Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
99 Cards in this Set
- Front
- Back
Investment
|
commitment of current resources in the expectation of deriving greater resources in the future
|
|
Real assets
|
assets used to produce goods and services
|
|
Financial assets
|
claims on real assets or the income generated by them.
|
|
Fixed income securities
|
pay a specified cash flow over a specific period
|
|
Equity
|
an ownership share in a corporation
|
|
Derivative securities
|
securities providing payoffs that depend on the values of other assets
|
|
Agency problem
|
conflicts of interest between managers and stockholders
|
|
Asset allocation
|
allocation of an investment portfolio across broad asset classes
|
|
Security selection
|
choice of specific securities within each asset class
|
|
Security analysis
|
analysis of the value of securities
|
|
Risk-return tradeoff
|
assets with higher expected returns have greater risk
|
|
Passive management
|
buying and holding a diversified portfolio without attempting to identify mis-priced securities
|
|
Active management
|
attempting to identify mis-priced securities or to forecast broad market trends
|
|
Financial intermediaries
|
institutions that connect borrowers and lenders by accepting funds from lenders and loaning funds to borrowers
|
|
Investment companies
|
firms managing funds for investors. An investment company may manage several mutual funds
|
|
Investment bankers
|
firms specializing in the sale of new securities to the public, typically by underwriting the issue
|
|
Primary market
|
market in which new issues of securities are offered to the public
|
|
Dealer Markets
|
markets in which traders specializing in particular assets buy and sell for their own accounts
|
|
Secondary markets
|
already existing securities are bought and sold on the exchanges or in the OTC market
|
|
Auction market
|
a market where all traders meet at one place to buy or sell an asset
|
|
Globalization
|
tendency toward a worldwide investment environment, and the integration of national capital markets
|
|
Pass through securities
|
pools of loans sold in one package. Owners of pass-throughs receive all of the principal and interest payments made by the borrowers
|
|
Securitization
|
pooling loans into standardized securities backed by those loans, which can then be traded like any other security
|
|
Bundling, unbundling
|
creation of new securities either by combining primitive and derivative securities into one composite hybrid or by separating returns on an asset into classes
|
|
Financial engineering
|
process of creating and designing securities with custom-tailored characteristics
|
|
Money markets
|
include short-term highly liquid, and relatively low-risk debt instruments
|
|
Capital markets
|
include longer-term relatively riskier securities
|
|
Treasury bills
|
short term government securities issued at a discount from face value and returning the face amount at maturity
|
|
COD
|
a bank time deposit
|
|
Commercial paper
|
short-term unsecured debt issued by large corporations
|
|
Bankers’ acceptance
|
an order to a bank by a customer to pay a sum of money at a future date
|
|
Eurodollars
|
dollar-denominated deposits at foreign banks or foreign branches of American banks
|
|
Repurchase agreements
|
short-term sales of government securities with an agreement to repurchase the securities at a higher price
|
|
Federal funds
|
funds in the accounts of commercial banks at the federal reserve bank
|
|
LIBOR
|
lending rate among banks in the London market
|
|
Treasury notes or bonds
|
debt obligations of the federal government with original maturities of 1 year or more
|
|
Municipal bonds
|
tax-exempt bonds issued by state and local governments
|
|
Corporate bonds
|
long-term debt issued by private corporations typically paying semiannual coupons and returning the face value of the bond at maturity
|
|
Common stocks
|
ownership shares in a publicly held corporation. Shareholders have voting rights and may receive dividends
|
|
Preferred stock
|
nonvoting shares in a corporation, usually paying a fixed stream of dividends
|
|
Price-weighted average
|
an average computed by adding prices of the stocks and dividing by a divisor
|
|
Market value-weighted index
|
computed by calculating a weighted average of the returns of each security in the index, with weights proportional to outstanding market value
|
|
Equally weighted index
|
an index computed from a simple average of returns
|
|
Derivative asset or contingent claim
|
a security with a payoff that depends on the prices of other securities
|
|
Call option
|
the right to buy an asset at a specified price on or before a specified expiration date
|
|
Put option
|
the right to sell an asset at a specified exercise price on or before a specified expiration date
|
|
Futures contract
|
obliges traders to purchase or sell an asset at an agreed upon price at a specified future date
|
|
IPO
|
first sale of stock by a formerly private company
|
|
Underwriters
|
