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46 terms

Investments Ch 1-3

STUDY
PLAY
real asset
A used to produce good/service
financial asset
claims on real A OR income made from them
fixed income (debt) security
pay specific cash flow over specific period
equity
ownership share in a corp
derivative securities
securities that have payoffs depending on the value of other A
asset allocation
allocating an investment portfolio across broad A classes
security selection
choosing specific securities w/in each A class
passive mgmt
buying/holding a diversified portfolio w/o looking for mispriced securities
active mgmt
looking for mispriced securities / forecast market trends
financial intermediaries
institutions, connecting borrowers & lenders, accept funds from lenders & loaning funds to borrowers
investment bankers
sell new securities to public, they underwrite the issue
private equity
investing in co's not traded on stock exchanges
securitization
pooling loans together, which can now trade as any other security
systematic risk
risk of breakdown in entire market
money markets
S-T, HIGHLY liquid, low-risk D instruments
Treasury bills
S-T, govt securities, issued at discount, return face value at maturity
certificate of deposit
bank time deposit, penalty for taking out early
commercial paper
S-T unsecured D, issued by large corps. PRO: Doesn't need approval from SEC, cheap to issue
bankers' acceptance
an order to a bank by customer, pay sum of $$$ at future date
Eurodollars
dollar ($) deposits at foreign banks, foreign branches of American banks
repos (repurchase agreements)
S-T sales of govt securities w/ an agreement to re-buy the securities at HIGHER P. Used for short-term capital raising, done on an overnight basis
Federal Funds
funds in the accts of commercial banks at Federal Reserve
LIBOR
the lending rate b/w banks in London
Treasury notes / bonds
D obligations of federal govt w/ original maturities of 1+ yrs
municipal bonds
tax-exempt bonds, St & local govts
corporate bonds
LTD, issued by PRIVATE corp, usually semiannual coupons
common stock
ownership, PUBLIC corp, voting rights & maybe dividends
preferred stock
nonvoting shares, usually fixed stream of dividends
price-weighted index
Dow Jones
value weighted index
S&P 500
derivative A
security w/ a payoff, depending on the P of OTHER securities
call option
right to buy an A at specific P on/before expiration date
put option
right to sell an A at specific P on/before expirationdate
futures contract
traders, purchase/sell an A at agreed P at specific date
private placement
primary offerings (IPO), shares sold directly to small group of institutional / wealthy investors
underwriters
buy securities from issuing co, then THEY sell to the public
prospectus
description of the firm, what security it's issuing
limit buy/sell order
order, specifies P which investor is willing to buy/sell security
stop order
trade won't be executed UNTIL stock hits P limit
ECN
computer, direct trading w/o need for market makers
latency
time it takes to accept, process, deliver a trading order
algo trading
computer programs, quick decisions
high frequency rading
subset of algo trading
blocks
single transactions, 10K+ stocks bought/sold
dark pools
electronic networks, anonymously buy/sell BLOCKS of securities
margin
securities bought w/ $$$ borrowed from broker. margin = net worth of the investor's acct