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Fundamentals of Investing Chapter 1: The Investment Environment

Terms in this set (20)

What is a direct and indirect investment?
A direct investment is when an investor directly owns a security of property. An indirect is when an investor owns an interest in a professionally managed collections of securities/property.
What are the three main types of securities?
Debt, equity, and derivative securities
What are three types of fixed income securities?
Bonds, convertible securities, and preferred stock
What are the three suppliers and demanders of funds?
Government, business and individuals
What are the two types of investors?
Individual and Institutional
What market are short term securities sold in?
Money market
What market are long term securities sold in?
Capital market
What is the primary market?
The market in which new issues of securities are sold in
What is the secondary market and what are some of its roles?
The market where securities are traded after they have been issued. It provides liquidity to security purchasers, and provides continuous pricing mechanism
Describe the three main types of secondary markets.
Security Exchange: Place where buyers and sellers are brought together
Nasdaq: Employs and all-electronic trading platform
OTC market: trading in smaller unlisted securities
What are the steps in investing?
1. Meeting investment prerequisites
2. Establishing goals
3. Adopting an Investment plan
4. Evaluating Investments
5. Selecting Suitable Investments
6. Construct a diversified portfolio
7. Manage the portfolio
What is an investment plan?
A written document that specifies the target date and risk tolerance for each goal.
What are the three types of income?
Active income, portfolio income, and passive income.
How are capital gains and losses taxed?
Capital assets held less than one year: ordinary income tax
Capital assets held longer than one year: special tax based on income
Capital losses can be used to offset ordinary income
Describe a career in Investment banking.
Assists organizations in raising capital.
Describe a career in Investment management.
Involves managing money for clients.
Describe a career in Commercial banking.
Employs more people than any other part of financial services industry.
Describe a career in Corporate finance.
Requires broad understanding of functional areas of a business.
Describe a career in Financial planning.
Professionals in this area often acquire the Certified Financial Planner® certification.
Describe a career in Insurance.
Usually involves risk management or asset management.
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