they purchase securities from the issuing company and resell them
|
|
Prospectus
|
a description of the firm and the security it is issuing
|
|
Private placement
|
primary offerings in which shares are sold directly to a small group of institutional or wealthy investors
|
|
Stock exchanges
|
secondary market where already issued securities are bought and sold by members
|
|
Over the counter market (OTC)
|
an informal network of brokers and dealers who negotiate sales of securities
|
|
NASDAQ
|
computer linked price quotation system for the OTC market
|
|
Bid price
|
price at which a dealer is willing to purchase a security
|
|
Ask price
|
price at which a dealer will sell a security
|
|
Third market
|
trading of exchange listed securities on the OTC market
|
|
Fourth market
|
direct trading in exchange listed securities between one investor and another without the benefit of a broker
|
|
Electronic communication networks (ECNs)
|
computer networks that allow direct trading without the need for market makers
|
|
Specialist
|
a trader who makes a market in the shares of one or more firms and who maintains a fair and orderly market by dealing personally in the market
|
|
Block transactions
|
large transactions in which at least 10,000 shares of stock are bought or sold
|
|
Program trade
|
coordinated sale or purchase of a portfolio of stocks
|
|
Bid-ask spread
|
the difference between a dealer’s bid and asked price
|
|
Margin
|
describes securities purchased with money borrowed in part from a broker. The margin is the net worth of the investor’s account
|
|
Short sale
|
sale of shares not owned by the investor but borrowed through a broker and later purchased to replace the loan
|
|
Inside information
|
nonpublic knowledge about a corporation possessed by corporate officers, major owners, or other individuals with privileged access to information about the firm
|
|
Investment companies
|
financial intermediaries that invest the funds of individual investors in securities or other assets
|
|
Net asset value (NAV)
|
assets minus liabilities expressed on a per share basis
|
|
Unit investment trusts
|
money pooled from many investors that is invested in a portfolio fixed for the life of the fund
|
|
Open-end funds
|
a fund that issues or redeems it shares at net asset value
|
|
Close-end funds
|
a fund whose shares are traded at prices that can differ from net asset value. Shares may not be redeemed at NAV
|
|
Load
|
sales commission charged on a mutual fund
|
|
Hedge fund
|
a private investment pool, open to wealthy or institutional investors, that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds
|
|
12b-1 fees
|
annual fees charged by a mutual fund to pay for marketing and distribution costs
|
|
Soft dollars
|
the value of research services brokerage houses provide free of charge in exchange for the investment manager’s business
|
|
Turnover
|
ratio of the trading activity of a portfolio to the assets of the portfolio
|
|
Exchange-traded funds
|
offshoots of mutual funds that allow investors to trade index portfolios
|
|
Holding period return
|
rate of return over a given investment period
|
|
Arithmetic average
|
the sum of returns in each period divided by the number of periods
|
|
Geometric average
|
the single per-period return that gives the same cumulative performance as the sequence of actual returns
|
|
Dollar-weighted average return
|
the internal rate of return on an investment
|
|
Scenario analysis
|
process of devising a list of possible economic scenarios and specifying the likelihood of each one, as well as the HPR that will be realized in each case
|
|
Probability distribution
|
list of possible outcomes with associated probabilities
|
|
Expected return
|
mean value of the distribution of holding period returns
|
|
Variance
|
expected value of the squared deviation from the mean
|
|
Standard deviation
|
the square root of the variance
|
|
Risk-free rate
|
rate of return that can be earned with certainty
|
|
Risk premium
|
expected rate of return in excess of that on risk-free securities
|
|
Excess return
|
rate of return in excess of the T-bill rate
|
|
Risk aversion
|
reluctance to accept risk
|
|
Inflation rate
|
the rate at which prices are rising, measured as the rate of increase of the CPI
|
|
Nominal interest rate
|
interest rate in terms of nominal dollars (not adjusted for purchasing power)
|
|
Real interest rate
|
excess of the interest rate over the inflation rate. The growth rate of purchasing power derived from an investment
|
|
Asset allocation
|
portfolio choice among broad investment class
|
|
Complete portfolio
|
entire portfolio including risky and risk-free assets
|
|
Capital allocation line
|
plot of risk-return combinations available by varying portfolio allocation between a risk-free asset and a risky portfolio
|
|
Reward to variability ratio
|
ratio of risk premium to standard deviation
|
|
Passive strategy
|
investment policy that avoids security analysis
|
|
Capital Market line
|
capital allocation line using the market index portfolio as the risky asset
|