BUSN 10 (Unit 2)
financial markets
markets that transfer funds from savers to borrowers
Dow Jones Industrial Average
an index that tracks stock prices of thirty large, well-known US corporations; tje most widely followed stock index
mutual fund
an institutional investor that raises funds by selling shares to investors and uses the accumulated funds to buy a portfolio of many different securities
market order
an order telling a broker to buy or sell a specific security at the best currently available price
limit order
an order to a broker to buy a specific stock only if its price is below a certain level, or to sell a specific stock only if its price is above a certain level
accredited investor
an organization or individual investor who meets certain criteria established by the SEC and so qualifies to invest in unregistered securities
stock exchange
an organized venue for trading stocks and other securities that meet its listing requirements
Standard and Poor's 500
a stock index based on prices of 500 major US corporations in a variety of industries and market sectors
financial diversification
a strategy of investing in a wide variety of securities in order to reduce risk
preferred stock
a type of stock that gives its holder preference over common stockholders in terms of dividends and claims on assets
financial services modernization act of 1999
an act that overturned the section of the banking act of 1933 that prohibited commercial banks from selling insurance or performing the functions of investment banks
underwriting
an arrangement under which an investment banker agrees to purchase all shares of a public offering at an agreed-upon price
electronic communication network
an automated, computerized securities trading system that automatically matches buyers and sellers, executing trades quickly and allowing trading when securities exchanges are closed
bond
a formal debt instrument issued by a corporation or government entity; formal IOU
registration statement
a long, complex document that firms must file with the SEC when they sell securities through a public offering
stock index
a statistic that tracks how the prices of a specific set of stocks have changed
public offering
a primary market issue in which new securities are offered to any investors who are willing and able to purchase them
private placement
a primary market issue that is negotiated between the issuing corporation and a small group of accredited investors
convertible securities
a bond or share of preferred stock that gives its holder the right to exchange it for a stated number of shares of common stock
savings and loan association
a depository institution that has traditionally obtained most of its funds by accepting savings deposits, which have been used primarily to make mortgage payments
credit union
a depository institution that is organized as a cooperative, meaning that it is owned by its depositors; not-for-profit, striving to pay higher interest rates on member deposits and charge lower interest rates on loans
securities act of 1934
a federal law dealing with securities regulation that established the Securities and Exchange Commission
securities broker
a financial intermediary that acts as an agent for investors who want to buy and sell financial securities such as corporate stock or bonds; earns commissions and fees for the services they provide
depository institution
a financial intermediary that obtains funds by accepting checking or savings deposits and uses these funds to make loans to borrowers; like commercial banks
securities dealer
a financial intermediary that participates directly in securities markets, buying and selling stocks and other securities for its own account; earns a profit by selling securities for higher prices than it paid to purchase them
investment bank
a financial intermediary that specializes in helping firms raise financial capital by issuing securities in primary markets
junk bonds
bonds issued by companies with poor credit ratings
preemptive right
if a corporation issues new stock, existing stockholders sometimes have this right to purchase new shares in proportion to their existing holdings before the stock is offered to other investors
bid price
indicates how much the market maker will pau per share to buy a stated quantity of stock
conversion ratio
indicates the number of shares of common stock exchanged for each convertible security
ask price
indicates the price per share at which a market maker will sell the stock
market makers
securities dealers that make a commitment to continuously offer to buy and sell the stock of a specific corporation listed on the NASDAQ exchange or traded on the OTC market
exchange traded fund
shares traded on securities markets that represent the legal right of ownership over part of a basket of individual stock certificates or other securities; allow investors to buy ownership in hat is called a market basket of many different securitiesl traded just like stocks
current yield
the amount of interest earned on a bond, expressed as a percentage of the bond's current market price
common stock
the basic form of ownership in a corporation; holders have voting rights, rights to dividends, capital gains, preemptive right, and right to residual claim on assets
maturity date
the date when a bond will come due
spread
the difference between the price one buys and sells a security
securities and exchange commission
the federal agency with primary responsibility for regulating the securities industry
securities act of 1933
the first major federal law regulating the securities industry; requires firms issuing new stock in a public offering to file a registration statement with the SEC
initial public offering
the first time a company issues stock that may be bought by the general public
coupon rate
the interest paid on a bond, expressed as a percentage of the bond's par value
banking act of 1933 (Glass-Steagall Act)
the law that established the Federal Deposit Insurance Corporation to insure bank deposits (insured depositors against financial losses when a bank failed); also prohibited commercial banks from selling insurance or acting as investment banks
federal reserve act of 1913
the law that established the federal reserve system as the central bank of the United States and gave the Fed the primary responsibility for overseeing our nation's banking system
primary securities market
the market where newly issued securities are traded; where the firms that issue securities raise additional financial capital
secondary securities market
the market where previously issued securities are traded
over-the-counter market
the market where securities that are not listed on exchanges are traded
capital gain
the return on an asset that results when its market price rises above the price the investor paid for it
NASDAQ
the stocks of many of today's high-profile technology companies, such as Apple, Google, and Microsoft, are traded on this market
par value
the value of a bond at its maturity; what the issuer promises to pay the bondholder when the bond matures
net asset value per share
the value of a mutual fund's securities and cash holds minus any liabilities, divided by the number of shares of the fund outstanding; the price at which shares of an open-end mutual fund are issued is based upon this.
financial intermediaries
the vast majority of financing happens indirectly with these in between savers and borrowers
institutional investors
these don't accept deposits but amass huge pools of financial capital from other sources and use these funds to acquire a portfolio of many different assets; invest heavily in corporate stock, corporate bonds, and government securities
open-end fun
this type of mutual fund doesn't have a fixed number of shares, nor are its shares traded like stocks; instead, the fund issues additional shares when demand increases and redeems old shares when investors want to cash in
closed-end fund
this type of mutual fund issues a fixed number of shares and invests the money received from selling these shares into a portfolio of assets
premium
when a bond's market price is above its par value
discount
when a bond's market price is below its par value