Series 6 Section 1

Front 1

Describe an Exchange Market

Back 1

An exchange market is where securities are traded or sold.

Front 2

Describe a Negotiated Market

Back 2

Over the counter, meaning that they are not listed on an exchange, they are unlisted.

Front 3

What is a primary offering?

Back 3

The initial offering for a security.

Front 4

Trade Date

Back 4

The date which the transaction is executed.

Front 5

Settlement Date

Back 5

The date that the buyer pays and the seller delivers.

Front 6

Declaration Date

Back 6

The date when the board of directors announces that it will pay a dividend

Front 7

Record Date

Back 7

The date that the investor must own the stock and be registered in the company's records as a shareholder.

Front 8

Ex Dividend Date

Back 8

Two days prior to the record date. This is the date when the stock trades without its next dividend payment.

Front 9

Payment Date

Back 9

The date that the dividend is paid out to shareholders.

Front 10

Market Value

Back 10

The current bid and ask prices for a security.

Front 11

Bid

Back 11

The price a market maker will pay for a security, its the price an investor would receive if he sold the security

Front 12

Asked/Offering

Back 12

The price the investor would pay when buying the security.

Front 13

NAV

Back 13

Refers to the pricing of a mutual fund. Total Value - Liabilities= NAV

Front 14

Premium, Par, Discount

Back 14

Par is the original price. Premium is if its being sold above par and discount is if its being sold below par.

Front 15

Current Yield

Back 15

Annual Interest Rate/Market Price.

Front 16

Nominal Yield

Back 16

The yield that is stated on the bond

Front 17

Yield to Maturity

Back 17

The yield the investor would receive if he keeps the bond to its maturity.

Front 18

Duration

Back 18

The length of the bond.

Front 19

Common Stock

Back 19

A security that represents ownership in a corporation.

Front 20

Preferred Stock

Back 20

Preferred because the receive dividends before common stock holders.

Front 21

Right to Earnings

Back 21

The ability to share in the earnings of the company

Front 22

Right to Dividends

Back 22

The right to earn dividends from the company's profits.

Front 23

ADR

Back 23

Foreign corporations may choose to "list" their shares on U.S. stock exchanges by issuing American Depository Receipts. This allows American investors to purchase the companies' shares without the companies having to register with the SEC. Typically, a large U.S. bank with offices in the foreign country will purchase a large quantity of the stock, hold it in trust and then issue the ADRs, which are backed by the shares held in trust. ADR purchases receive no voting rights. Dividends are declared in the foreign currency, but converted and paid in U.S. dollars.

Front 24

Rights

Back 24

Privileges to grant existing shareholder the right to subscribe to shares of new offering of common stock before they are offered to the public.

Front 25

Warrants

Back 25

Offer the option to buy common stock later in the future at a specific subscription price. The do not expire and the prices are always higher than the current market price. Warrants are also traded.

Front 26

Options

Back 26

Contracts to buy or sell a certain number shares of underlying stock at a specified price over a given period of time.

Front 27

Secured Bond

Back 27

Backed by assets owned by the issuing corporation.

Front 28

Unsecured Bond

Back 28

Also known as debentures, are unsecured debt and are only backed by the full faith and credit of the company.

Front 29

Zero Coupon Bond

Back 29

A bond that is sold at a deep discount and will reach face value at maturity.

Front 30

COnvertible Bond

Back 30

Allows investors to convert a bond into shares of the company's common stock.

Front 31

Mortgage Backed Securities ( pass through)

Back 31

GNMA

Front 32

Collaterized Mortgage Obligations (CMO's)

Back 32

Mortgage backed securities that are purchased in denominations of $1000 that pool together a large number of private mortgages

Front 33

Treasury Bills

Back 33

Direct, short term debt obligation sof the US govt. The are issued every week through bidding. They have maturities of one, three, and six months and once per quarter, they will issue 12 month ones. Sold at a discount to par and will be face value when they mature. They do not pay interest and are sold in denominations of $1000.

Front 34

Treasury Notes

Back 34

Pay semiannual interest as a percentage of the stated par value and have maturities of 1- 10 years.

Front 35

Treasury Bonds

Back 35

Pay semiannual interest as a percentage of par value and mature at par. They are 10-30 years in length and callable at par after 25 years of issue.

Front 36

Agency Bonds

Back 36

Bonds that are issued by US Federal Agencies. These are not backed by the govt, however they are still considered safe.

Front 37

Municipal Bonds Tax implications

Back 37

They are free from federal taxes and have a tax equivalent yield. To find the After Tax Yield, Muni Bond Yield/(100%-Customers Tax bracket)

Front 38

General Obligation Bonds

Back 38

Only entities that can levy and collect taxes can issue a GO bond. Usually issued to find schools, govt buildings, prrisons, police and fire stations.

Front 39

Revenue Bonds

Back 39

Backed by user fees and other charges that are generated from a public works project, such as airports, colleges, toll roads & bridges, hospitals and sports facilities.

Front 40

Money Market Instuments

Back 40

Short term, safe, highly liquid investments.

Front 41

Treasury Bills

Back 41

Issued by the govt and considered a MMI since its only a 1 year length and its a short term obligation.

Front 42

Certificate of Deposit

Back 42

A savings certificate entitling the bearer to receive interest. Bears a maturity date, fixed interest rate and are issued in any denomination. The term is generally one month to five years.

Front 43

Commercial Paper

Back 43

Short term, unsecured commercial paper to raise cash to finance accounts receivable and seasonal inventory declines. Ranges from 30-270 days with generally 90 days. Issued at a discount from the face value.

Front 44

Banker's acceptances

Back 44

Short term draft drawn on a bank with a specified payment date between 1 and 270 days. Generally used to buy goods and services in foreign countries.

Front 45

Exchange traded funds (ETF's)

Back 45

Combination of stocks and mutual funds. Designed to track an index and owns a number of stocks. Not actively managed and is traded like a stock.

Front 46

Hedge Funds

Back 46

Agressive portfolios designed to both maximize returns while minimizing risks. They are available only to a small numbers of accredited investors and they are unregulated.

Front 47

Role of inflation

Back 47

Continuously rising prices for goods and the currency value decreases and interest rates rise.

Front 48

Role of deflation

Back 48

Persistent decline in the prices of goods and services usually caused by slow market demand.

Front 49

Role of Federal Reserve

Back 49

Determine the monetary policy and banking policies. Agent of the US treasury, regulator of the US money supply through open market sales, purchases, discount rate adjustments and reserve requirement changes.

Front 50

Expand the money supply

Back 50

The Fed will buy securities from banks which receive direct credit in their reserve accounts. In return, banks can make more loans and lower interest rates

Front 51

TIghten the money supply

Back 51

The Fed will sell securities to the banks by charging the banks reserve balance. Banks then cannot lend money as readily and must reduce credit activities and increase interest rates.