The flashcards below were created by user
ropa1712
on FreezingBlue Flashcards.
-
Money Market Instruments
- Treasury Bills
- Certificates of Deposit
- Commercial Paper
- Bankers' Acceptances
- Eurodollars and LIBOR
- Repurchase Agreements (RPs) and Reverse RPs
- Federal Funds*
- Brokers' Calls*
*not in notes
-
Cash
refers to cash in hand and in bank account, as well as cash equivalents which are Money Market Instruments including short term, marketable, liquid, low-risk debt securities.
-
Money Markets
a subsector of the debt market; include short-term (typically less than 1 yr to maturity), highly liquid and marketable, and relatively low-risk debt instruments; often considered cash equivalents
-
Money Market Mutual Funds (MMMFs)
pool the resources of many investors and purchase a wide variety of money market securities on their behalf, making them easily accessible to small investors
-
Treasury Bills (T-bills)
short-term government securities issued at a discount from face value and returning the face amount at maturity; the most marketable of all money market instruments and represent the simplest form of borrowing; income earned is only taxable at the federal level; this of this rate as the govt risk free rate
-
Asked Price (T-bills)
price you have to pay to buy a T-bill from a securities dealer
-
Bid Price (T-bills)
slightly lower price you'd receive if you sold a T-bill to a dealer
-
What is the relationship between prices and yields of bonds?
they are inversely related
-
Bank-Discount Method
a bill's discount from par value is "annualized" based on a 360 day year, and then reported as a percentage of par value.
Bank Discount Rate = [(face value-market price T-bill)/face value] * (360/number of days to maturity)
OR rBD=[(P1-P0)/P0]* (360/n)
-
Equivalent Annual Yield
uses compounding to turn BEY simple interest rate into a compound annual rate
Rate=(1+(P1-P0)/P0)365/n
-
Bond-Equivalent Yield (aka Ask Yield)
[(P1-P0)/P0]* (365/number of days to maturity)
-
Certificate of Deposit (CD)
a bank time deposit; time deposits may NOT be withdrawn on demand; those issued in denominations over $100K are negotiable; short term ones are higly marketable
-
Commercial Paper (CP)
short-term unsecured debt issued by large corporations directly to the public rather than borrowing from banks; considered fairly safe and liquid
-
Asset-Backed Commercial Paper
issued by financial firms (like banks) to raise funds for the firm to invest in other assets; short term; assets are collateral
-
Bankers' Acceptance
an order to a bank by a customer to pay a sum of money at a future date (typically within 6 months); typically a safe asset that trades at a discount from face value; widely used in foreign trade
-
Eurodollars
Dollar-denominated deposits at foreign banks or foreign branches of American banks; usually large sums with less than 6 months to maturity
-
London Interbank Offer Rate (LIBOR)
lending rate among banks in the London market
-
Repurchase Agreements (repos or RPs)
short-term sales of govt securities with an agreement to repurchase the securities at a higher price; short-term, overnight borrowing; essentially a 'one day loan'
-
Treasury Notes or Bonds
debt obligations of the federal government with original maturities of one year or more; think of as the safest long term investments
-
Eurobond
a bond denominated in a currency other than that of the country in which it is issued
-
Freddie Mae, Fannie Mac, Ginnie Mae
organizations that provide liquidity to the mortgage market
-
Treasury Inflation Protected Securities (TIPS)
inflation-protected security bonds; provide a constant stream of income in real dollars, and real interest rates are risk-free if held to maturity
-
Municipal Bonds (munis)
tax-exempt bonds issued by state and local governments
-
2 types of munis
- 1. general obligation bonds (backed by full faith and credit/taxing power of the issuer)
- 2. revenue bonds (issued to finance projects)
-
Industrial Development Bonds
a revenue bond that is issued to finance commericial enterprises (e.g. a factory that can be operated by a private firm)
-
Equivalent Taxable Yield
the rate a taxable bond would need to offer in order to match the after tax yield on a tax-free muni.
