Financial Markets Ch.1

Front 1

surplus units

Back 1

participants who receive more money than they spend. They provide their net savings to financial markets

Front 2

deficit units

Back 2

participants who spend more than they receive. They access funds from the financial markets so that they can spend more money than they can receive

Front 3

securities

Back 3

certificates that represent a claim on the issuer

Front 4

debt securities

Back 4

certificates that represent debt incurred by the issuer. Deficit unites issue the securites to surplus units. They have a maturity date when surplus units can redeem them and receive face value

Front 5

Is the US gov't an example of a surplus unit or deficit unit?

Back 5

deficit b/c they issue Treasury securities to net savers

Front 6

Money Markets

Back 6

financial markets that facilitate the flow of short term funds (maturities one year or less)

Front 7

Capital Market

Back 7

financial markets that facilitate in the flow of long term funds

Front 8

Primary Market

Back 8

markets that facilitate in the issuance of new securities

Front 9

Secondary Market

Back 9

markets that facilitate the trading of existing securities which allows for change in ownership of the securities

Front 10

liquidity

Back 10

the degree to which a security can easily be sold without a loss in value. This is an important characteristic of securities traded in secondary markets

Front 11

3 segments of finance

Back 11

1) corporate finance
2) investment management
3) financial markets and institutions

Front 12

financial markets

Back 12

attract funds from investors and channel the funds to corporations. They serve as a means for corporations to borrow funds on a short term basis to support their operations

Front 13

investment management

Back 13

decisions by investors regarding how they invest their funds

Front 14

classifications for securities

Back 14

1) money market securities
2) capital market securities
3) derivative securities

Front 15

capital market securities

Back 15

securities with a maturity of more than one year, they are commonly issued to finance the purchase of capital assets such as buildings, equipment, machinery, etc.

Front 16

3 common types of capital market securities

Back 16

1) bonds
2) mortgages
3) stocks

Front 17

money market securities

Back 17

debt securities that have a maturity of one year or less. They have relatively high liquidity, low expected return, and low risk.

Front 18

Common types of money market securities

Back 18

1) treasury bills
2) CDs
3) commercial paper (issued by corporations)

Front 19

bonds

Back 19

long term debt securities issued by corporations and government agencies to support their operations. Provide interest income every six months. At maturity, paid principal.

Front 20

mortgage

Back 20

long term debt obligations created to finance the purchase of real estate

Front 21

equity securities

Back 21

stocks that are certificates representing the partial ownership in the corporation that issues them. They have no maturity. Stockholders receive partial earnings through dividends. Classified as a capital market security.

Front 22

Equity securities have a higher expected return which means they also have...

Back 22

higher risk

Front 23

derivative securities

Back 23

financial contracts whose values are derived from the values of the underlying assets. This type of security can cause investors to engage in speculation and risk management

Front 24

behavioral finance

Back 24

application of psychology to make financial decisions

Front 25

Sarbanes and Oxley Act

Back 25

passed to require more firms to provide more complete and accurate financial information

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privatization

Back 26

sale of government owned firms to individuals

Front 27

What are some reasons that financial markets have devoloped more slowly than others?

Back 27

1) issuers of financial debt do not provide much financial information to indicate how they intend to repay the surplus units who would buy the securities

2) regulatory agencies provide very little enforcement to ensure that financial information is correct

3) businesses that do not repay the surplus units are rarely prosecuted

4) courts in these countries do not provide an efficient system that surplus units can use to obtain the funds they believe they are owed

Front 28

foreign exchange market

Back 28

facilitates the exchange of currencies. Many commercial banks and other financial institutions act as intermediaries in this market by matching up participants who want to exchange one currency for another.