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85 Cards in this Set
- Front
- Back
Define Money.
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anything that is generally accepted as a means of payment
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Define Liquidity.
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ease w/ which an asset may be converted into money (w/out loss, depth of fin mkt.)
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Define M-1.
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sum of coins, currency, & demand deposits, traveler’s checks (in circulation)
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Define M-2.
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M1 + savings accounts, & small certificates of deposit (less than $100k)
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Yield Curve
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graph relating int. rates & the term to maturity.
Y-axis = percent, X-axis = term Negative slope = short-term rates exceed long-term rates – expect lower interest rates (returns) Positive slope = Expecting Higher interest rates (returns) |
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IPO
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Initial Public Offering – first sale of common stock to the general public
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SEC
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Securities & Exchange Commission – govt. agency that enforces the fed. securities laws.
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SIPC
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Securities Investor Protection Corporation – fed agency that insures investors against failure by brokerage firms
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Investment banker
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middleman who brings together investors & firms (& govts) issuing new securities.
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Underwriting
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purchase of an issue of new securities for subsequent sale by investment bankers; the guaranteeing of the sale of a new issue of securities.
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Best efforts agreement
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contract w/ investment banker for sale of securities in which investment banker does not guarantee sale but does agree to make best effort to sell the securities.
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Private placement
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nonpublic sale of securities to a financial institution
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Specialist
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market maker on an organized exchange
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Bid & Ask
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prices quoted by market makers at which they are willing to buy & sell securities
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Spread
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difference between the bid & ask prices
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Money
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anything that is generally accepted as a means of payment.
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Liquidity
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ease w/ which an asset may be converted into money (w/out loss, depth of fin mkt.)
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Money supply
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total amount of money in circulation (traditional measure = M1; broad def = M2)
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M1
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sum of coins, currency, & demand deposits, traveler’s checks (in circulation)
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M2
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M1 + savings accounts, & small certificates of deposit (less than $100k)
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Term structure of interest rates
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relationship between yields (int. rates) & time to maturity (term) for debt w/ a given level of risk
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Yield curve
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graph relating int. rates & the term to maturity. Y-axis = % , X-axis = term
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Neg slope =
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short-term rates exceed long-term rates – expect lower int rates (returns)
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Pos slope =
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Expecting Higher int rates (returns)
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Short-term =
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1 year or less
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Long-term =
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more than a year
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Role of interest rates
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cost of credit (as a %), long-term &/or high risk = high interest rates
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Investment banker
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middleman who brings together investors & firms (& governments) issuing new securities.
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IPO
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(Initial Public Offering) first sale of common stock to the general public
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Underwriting
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purchase of an issue of new securities for subsequent sale by investment bankers; the guaranteeing of the sale of a new issue of securities.
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Originating house
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investment banker who makes an agreement to sell a new issue & forms a syndicate to sell the securities.
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Syndicate
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selling group formed to market a new issue of securities
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Best efforts agreement
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contract w/ investment banker for sale of securities in which investment banker does not guarantee sale but does agree to make best effort to sell the securities.
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Preliminary prospectus (red herring)
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initial doc detailing fin condition of a firm that must be filed w/ SEC to register new issue of securities.
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SEC
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(Securities & Exchange Commission) govt. agency that enforces fed. securities laws.
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Registration
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process of filing info w/ SEC concerning a proposed sale of securities to general public
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Private placement
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nonpublic sale of securities to a financial institution
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Full disclosure laws
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fed. securities laws requiring timely disclosure of info that may affect value of a firm’s securities.
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10-k report
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required annual report filed w/ the SEC by publicly held firms
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SIPC
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(Securities Investor Protection Corporation) fed agency that insures investors against failure by brokerage firms
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Specialist
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market maker on an organized exchange
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Bid & Ask
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prices quoted by market makers at which they are willing to buy & sell securities
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Round lot
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normal unit of trading in a security (usually 100 shares)
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Odd lot
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unit of trading that is less than a round lot
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Spread
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difference between the bid & ask prices
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Market order
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order to buy or sell a security at the best current price
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Day order
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order to buy/sell at specified price, canceled at end of day if not executed
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Good-till-cancelled order
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order to buy/sell at specified price, remains effective until broker executes or investor cancels
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Commission
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payment to broker for executing an investor’s buy/sell orders.
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Settlement date
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date by which payment for the purchase of securities must be made; date by which delivery of securities sold must be made
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Margin
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investor’s equity in a security position
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Margin requirement
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min % set by Fed. Reserve, of the total price that must be put up to buy securities
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Financial leverage
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use of borrowed funds to magnify the % return on an investment
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Street name
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registration of securities in broker’s name instead of in the buyer’s name
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Long position
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purchase of securities in anticipation of a price increase
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Short position
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sale of borrowed securities in anticipation of a price decrease
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ADR's
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(American Depository Receipts) receipts issued for foreign securities held by a trustee (not foreign shares but receipts for stock)
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Eurobonds
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bonds sold in a foreign county but denominated in the currency of the issuing firm
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EMH
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(Efficient market hypothesis) theory that securities prices correctly measure current value of a firm’s future earnings & divs
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CD
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(Certificate of deposit) time deposit issued by a bank w/ a specified int rate & maturity
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Negotiable CD
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CD issued in amounts of $100K or more whose terms are individually negotiated between bank & saver & for which there exists a 2ndary mkt.
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Required reserves
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funds that banks must hold against deposit liabilities
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Excess reserves
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reserves held by a bank in excess of those it must hold to meet its reserve requirement
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Correspondent bank
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major bank w/ which a smaller bank has a relationship to facilitate check clearing & to serve as a depository for reserves
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Secondary reserves
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short-term securities, especially Treasury bills, held by banks to increase their liquidity
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Money market mutual fund
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investment company that invests solely in short-term money market instruments
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T-bill
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(U.S. Treasury bill) short-term debt instrument issued by the fed. govt.
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Commercial paper
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unsecured short-term promissory notes issued by the most creditworthy corporations
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Repurchase agreement (repo)
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sales of short-term security where seller agrees to buy back security at a specified price
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Banker’s acceptance
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short-term promissory note guaranteed by a bank
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Tax anticipation note
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short-term govt. security secured by expected tax revenues
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Monetary policy
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mgt of money supply for purpose of maintaining stable prices, full employment, & economic growth.
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Board of governors
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controlling body of Fed Reserve, members appointed by Pres of U.S.
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District bank
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1 of 12 banks that compose the Federal Reserve
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FOMC
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(Federal Open Market Committee) part of Fed. Res., establishes & executes monetary policy
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Federal funds market
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market in which banks borrow & lend excess reserves
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Federal funds rate
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interest rate charged by banks on overnight loans of reserves
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Discount rate
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interest rate charged banks for borrowing reserves from Fed. Res.
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Open market operations
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buying/selling of U.S. Treasury securities by the Fed. Res.
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Fiscal policy
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taxation, expenditures, & debt management by the federal govt.
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Deficit
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disbursements exceeding receipts
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Surplus
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receipts exceeding disbursements
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Inflation
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general increase in prices w/ special emphasis on increases in consumer prices
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Deflation
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general decline in prices
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Recession
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period (at least 6 mo) of increase unemployment & negative economic growth
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