Term
| What is the purpose of a bank? |
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Definition
| To accept deposits and make loans |
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Term
| When interest rates rise what happens to bond prices? |
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Definition
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Term
| When foreign currency decreases in value, what happens? |
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Definition
| It becomes cheaper to import, the American dollar buys more, gas prices go down, the stock market goes up, and people travel more. All of the above |
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Term
| The Federal Reserve is responsible for what? |
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Definition
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Term
| What are the two major factors hindering under developed countries? |
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Definition
| Currency stability and risk |
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Term
| If inflation increases, what happens to interest rates? |
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Definition
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Term
| A bond rating of AAA and a Bond rating of BBB are indicative of what? Why? |
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Definition
| The higher the Alphabet rating (AAA) the lower the risk of investment |
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Term
| If the Government guarantees a company's bonds or debt, an investor can expect what? |
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Definition
| That the interest rate will be lower because the risk has been underwritten (lowered) |
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Term
| Interest rates are lower on Municipal Bonds because they are? |
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Definition
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Term
| What is the Efficient Market Hypothesis? |
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Definition
| It is impossible to "beat the market" because the stock market efficiency causes existing share prices to always incorporate and reflect all relevant information |
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Term
| The small firm effect on returns occurs because of what? |
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Definition
| It occurs because small firms have more risk associated with due to a lack of available capital |
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Term
| What is the January effect? |
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Definition
| It is when investors buy stocks in December seeking to create tax losses to offset Capital Gains (taxes in January) |
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Term
| Even though stock prices go up and down daily, what theory says that they will normalize? |
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Definition
| Normality - mean reversion |
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Term
| Stock prices rise and fall, what information will cause stock prices to react? |
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Definition
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Term
| What are the most important sources of funds for business? |
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Definition
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Term
| Restrictive Covenants try to mitigate what? |
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Definition
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Term
| Restrictive Covenants have the impact of doing what? |
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Definition
| They reduce Moral Hazard because it controls behavior |
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Term
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Definition
| Something that secures a debt |
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Term
| Moral Hazard occur because of what? |
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Definition
| Because of Principal - Agent Relationship |
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Term
| What's asymmetric information, and how is it created? |
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Definition
| By an imbalance of information |
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