Financial Sector Test

Common stock?

(gets dividends, every shareholder gets same amount of money for each share you hold), you get to vote, capital gain, generally have bigger capital gain, want to make big bucks, not so worried about steady income

Criteria for investment?

Rate of return Percent increase (decrease) per year Risk- how secure is it? Liquidity- how fast can you turn it into money (m1:currency +demand deposits)?

Equity market- stocks?

You own part of the corporation and they don't owe you money

Hedge investment?

betting on two things (first choice and second choice) to minimize losses, makes it safer

Capital gain?

buy stocks low, sell high

Secondary Markets?

buying and selling from other investors opposed to directly from the company

Stock split?

cutting price in half but doubling shares, makes the stock more sellable, lower price can appeal to more people

Mutual fund positives?

diversify, expert help

Stocks?

great rate of return, risk: you can loose all your money if company does bad, stocks are somewhat liquid (you can sell them easily, but if you can't find anyone to buy it then price will go down, stock value based on how much people will pay for it)

Bear market?

market is down

Bull market?

market is up

Preferred stocks?

no vote, you get paid dividends first, when dividends are cut, common stocks are cut more, people looking to have steady income, IPO (initial public offering)

CD (certificate of deposit)?

not good liquidity, high rate of return, fixed time, very secure (in the bank, just like bank account)

Board of directors?

oversee the company to make sure things are going well for stockholders?

Mutual fund negatives?

pay fees, give up control

Savings?

save now, compound interest every year makes much more money later

US Gov. Bonds?

secure, backed by U.S. government

Selling short?

selling stock before you own it, sell them when price is high and then buy them later when prices are lower

Dividends?

share of profit

Securities and exchange commission?

they go after people who commit insider trading and other related crimes

Why do people invest?

to make money

Checking account?

very secure-no risk, government backed (by FDIC- federal deposit insurance corporation), perfectly liquid (demand deposits, its already money, write a check to spend it immediately), but it has very bad rate of return---maybe even negative due to inflation

Correction?

when stock prices falling

Buy on margin?

you don't pay for all the stock, put down % of cost of the stock and borrow money for the rest