's name and the number of owned shares, plus the names of the transfer agent and the registrar. It is also signed by an authorized corporate officer.
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What is a transfer agent?
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The transfer agent for the company keeps a list of all registered stockholders and cancels old stock certificates while issuing new ones when shares are transferred
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What is limited liability in common stock?
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shareholder generally cannot be held responsible for the company's debts: if the business fails, shareholders only lose their original investment. If the business thrives, however, the shareholders expect to share in the company's profits in the form of dividends and in the increased value of company stock, as reflected in the stock price. This limitation of loss to the original amount invested is referred to as limited liability.
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How is the number of votes determined in common stock?
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It's determined by the number of shares a shareholder owns.
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What are the two types of voting rights?
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Statutory and cumulative
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Explain Statutory voting
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the standard "one share one vote" counting that governs voting procedures in most corporations. Shareholders may cast one vote per share either for or against a board of director nominee, but may not give more than one vote per nominee.
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Explain cumulative voting
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cumulative voting improves minority shareholders' chances of naming nominees to the board of directors. In general, shareholders are able to weight their votes towards one or more candidates.
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How often are dividends paid in common stock?
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Quarterly and taxed in the year that they were received.
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How do you calculate the yields on common stock?
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Current Yield= (Annual dividend/share)/(Market Price/Share)
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Right of inspection
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Stockholders have the right to inspect company books and records, including the minutes of shareholder meetings and the list of stockholders.
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Preemptive right
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Preemptive right refers to the right of shareholders to maintain a proportional ownership by purchasing newly issued shares of common stock from the company before they are offered to the public. Otherwise, a new issue would dilute the value of their investment.
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Describe preferred stock
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its holders receive available dividend payments before common stockholders, and they also receive payments from liquidation of assets before common stockholders if the company must declare bankruptcy.
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What are the types of preferred stock?
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Cumulative, convertible, callable, participating
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Describe Cumulative preferred stock
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If a corporation fails to pay the full dividend on its preferred stock, all preferred dividends are considered to be in arrears and must be paid to holders of cumulative preferred stock before common stockholders receive their dividends.
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Describe convertible preferred stock
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Convertible preferred stock can be exchanged for common stock at a specific price and at the discretion of the shareholder. When this occurs, the value of the common stock for which the preferred stock is exchanged is called the conversion price. If the par value of the preferred stock is $150 and the conversion price is $30, the conversion ratio is 5-to-1. That is, the preferred shareholder would receive five shares of common stock.
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Calculate the conversion ratio
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Par Value/ Conversion Price
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Describe Callable preferred stock
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When a company issues callable preferred stock, it has the right to repurchase the stock, or call it, at a specific price in the future. This price, called the call price, is usually higher than the stock's par value, in order to give investors an incentive to buy the stock.
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Describe participating preferred stock
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This type of preferred stock pays the holder a higher dividend above and beyond a certain level of its common dividend when a company has extremely good earnings in a given year. For example, a stock might normally pay a 4% preferred dividend, but it is participating up to 7%. In this instance, the shareholder would receive 4% until the common stock dividend reached a predetermined level, at which time the participating preferred stock dividend would be bumped up to 7% and split 50-50 with common shareholder dividends. This type of preferred stock is rarely issued.
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What is the order of payment upon bankruptcy
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Wages, IRS, Secured debt, unsecured debt& general creditors, subordinate debt, preferred stockholders, common stockholders.
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What is an ADR?
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American Depository Receipts (ADRs)
Foreign corporations may choose to "list" their shares on U.S. stock exchanges by issuing American Depository Receipts. |
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Are the foreign companies associated with ADR's registered with the SEC?
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NO
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Where are the shares held in foreign stock/ ADR
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US bank with foreign branches
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Do ADR holders have voting rights?
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NO
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Demand Pull inflation
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The money supply is seen as the cause of this type of inflation. In this situation, the money supply is too large when compared with the supply of produced goods in the economy. Interest rates rise as a result, making it more expensive to borrow money. As a result, the money supply begins to shrink with the drop in lending activity.
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Cost Push inflation
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The rising cost of raw materials used to produce goods is seen as the cause of this type of inflation. Since manufacturers now need to pay more for these materials, they raise the prices on their products to compensate. As a result, retailers must pay more for goods, so they increase prices to pass the difference on to the consumer.
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Define Deflation
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persistent decline in the prices of goods and services usually caused by slowing market demand with a level supply.
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What is monetary policy
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mainly concerned with private sector efficiencies and the money supply, and it derives many of its theories from Nobel prize-winning economist Milton Friedman.
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The fundamental idea behind monetary policy
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he quantity of money, or the money supply, is the major determinant of price levels
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Strategies that the Fed use to expand or contract funds in the banking system
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Buying or selling government securities in the open market
Increasing or decreasing member bank reserve requirements Increasing or decreasing the discount rate to member banks who borrow reserves from the Fed Changing the percentage of credit required to buy securities on margin |
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Fiscal policy
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addresses changes in the allocation and levels of economic resources and is generally associated with the economic theory of John Maynard Keynes, also called Keynesian Theory.
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Fiscal policy includes
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government budget decisions regarding federal spending, money raised by the government through taxes and budget deficits or surpluses. By adjusting overall demand for goods and services through changes in taxation and government spending, the government hopes to control unemployment levels and inflation, which adversely affect the economy's health.
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expansionary fiscal policy
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when the economy is operating below its normal output, as in recessions and troughs in the business cycle when unemployment is high, business profits are low and businesses are not operating at full capacity. Government spending will be increased and/or taxes for individuals (and perhaps small businesses) will be reduced to stimulate the economy.
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Contractionary fiscal policy
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when the business cycle is near its peak, businesses are at full capacity, unemployment is low and business profits are high. The government decreases spending and may increase taxes for individuals and businesses. A government will often wipe out its deficit and create a surplus during a contractionary fiscal period.
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The Securities Act of 1933
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passed to ensure that all new securities offered to the public have been described in adequate detail in the registration statement and prospectus.
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Penalties under the 1933 Securities Act
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Any person who willfully violates the Act of 1933 or SEC rules and regulations is subject to five years in prison, a $10,000 fine, or both.
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Securities Exchange Act of 1934
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governs the rules of securities that trade on the secondary markets. In an attempt to provide a fair and orderly market for investors, the Act also determines the laws that regulate the exchanges and their participating broker-dealers.
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Investment Advisors Act of 1940
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enacted to protect the public by requiring those who provide investment advice for compensation to register as advisors with the Securities and Exchange Commission (SEC).
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Investment Advisor
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individual or entity who for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities.
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Investment Company Act of 1940
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passed by Congress to require the registration and regulation of investment companies. It was legislated to ensure adequate and truthful information for investors and to reduce the abuses in selling investment company securities. One of the most important of provisions was the requirement of all investment companies to register with the SEC.
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define investment company
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primarily in the business of investing, reinvesting or trading in securities;
issuing installment-type face-amount certificates. investing, reinvesting, owning, holding, and trading securities; and holds more than 40% of their total value of assets (unconsolidated) in investment securities |
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What are the 3 classifications of investment companies?
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Face amount certificate, unit investment trust, management company
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