Basic Financial Knowledge

S&P 500

Standard & Poor's 500 — aka the S&P 500 or just "the S&P" if you're cool — is the index of the largest 500 companies traded in the market. Those companies are picked by the same people who decide what companies are in the Dow. Why is it important? The S&P 500 and the Dow often move in the same direction but the S&P has a more inclusive gauge on the pulse of the market. Keep its six-decade history in mind to help you make personal spending, investing and voting decisions.

The Dow Jones Industrial Average (DJIA)

The Dow is the price-weighted average of stocks of 30 of the largest companies in the U.S. These companies aren't necessarily the 30 highest-priced stocks, but they are among the most well-established and influential companies in the market. So when news anchors say "the market is up today," they're usually referring to the Dow Jones average.

"Chinese" (don't say it) wall

The Gramm-Leach-Bliley Act (GLBA) of 1999 repealed the Glass-Steagall Act that prohibited banks, insurance companies, and financial services companies from acting as combined firms, such as banks offering insurance products. The Gramm-Leach-Bliley Act resulted in a surge of mergers and increased diversification of services, as well as an increase in fears and public scrutiny. One concern was the protection and sharing of confidential information and personal consumer data with those of contrary interests. In response to growing concerns, many companies adopted the Chinese Wall concept.

criticism of CFPB

They argue that its single-director structure and funding outside the congressional appropriations process — it is financed by the Federal Reserve — make it unaccountable, a core issue at the heart of the court case. DC circuit court of appeals upheld the fact that Pres cannot remove director during 5-year term (only can appoint a new one once term is over)

swaps

agreements to exchange two securities or currencies

merchant bank vs investment banking

1. merchant bank -- A bank that deals mostly in (but is not limited to) international finance, long-term loans for companies and underwriting. Merchant banks do not provide regular banking services to the general public. (investment bank). MORE INTERNATIONAL FINANCING FOCUS THAN INVESTMENT BANKS 2. M&As, IPOs, DCM

wealth management vs asset management

1. wealth management is more about High Net Worth Individuals... managing their portfolios 2. asset management is more institutional... managing the assets of a major institution like pension funds & corporations

custodian bank

A custodian bank, or simply custodian, is a specialized financial institution responsible for safeguarding a firm's or individual's financial assets and is not engaged in "traditional" commercial or consumer/retail banking such as mortgage or personal lending, branch banking, personal accounts, automated teller machines (ATMs) and so forth.

options

contracts that give investors the CHOICE to buy or sell stock and other financial assets at a fixed price at a fixed time

FDIC

Federal Deposit Insurance Corporation -- provides insurance for depositors in U.S. commercial banks and savings institutions.

chairman of the federal reserve

Jerome Powell

forwards vs futures

forwards -- agreement to buy/sell an asset at a fixed price and a fixed time t- tomato example futures -- ^ but standardized and sold on an exchange, so NOT private. **BOTH ARE OBLIGATORY unlike OPTIONS

bank failure

occurs when banks are unable to meet depositors' demands for their money

spread

the difference between the bid price (what the seller will sell it for) and ask price (what buyer is buying it for) -- the "spread" goes to the broker/specialist

Annuity

An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income stream for retirees. Annuities are created and sold by financial institutions, which accept and invest funds from individuals and then, upon annuitization, issue a stream of payments at a later point in time. The period of time when an annuity is being funded and before payouts begin is referred to as the accumulation phase. Once payments commence, the contract is in the annuitization phase.

bank capital

-resources a bank's owners have put into the institution. 1. by selling shares 2. by saving some of their profits/earnings in case loans to bank need to be paid off.... you use your capital to pay them off! even if your investments (which were capital + loans) did not make profit so the more capital you have on hand, the safer/more easily u can pay off debts tradeoffs: safety vs growth

the volcker rule

A federal regulation that prohibits banks from conducting certain investment activities with their own accounts, and limits their ownership of and relationship with hedge funds and private equity funds, also called covered funds. ***usually banks invest on clients' orders. however, here the trader assumes his own position with the capital of the firm. This means they will experience the full profit or loss of the position.// --Benefits of Proprietary Trading There are many benefits that proprietary trading gives a financial institution, most notably increased profits. When a brokerage firm or investment bank trades on behalf of its clients, it earns revenues in the form of fees and commission dollars. These dollars can either be soft or hard, but they are normally a very small percentage of the total amount invested or the gains generated. Proprietary trading, on the other hand, allows an institution to realize 100% of the gains earned from an investment. The second benefit is that the institution is able to stockpile an inventory of securities. This helps in two ways. First, any speculative inventory allows the institution to offer it to its clients when it might not have had it otherwise. Second, it helps these institutions prepare for down or illiquid markets when it becomes hard to purchase securities on the open market. The final benefit is associated with the second. Proprietary trading allows a financial institution to become an influential market maker by providing liquidity on a specific security or group of securities.

commercial bank

A financial institution that accepts demand deposits and makes loans and provides other services for the PUBLIC

securities

Financial instruments such as stocks, bonds that are traded on a stock exchange.