before-tax ROR on taxable bonds*(1-combined federal and local marginal tax rate)=municipal bond rate
r(1-t)=rm
-
Corporate Bonds
long-term debt issued by private corporations typically paying semi-annual coupons and returning the face value of the bond at maturity; higher yield/ riskier bonds
-
Debenture
an unsecured bond
-
Mortgage-backed Security
either an ownership claim in a pool of mortgages or an obligation that is secured by such a pool; an invested portfolio in mortgage loans through securitization and pooling
-
Common Stocks
ownership shares in a public corporation; shareholders have voting rights and may receive dividends; some characteristics include residual claims and limited liability
-
Preferred Stock
nonvoting shares in a corporation, usually paying a fixed stream of dividends; has featyres of both equity and debt
-
American Depository Recepits (ADRs)
certificates traded in US markets that represent ownership shares of a foreign company
-
Dow Jones Industrial Average (DJIA)
consists of 30 large, "blue-chip" corporations; has been computed since 1896
-
S&P 500
consists of 500 large companies
-
Wilshire 5000
the ultimate US equity index so far computed; index of the market value of essentially all actively traded stocks in the US (approx 6000 of them)
-
Price-Weighted Average**
an average computed by adding the prices of the stocks together and dividing by a divisor**
-
Market Value-Weighted Average**
computed by calculating a weighted average of the returns of each security in the index, with weights proportional to outstanding market value**
-
What does NASDAQ stand for?
National Association of Securities Dealers Automatic Quotation System
-
Exchange-Traded Fund (ETF)
a portfolio of shares that can be bought or sold as a unit, just as a single share would be traded
-
Equally Weighted Index
an index computed from a simple average of returns
-
-
-
-
Hang Seng
Hong Kong index
-
-
-
OMX
Swedish index, recently purchased by NASDAQ
-
SSE Composite
Shanghai Stock Exchange
-
EAFE
Europe, Australia and the Far East; a world benchmark
-
MSCI
Morgan Stanley Capital Index; used to invest in countries; computes over 50 country indexes and several regional indexes
-
Derivative Asset or Contingent Claim
a security with a payoff that depends on the prices of other securities
-
Call Option
the right to buy an asset at a specified price on or before a specified expiration date; only makes sense to exercise if the market value of the asset that may be purchased exceeds the exercise price
-
Put Option
the right to sell an asset at a specified exercise price on or before a specified expiration date; profits on these options increase when an asset value falls
-
Prices of call options ______ as the exercise price _______.
decrease, increases
-
Put prices ___________as the exercise price ___________.
increase, increases
-
Futures Contract**
obliges traders to purchase or sell an asset at an agreed-upon price at a specified future date***
-
2 Basic positions of Futures
-
ICE
Intercontinental Exchange; based in Atlanta; $8 billion market cap, owned by about 18 people which shows that anyone can create and exchange
-
Primary Market
Market for new issues of securities; only time the issuer receives the proceeds from the sale
-
IPO (Initial Public Offering)
first sale of stock by a formerly private company; stock is marketed through 'road sales' (are only sold through underwriters)
-
Secondary Market
market for already existing securities; exisiting owner sells to another party
-
Market Cap
price*(shares outstanding)
-
Flash Crash
when computer programs stopped sending orders and therefore halted trades, which caused the market to drop by approx 1000 points in an hour
-
BATS
stock exchange based in Kansas City, MO that took 10% of total market trading from NYSE
-
Dark Pool
type of ATS; offers some anonymity so traderes are not easily identifiable
-
Dealer Markets
markets in which traders specializing in particular assets buy and sell for their own accounts
-
Auction Market
a market where all traders meet at one place to buy or sell an asset
-
Bid Price (stocks)
the price at which a dealer or other trader is willing to purchase/buy a security
-
Ask Price (stocks)
the price at which a dealer or other trader is willing to sell a security
-
Bid-Ask Spread
ask price - bid price
-
Market Order
guaranteed to execute a trade, but no guarantee of price
-
Limit Order
guaranteed a price, but no guarantee of execution
-
Stop-Loss Order
a limit order that becomes a market order once the price falls through the stop loss price; not guaranteed a price
-
Over-the-Counter (OTC) Market
an informal network of brokers and dealers who negotiate sales of securities
-
ECN (Electronic Communication Network)
computer networks that allow direct trading without the need for market makers
|
|