Term
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Definition
The current commitment of money or other
resources in the expectation of reaping future benefits. |
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Term
| Do financial assets generate net income to the economy? |
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Definition
| No, they simply define the allocation of income or wealth among investors |
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Term
| What do financial markets allow participants to do? |
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Definition
1. To time their consumption: decide when they want to spend money earned
2. To choose the level of risk they are taking according to individual preference
3. To take ownership without active participation (separation of ownership & mgt) |
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Term
| What makes up an assets value? |
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Definition
| The present value of expected future cash flows discounted using the investor's required rate of return |
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Term
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Definition
Money or near money are used as medium of exchange or in
settlement of transactions |
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Term
| Divisibility and Denomination |
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Definition
Divisibility relates to the minimum size at
which a financial asset can be liquidated and exchanged for money. For some financial assets, the extent of divisibility depends on their denomination, eg many bonds come in $1000 denominations |
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Term
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Definition
Refers to the cost of investing in a financial asset and then
getting out of it and into cash |
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Term
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Definition
When the final payment is made, and the possibility of
early termination either because of bankruptcy or clauses in contract |
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Term
| Functions of a financial intermediary |
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Definition
1. Pool the resources of many small investors and are therefore able to lend
considerable sums to large borrowers.
2. Better able to diversify risks because they lend to many borrowers and
can therefore accept loans that are risky
3. Reduce transactions costs by developing expertise and taking advantage
of economies of scale
4. Provide liquidity services that make it easier for customers to conduct
transactions
5. Build their expertise through the volume of business they do |
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Term
| What do securities represent? |
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Definition
1. claims to specified cashflows: Bonds, Bankers Acceptance, Bank checks, Certificates of Deposits (CDs), T-bills, T-notes & T-bonds, Commercial
paper, Preferred stock
2. rights associated with ownership: common stock, preferred stock
3. claims to assets: Secured bonds |
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Term
| What does the money market consist of? |
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Definition
1. very short-term securities that usually are highly liquid & marketable
2. Many of these securities trade in large denominations and are out of the reach of individual investors |
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Term
| Annualized Yield Equation |
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Definition
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Term
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Definition
Buy or sell orders to be executed immediately (ie at current
prices) |
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Term
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Definition
| Buy or sell a set number of shares at a specified price or better. Limit orders cost more than market orders and are especially useful on a low-volume or highly volatile stock |
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Term
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Definition
| expire at the close of trading day |
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Term
| Open or good-till canceled orders |
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Definition
| remain in force for up to 6 mths unless cancelled by the customer |
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Term
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Definition
Sell a security when it reaches a certain price. It is
designed to limit an investor's loss on a security position |
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