Glass-Steagall Act

Many people agreed that the stock market collapse, which took the Dow from a high of 381.17 on September 3, 1929, to a low of 41.22 on July 8, 1932, was the result of banks being overzealous with their investments. The idea was that commercial banks were taking on too much risk with their money, and their clients' money. The GSA made it harder for commercial banks, which were in the business of lending money, to invest speculatively. Banks were limited to making just 10% of their income from investments (except government bonds). The goal was to put limitations on these banks to prevent another collapse. The regulation was met with a lot of backlash, but it held firm until repeal in 1999.

The Dow Jones Industrial Average (DJIA)

The Dow is the price-weighted average of stocks of 30 of the largest companies in the U.S. These companies aren't necessarily the 30 highest-priced stocks, but they are among the most well-established and influential companies in the market. So when news anchors say "the market is up today," they're usually referring to the Dow Jones average. But two names you won't see in the Dow are Amazon and Google (or rather, Alphabet, Google's parent company). The S&P Dow Jones Committee says adding stocks with four-digit share prices would distort the index.

NASDAQ Composite

The Nasdaq Composite includes all of the stocks traded on the Nasdaq Stock Exchange, which is confusing because both the exchange and the index can be referred to as just "the Nasdaq." The Nasdaq is one of the largest stock exchanges in the world, second only to the New York Stock Exchange (NYSE). The companies that make up the S&P 500 and Dow Jones are traded on both the NYSE and Nasdaq. Nasdaq is the home of the technology market. Half of the exchange is made up of tech companies, including Apple, Google, Amazon and Microsoft. Why is it important? The NYSE is your grandmother's stock market, less volatile and more reliable. The Nasdaq trades tech companies that are growing, innovative and slightly unpredictable. If you want more technology companies in your portfolio, now you know where to find them.

Nikkei 225

The Nikkei 225 Stock Average is Japan's premiere stock index. It includes the top 225 blue-chip companies listed on the Tokyo Stock Exchange. The influential index is considered the barometer of Japan's economy and stock market. Think of it as the Japanese equivalent to the U.S.'s Dow Jones Industrial Average (DJIA). Indeed from 1975 to 1985, it was called the Nikkei Dow Jones Stock Average.

blue-chip company

a listed company which is thought to be a safe investment and which is likely to make a profit Examples of blue chip stocks include Coca-Cola, Disney, Intel, and IBM.

stock index

a statistic that tracks how the prices of a specific set of stocks have changed; a stock index measures a particular group of companies in the stock market. It's the (weighted) average price of the stocks for companies in the index.

Economic Growth, Regulatory Relief, and Consumer Protection Act (the "Reform Act" or the "Economic Growth Act")

supp'd by Reps and a handful of purple-state Dems, signed into law on May 24 primarily designed to help small and medium sized banks free up capital.... to create a better lending environment Among the provisions: Easier mortgage regulations for small banks new exemptions from tougher oversight, exemption from certain reporting requirements, exemption from Volcker rule relaxed capital and liquidity requirements for some of the nation's biggest financial institutions. One provision would make it easier for giant banks to buy municipal debt to satisfy post-crisis rules requiring them to hold assets that they can quickly turn into cash during a meltdown. includes some consumer protection safeguards for veterans and students with loans CHANGES CAPITAL REQUIREMENTS FOR CUSTODIAN BANKS... question is are large banks like GS, which do custodian banking, also safe under this law or nah????

Dodd-Frank Act

~2,300 pages~ a law enacted in the aftermath of the financial crisis of 2008-2009 that strengthened government oversight of financial markets and placed limitations on risky financial strategies such as heavy reliance on leverage 1. Capital Requirements The general idea behind bank regulations is that bank failures are extremely costly events that can pose serious risks to the entire economy, so we should regulate them to ensure their stability. One of the most universally agreed upon ways to improve the stability of the financial system is requiring banks to hold higher amounts of capital. Allows banks to remain solvent even when their assets depreciate 2. The Volcker Rule A federal regulation that prohibits banks from conducting certain investment activities with their own accounts, and limits their ownership of and relationship with hedge funds and private equity funds, also called covered funds. ***usually banks invest on clients' orders. however, here the trader assumes his own position with the capital of the firm. This means they will experience the full profit or loss of the position.// --Benefits of Proprietary Trading There are many benefits that proprietary trading gives a financial institution, most notably increased profits. When a brokerage firm or investment bank trades on behalf of its clients, it earns revenues in the form of fees and commission dollars. These dollars can either be soft or hard, but they are normally a very small percentage of the total amount invested or the gains generated. Proprietary trading, on the other hand, allows an institution to realize 100% of the gains earned from an investment. The second benefit is that the institution is able to stockpile an inventory of securities. This helps in two ways. First, any speculative inventory allows the institution to offer it to its clients when it might not have had it otherwise. Second, it helps these institutions prepare for down or illiquid markets when it becomes hard to purchase securities on the open market. The final benefit is associated with the second. Proprietary trading allows a financial institution to become an influential market maker by providing liquidity on a specific security or group of securities. 3. the CFPB part of Dodd-Frank was the creation of the Consumer Financial Protection Bureau, an quasi-independent agency with wide (& more streamlined) powers to regulate and punish the misconduct of a wide range of institutions. a fellow and research director at the Brookings Center on Regulation and Markets, compares the CFPB to Google and Yelp, as it provides a central place for information and reviews to help people make informed choices. (public complaint database)