Section 1: Securities Markets, Investment Securities, and Economic Factors

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  1. What is a security?
    A security constitutes an investment of money, in a common enterprise, with the expectation of profits to be derived primarily from the efforts of a person other than the investor. Security may represent an ownership (equity) interest in a company or a credit relationship (through a debt obligation) with a company. 

    Stock is most commonly represented by various forms of stock 

    Debt is most commonly represented by bonds and notes
  2. Why do corporations issue equity and debt securities
    AS a means of raising capital in order to implement ideas such as expanding operations or funding a merger acquisition. 

    • When a corp. issues equity securities, it is conservative for the issuer and risky for the investor (No obligation to pay back) 
    • Contrarily, when an investor purchases a company's debt, they lend money to the company as a creditor of the company and the company is obligated to pay the investor back. This is considered to be risky for the issuer and conservative for the investors.
  3. What is a broker?
    Includes: (1) an individual or firm that charges a fee or commission for executing buy and sell orders submitted by another individual or firm (2) the role of a brokerage firm when it acts as an agent for a customer and charges commission for its services (3) any person engaged in he business of effecting transactions in securities accounts of others that is not a bank
  4. What is a customer?
    A customer is any individual, person, partnership, corporation or legal entity that isn't a broker, dealer or municipal securities dealer-- that is, the public.
  5. What is a dealer?
    (1) the role of a brokerage firm when it acts as a principal in a particular trade [a firm acts as a dealer when it buys or sells a security for its own account and at its own risk then charges the customer a mark-up or mark-down] (2) any person engaged in the business of buying and selling securities for their own account, either directly or though a broker, that is not a bank
  6. What is a member?
    A member of FINRA is any individual, partnership, corporation, or legal entity admitted to membership in FINRA.
  7. What is a security?
    Under the Securities Exchange ACt of 1934, any note, stock, bond, investment contract, variable annuity, profit-sharing plan or partnership agreement, certificate of deposit, option on a security or other instrument of investment is commonly known as a security.
  8. What does a balance sheet summarize?
    • Assets- what the company owns 
    • Liabilities- what the company owes 
    • Net worth (or shareholders' equity)- the excess of the value of assets over the value of liabilities
  9. Types of stock that corporations issue
    (1) common stock (2) Preferred stock (3) Related equity securities
  10. What is common stock?
    Companies use common stock as the primary means of raising capital. Investors who buy the stock buy a share of ownership in the company's net worth. 

    • Owners are entitled to a portion of the companies profits, distributed, usually quarterly, as dividends and an equal vote on directors. 
    • Classified in four ways: (a) authorized (b) issued (c) treasury (d) outstanding
  11. What are some specifics about treasury stock?
    • Was outstanding stock before it was repurchased by the issuer 
    • Has no voting rights 
    • Does not receive dividends 
    • Can be issued o retired 

    • A corp. buys back stock for reasons that include: 
    • Increase earnings per share 
    • Have an inventory of stock available to distribute as stock options, fund an employee pension plan, etc 
    • Use for future acquisitions
  12. What are common stock values? 
    Market value- Current Market Value (CMV), which is the price investors must pay to buy the stock. Market value is influenced by a company's business prospects and the consequent effect on supply (the number of shares available to investors) and demand ( the number of shares investors want to buy) 

    Book value- Measure of how much a common stockholder could expect to receive for each share if the corporation were liquidated. 

    Par value- arbitrary accounting value
  13. What is antidilution provision and its relationship to preemptive right?
    Antidilution provision- when a corporation raises capital through the sale of additional common stock, it may be required to offer the securities to its common stockholders before the general public. 

    This allows stockholders the premptive right to buy enough newly issued shares to maintain their proportionate ownership in the corporation.
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Section 1: Securities Markets, Investment Securities, and Economic Factors
2014-05-10 03:36:55
Understand difference between equities and debt securities and the market place in which they trade (8)
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