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22 Cards in this Set
- Front
- Back
- 3rd side (hint)
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Financial Markets can be classified as: |
1. Money market 2. Capital Market |
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Money Market |
Securities with maturities of LESS than one year |
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Types of Money Markets |
1. Short-term 2. Marketable 3. Low Default Risk |
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Capital Market |
Long term securities - ex. NY stock exchange |
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Financial Markets can be categorized as: |
1. Primary Markets 2. Secondary Markets 3. Financial Intermediaries |
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Primary Financial Markets – |
Where corps and govs raise new capital (money) by offeringinitial securities. The Issuer receivesthe sale proceeds (profits) |
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Secondary Financial markets – |
Trade previously issued securities among investors throughan auction markets and dealer markets. |
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Financial Intermediaries – |
Specialized firms that help create and exchange theinstruments of the financial markets. aka Investment bankers |
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Efficient Market Hypothesis (EMH) |
Currentstock prices immediately and fully reflect all relevant information. Therefore securities prices are always in equilibrium |
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EMH - impossible to have abnormal returns with what? |
Fundamental analysis Technical Analysis |
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EMH - Expected return = |
returnrequired by marginal investor given risk of security |
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EMH - Price = |
fairvalue as perceived by investors |
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EMH forms? |
Strong - all info, no insider trading Semi-strong - only public info available, some insider trading Weak - prices reflect all past movement |
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Debt Rating |
Firms that are issuing debt securities must payratings agencies to give them a debt rating |
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What do investment bankers do? |
1. Helpsell new securities 2. Assistin business combinations 3. Actas brokers in secondary markets 4. Trade for own accounts |
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The Spread |
= Price paid the investment banker (minus) the offering price paid byinvestors |
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Flotation costs |
The cost of issuing new securities rating |
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MeasuringSecurities - Classification |
Held-to-maturity Trading Available for sale |
FASB created the classifications |
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FAIR VALUE OPTION |
·A firm can choose to measureany security at a fair value. The unrealized holding gains and losses would bethen passed through to the net income. |
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Retun |
Return= amount received (minus) amount invested |
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Rate of return |
Returnon investment(divided by) Amount invested |
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INVESTMENTRISK - 2 main types |
Systematic (market) Unsystematic (company) |
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