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66 Cards in this Set
- Front
- Back
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Due Diligence |
Preparing sufficiently for the buying or selling of something |
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Fully Subscribed |
When an IPO has all the offered shares sold |
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Glass-Steagall Act |
Passed in 1933 to counter the failing of banks, separated investment and commercial banking, however repealed in 1999. |
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IPO |
Initial public offering -first sale of stock to public -usually a smaller, younger firm wanting to raise capital to expand |
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Market Makers |
Buy large volumes of shares, set a bid and ask price. Influence the price of securities
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Mergers and Aquisitions Market |
-A deal in which two firms are combined -A deal in which one firm is bought |
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Oversubscribed |
Demand for IPO securities exceed supply |
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Primary Market |
Exchange from buyer to seller, no middleman |
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Secondary Market |
Middleman, such as a broker, or exchange, all stock exchanges are secondary markets. |
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Seasoned Issues |
Issuing of additional securities by a firm that already has existing shares on the market |
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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 |
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Private Equity Buyout |
Buy public stock and then privatize the company |
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Tombstone |
Publishing of the details about the issue of an upcoming IPO |
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Annuity |
WTF? |
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Casualty Insurance |
Insurance against damage or loss -example car insurance -home insurance -$2 Trillion |
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Deductible |
The amount one has to pay out of pocket before insurance helps pay |
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Short Sell |
Selling security that you don't own and then repurchasing - broker borrows -$400 trillion at time of financial crisis |
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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 |
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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. |
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ERISA |
Employee Retirement Income Security Act -Protects retirement assets of Americans -Retirement funds can't be misused |
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IRA |
Individual Retirement Account -Tool used by individuals to earn funds for retirement savings -Tax and regulations different than regular funds |
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Insurable Interest |
Can only get insurance on things you have insurable interest on, for example your house. |
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Law of Large Numbers |
As sample size grows, the results tend to drift the average |
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Pension Benefit Guarantee Corporation |
PBGC -nonprofit run by government -guarantees payment of pensions -does have enough to do so |
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Pension Plan |
Funds set aside by employer for employees retirement, usually tax exempt |
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Property Insurance |
-insurance to reimburse renter/owner if theft or damage occurs |
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Reinsurance |
WTF? |
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Insurance Underwriter |
-Someone who assesses risk in insuring something and then sets the price of insurance |
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Call/Put Options |
Gives right but not obligation to: -Call = buy -Put = sell |
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American/Euro Options |
-American exercise strike price at any point -Euro only exercise at maturity |
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Futures |
Deal to buy something in the future -regulated, standardized (so not specific), get on exchange -less risky |
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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 |
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Commodity Futures Trading Commission |
-Try to ensure a fair and safe commodity, futures, and options market -Protect vs fraud and manipulation |
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Swap |
Is a derivative in which two cash flows are exchanged, usually with extra payment involved |
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CDS |
Credit Default Swap -swap, where seller will pay buyer if there's a default Problem in 2008 - not regulated -AIG way undervalued |
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Currency Swap |
Swap two currencies, not on balance sheets or transactions |
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Strike Price |
Price at which options can be exercised |
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Derivative |
Contract on performance of underlying asset -Futures, forwards, options, and swaps are all derivatives |
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Hedge |
Investment to offset potential losses -covaries negatively with asset you want it to offset the potential losses of |
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Interest Rate Swap |
IRS -highly liquid exchange of interest rate cash flows |
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Mark to Market |
Recording the price of security according to market value instead of book value |
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Open Interest |
An option has open interest until the strike price is executed, "open" until finalized |
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Transparency |
Extent to which investors have access to relevant financial information |
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UIP |
Uncovered Interest Rate Parity -predicts currency moves based on interest rates -almost always wrong (liquidity!) |
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PPP |
Purchasing Power Parity, price of goods should be the same in any currency |
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LOOP |
Law of one price |
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FOMC |
Federal Open Markets Committee - federal body that decides monetary policy (for example Janet Yellen and other governors of the fed) |
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Fed Funds Rate |
Or overnight rate, rate at which banks borrow reserves from one another, fed has complete control over this rate |
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Forward Guidance |
Influence future expected interest rates through statements, which effects long term rates |
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Short Term Interest Rates in 1930s, 1980, 2009 |
1930s: 0% 1980: 18% Now: 0% Like a pyramid |
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Long term interest rates right now |
10-year: 2% 30-year: 3% These seem low, but remember Germany is even lower (almost 0!) |
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Bookrunner |
Main underwriter of an IPO |
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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 |
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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) |
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Exchange Rates: Volatile or Stable? |
Volatile, 20% changes not uncommon in short run |
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Why doesn't UIP hold? |
-Leaves out liquidity - who wants British bonds? American $ is best |
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Euro to dollar exchange, low, high, now |
low: .80 high: 1.60 now: about 1.00 |
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US GDP |
$17 trillion |
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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 |
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Government debt to GDP ratio: standard or variety? |
Varies Japan has 200%, we have 100%, other places like Norway have hardly any |
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Market Cap of US and World |
US: $25 trillion World: $70 trillion |
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Largest banks have how much in assets? |
$3 trillion each |
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How many huge banks in US, and how much in assets do they have? |
4, with $1.5-2 trillion a piece |
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Insurance Companies/Pensions Manage how much money? |
$20-30 trillion |
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Excess Reserves |
$3 trillion, usually way lower |
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Fed Assets |
$4 trillion |
