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66 Cards in this Set

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Due Diligence

Preparing sufficiently for the buying or selling of something

Fully Subscribed

When an IPO has all the offered shares sold

Glass-Steagall Act

Passed in 1933 to counter the failing of banks, separated investment and commercial banking, however repealed in 1999.

IPO

Initial public offering


-first sale of stock to public


-usually a smaller, younger firm wanting to raise capital to expand

Market Makers

Buy large volumes of shares, set a bid and ask price. Influence the price of securities

Mergers and Aquisitions Market

-A deal in which two firms are combined


-A deal in which one firm is bought

Oversubscribed

Demand for IPO securities exceed supply

Primary Market

Exchange from buyer to seller, no middleman

Secondary Market

Middleman, such as a broker, or exchange, all stock exchanges are secondary markets.

Seasoned Issues

Issuing of additional securities by a firm that already has existing shares on the market

Syndicate

Investment banks working together on a deal, which is too large for any individual to tackle, allowing them to pool resources and risk. For example, the Etsy IPO

Private Equity Buyout

Buy public stock and then privatize the company

Tombstone

Publishing of the details about the issue of an upcoming IPO

Annuity

WTF?

Casualty Insurance

Insurance against damage or loss


-example car insurance


-home insurance


-$2 Trillion

Deductible

The amount one has to pay out of pocket before insurance helps pay

Short Sell

Selling security that you don't own and then repurchasing - broker borrows


-$400 trillion at time of financial crisis



Defined Benefit Pension

-Firm promises to pay set amount for rest of employees life after retirement.


-If firm goes under, the retirees get nothing.


-Employees are basically unsecured creditors.


-Very few left, and bad idea

Defined Contribution Plan

-Certain percentage of employees paycheck and employer contribution goes to retirement fund.


-Going to get out whatever put in, if company goes broke, you still have your retirement fund.

ERISA

Employee Retirement Income Security Act


-Protects retirement assets of Americans


-Retirement funds can't be misused

IRA

Individual Retirement Account


-Tool used by individuals to earn funds for retirement savings


-Tax and regulations different than regular funds

Insurable Interest

Can only get insurance on things you have insurable interest on, for example your house.

Law of Large Numbers

As sample size grows, the results tend to drift the average

Pension Benefit Guarantee Corporation

PBGC


-nonprofit run by government


-guarantees payment of pensions


-does have enough to do so

Pension Plan

Funds set aside by employer for employees retirement, usually tax exempt

Property Insurance

-insurance to reimburse renter/owner if theft or damage occurs

Reinsurance

WTF?

Insurance Underwriter

-Someone who assesses risk in insuring something and then sets the price of insurance

Call/Put Options

Gives right but not obligation to:


-Call = buy


-Put = sell

American/Euro Options

-American exercise strike price at any point


-Euro only exercise at maturity

Futures

Deal to buy something in the future


-regulated, standardized (so not specific), get on exchange


-less risky

Forward

Deal to buy something in the future


-between two individuals


-can be very specific exposure to risk


-however more risk that individual won't pay up

Commodity Futures Trading Commission

-Try to ensure a fair and safe commodity, futures, and options market


-Protect vs fraud and manipulation

Swap

Is a derivative in which two cash flows are exchanged, usually with extra payment involved

CDS

Credit Default Swap


-swap, where seller will pay buyer if there's a default




Problem in 2008 - not regulated


-AIG way undervalued

Currency Swap

Swap two currencies, not on balance sheets or transactions

Strike Price

Price at which options can be exercised

Derivative

Contract on performance of underlying asset


-Futures, forwards, options, and swaps are all derivatives

Hedge

Investment to offset potential losses


-covaries negatively with asset you want it to offset the potential losses of

Interest Rate Swap

IRS


-highly liquid exchange of interest rate cash flows

Mark to Market

Recording the price of security according to market value instead of book value

Open Interest

An option has open interest until the strike price is executed, "open" until finalized

Transparency

Extent to which investors have access to relevant financial information

UIP

Uncovered Interest Rate Parity -predicts currency moves based on interest rates


-almost always wrong (liquidity!)

PPP

Purchasing Power Parity, price of goods should be the same in any currency

LOOP

Law of one price

FOMC

Federal Open Markets Committee - federal body that decides monetary policy (for example Janet Yellen and other governors of the fed)

Fed Funds Rate

Or overnight rate, rate at which banks borrow reserves from one another, fed has complete control over this rate

Forward Guidance

Influence future expected interest rates through statements, which effects long term rates

Short Term Interest Rates in 1930s, 1980, 2009

1930s: 0%


1980: 18%


Now: 0%




Like a pyramid

Long term interest rates right now

10-year: 2%


30-year: 3%




These seem low, but remember Germany is even lower (almost 0!)

Bookrunner

Main underwriter of an IPO

Normal Term Structure

Interast Rates vs. time, normally slopes upwards, long term rates higher


-which implies short term rates in the future are expected to be higher

Short Term Interest Rates Globally

Japan: 0% since 1990s


U.S.: Around 0% since 2008


Euro: Below 0% (Switzerland even had 10 year rates negative)

Exchange Rates: Volatile or Stable?

Volatile, 20% changes not uncommon in short run

Why doesn't UIP hold?

-Leaves out liquidity - who wants British bonds? American $ is best

Euro to dollar exchange, low, high, now

low: .80


high: 1.60


now: about 1.00

US GDP

$17 trillion

Credit market debt in US, households, non financial business, and government

-households 75% of GDP


-non-financial businesses 75% of GDP


-Government 100% of GDP

Government debt to GDP ratio: standard or variety?

Varies


Japan has 200%, we have 100%, other places like Norway have hardly any

Market Cap of US and World

US: $25 trillion


World: $70 trillion

Largest banks have how much in assets?

$3 trillion each

How many huge banks in US, and how much in assets do they have?

4, with $1.5-2 trillion a piece

Insurance Companies/Pensions Manage how much money?

$20-30 trillion

Excess Reserves

$3 trillion, usually way lower

Fed Assets

$4 trillion