Chapter 20

Electronic communications networks

Electronic trading networks that allow institutional traders and some individuals to make securities transactions directly.

Investment bankers

Firms that act as intermediaries, buying securities from corporations and governments and reselling them to the public.

High-yield (junk) bonds

High-risk, high-return bonds.

Insider trading

The use of information that is not available to the general public to make profits on securities transactions.

Underwriting

The process of buying securities from corporations and governments and reselling them to the public, hopefully at a higher price; the main activity or an investment bankers.

Primary market

The securities market where new securities are sold to the public, usually with the help of investment bankers.

Secondary market

The securities market where old (already issued) securities are bought and sold, or traded, among investors

Debentures

Unsecured bonds that are backed only by the reputation of the issuer and its promise to pay the principal and interest when due.

Bond Ratings

letter grades assigned to bond issues to indicated their quality, or level of risk; assigned by rating agencies such as Moody's and Standard & Poor's (S&P's)

Net asset value

The price at which each share of a mutual fund can be bought or sold.

Exchange-traded fund

A basket of stocks in a category, such as industry sector, investment objective, or geographical area, or that track an index. ETFs are similar to mutual funds but trade like stocks.

Mutual fund

A financial-service company that pools its investors' funds to buy a selection of securities that meet its stated investment goals.

Interest

A fixed amount of money paid by the issuer of a bond to the bondholder on a regular schedule, typically every six months; stated as the coupon rate.

Stockbroker

A person who is licensed to buy and sell securities on behalf of clients

Regulation FD

An SEC regulation that requires public companies to share information with al investors at the same time, leveling the information playing field.

Standard * Poor's (S&Ps) 500 stock index

An important market index that includes 400 industrial stocks, 20 transportation stocks, 40 public utility stocks, and 40 financial stocks; includes NYSE, AMEX, and NASDAQ stocks.

Municipal Bonds

Bonds issued by states, cities, counties, and other state and local government agencies.

NASDAQ Composite Index

Broad-based market index that measures all NASDAQ domestic- and international-based common stocks listed on the NASDAQ stock market.

Options

Contracts that entitle holders to buy or sell specified quantities of common stocks or other financial instruments at a set price during a specified time.

Secured bonds

Corporate bonds for which specific assets have been pledged as collateral.

Convertible Bonds

Corporate bonds that are issued with an option that allows the bondholder to convert them into common stock.

Mortgage bonds

Corporate bonds that are secured by property, such as land, equipment, or buildings.

Securities

Investment certificates issued by corporations or governments that represent either equity or debt.

Institutional investors

Investment professionals who are paid to manage other people's money.

Futures contracts

Legally binding obligations to buy or sell specified quantities of commodities or financial instruments at an agreed on price at a future date.

Bear markets

Markets in which securities prices are falling.

Bull markets

Markets in which securities prices are rising.

Market Indexes

Measures of the current price behavior of groups of securities relative to a base value set at an earlier point in time; used to monitor general market conditions.

Circuit breakers

Measures that, under certain conditions, stop trading in the securities markets for a short cooling-off period to limit the amount the market can drop in one day.

Broker markets

National and regional securities exchanges on whose premises securities trading takes place.

Dealer markets

Securities markets where buy and sell orders are executed through dealers, or "market makers" linked by telecommunications networks.

Market averages

Summarizes the price behavior of securities based on the arithmetic average price of groups of securities at a given point in time; used to monitor general market conditions.

Price/earnings (P/E) ratio

The current market price of a stock divided by its annual earnings per share.

National Association of Securities Dealers Automated Quotation (NASDAQ) System

The first electronic-based stock market and the fastest-growing part of the stock market.

Securities and Exchange Commission

The main federal government agency responsible for regulating the U.S. securities industry.

Dow Jones Industrial Average (DJIA)

The most widely used market average; measures the stock prices of 30 large, well-known corporations that trade on the NYSE and NASDAQ