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Financial Markets
how money gets from one person/entity that would like to loan excess funds to another person/entity
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Options for Corporations to Raise Money
- 1. Retained Earnings - earnings saved from prior periods
- 2. Borrow from bank or lender (interest must be paid)
- 3. Sell ownership in business (shares)
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Difference Between Stocks and Bonds
- Bond: legal agreement between lender and borrower when business firms borrow from the public
- Stock: clain of partial ownership of a business firm
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Difference Between Primary and Secondary Market
- Primary: company issues a stock/bond
- Secondary: company's stock/bond is traded
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2 Stock Markets
- NYSE - New York Stock Exchange
- NASDAQ - National Association of Securities Dealers Automated Quotations
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Describe Structure of Publically Owned Corporation
consisted of shareholders who elect a Board of Governors to represent interests which can hire/fire CEOs
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Initial Public Offering (IPO)
where a company switches from private ownership to a publically traded corporation
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IPO Steps
- 1.Value the Company
- 2. Roadshow to Generate Interest
- 3. Register with the Securities Exchange Commision (SEC)
- 4. Issue Stock
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Tombstone
announcement that a corporation is selling shares of it's stock to the public
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Underwriters
financial firms that buy newly issued stock from corporations in wholesale and sell to public, collect the difference between retail and wholesale
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Arbitrage
practice of simultaneously buying and selling single product on two different markets to profit from price differential between the two markets
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Difference Between Bid and Ask Prices of Stock
- Bid: highest current offer to buy stock
- Ask: lowest current offer to buy stock
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Market Order
instruction for broker to buy or sell stock at the best price possible
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Limit Order
instruction for broker to buy at no more or sell at no less than some specified price
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Day Order
a limit order that is cancelled at the end of the day if not executed
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Good 'til Cancelled Order (GTC)
a limit order that stands untill executed or cancelled
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Stop Loss Order
instruction for a broker to sell a stock if the price falls below a specified level
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Difference Between Investors and Speculators
- Investors: buyer of stock with long-run objective of capital appreciation and/or dividends
- Speculators: buyer/seller of stock with short-run objectives of making a quick profit by buying low and selling high
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Mutual Fund
professionally managed investment company that accepts funds from investors and invests those funds on behalf of the investors
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Family of Funds
several different mutual funds with different investment objectives managed by a single manager
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Portfolio
listing of the items currently held by a mutual fund on behalf of the investors
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Net Asset Value (NAV)
current value of a mutual fund's portfolio divided by number of shares of the mutual fund
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Open-End Fund
mutual fund that will issue additional shares of the fund whenever additional investment funds are recieved; number of shares of fund is unlimited
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Closed-End Fund
mutual fund with a fixed number of shares such that when one investor buys shares another must sell.
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What Kind of Index is Dow Jones, S&P 500
- DJIA - price-weighted index
- S&P 500 - market-value weighted
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Bubble
when expectations for a stock start to deviate and cause price jumps and falls with stocks
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Difference Between Technical and Fundamental Analysis
- Technical - don't care why moving up or down with stock just that its moving
- Fundamental - derive a value for the company based on financial facts
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