FINANCE 355 - Chapter 1

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Mutual fund

corporations that accept money from savers and then use these funds to buy stocks, long-term bonds, short term debt instruments issued by government or business units.

Exchange traded funds

investment built like a mutual fund but trades like individual stock.

Spot Market

markets in which assets are brought or sold for "on-the-spot" delivery.

Future market

markets in which participants agree today to buy or sell an asset at some future date

Private market

markets in which transactions are worked out directly between two parties

Primary market

markets where corporations raise capital by issuing new securities

Private equity company

similar to hedge funds, but rather than buy stocks of a firm, they buy and manage the entire firm

Hedge funds

similar to mutual funds, largely unregulated by the SEC

equilibrium

situation in which the actual market price equals the intrinsic value

Public market

Markets in which standardized contracts are traded on organized exchanges.

Money market

markets in which funds are borrowed or loaned for short periods

Financial services corporation

A firm that offers a wide range of financial services, including investment banking, brokerage operations, insurance, and commercial banking.

Over the counter market

A large collection of brokers and dealers connected electronically through telephones and computers, that provides for trading in unlisted securities.

Financial asset market

Consists of stocks, bonds and derivatives

Secondary market

Markets in which securities and other financial assets are traded among investors after they have been issued by corporations

Capital Market

Markets where interest rates, along with bond an stock prices are determined

Managements Primary Goal

Maximize the long run value of the firm's common stock while also being socially responsible

Investment bank

Underwrites and distributes new investment securities.

Pension fund

a fund set up by the employers for their employees.

Stock intrinsic value

estimation of the stocks "true" value

Corporate finance

focuses on decision relating to how much and what type of assets to acquire, how to raise the capital to purchase those assets, and how to run a firm to maximize value.

Dealer Market

includes all facilities that are needed to conduct security transactions not conducted on the physical location exchanges.

Broker market

need estate agent, do not need to maintain inventory, matches buyers and sellers.

Stock Market price

observable price in the market

Physical locations exchanges

tangible entities, formal organizations having tangible physical locations that conduct auction markets in designated securities.

Marginal tax rate

the tax rate applicable to the next dollar earned

Commercial bank

the traditional department store of finance serving for a variety of savers and borrowers.

Average tax rate

total taxes paid divided by taxable income


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