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| land, buildings, machines, and knowledge |
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| securities, such as stocks and bonds, claims on real assets or income generated by them |
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| value derived from underlying assets: futures, options |
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| short-term, marketable, liquid, low-risk debt securities |
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| the base rate on corporate loans by at least three quarters of the top 30 banks |
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| Repurchase Agreements (Repos) and Reverses |
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| Short-term, often overnight, sales of government securities by a dealer to an investor with an agreement to repurchase the securities at a slightly higher price; used if you have liquidity problems; if the borrower goes into bankruptcy and can't pay back to purchase them, the person holding the securities just keeps them; this is different than a loan because legal ownership is exchanged; |
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| an investor takes out a loan from a dealer/the dealer buys government securities from an investor |
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| One of the two interest rates the Fed sets, at which financial institutions can borrow |
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| Purchase a specific amount of t-bills (for instance) at whatever is being charged |
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| Specify the amount you would like to pay for a security |
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| The rate at which one financial institution charges another for lending its balance at the federal reserve bank (federal funds); the Fed cannot directly set this rate |
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-short-term securities, up to one year
- $100 minimum, sold at discount
-primary market: regular auction, one week notice, submit bid through one of the primary dealers
-cannont bid for more than 35% of the available offering
-the secondary market is highly liquid |
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| The difference between a dealer's bid (the price where the dealer will buy the security) and the asked price (the price at which a dealer will sell the security) |
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360 day count to determine the amount of interest that accrues of t days
= rd x (t/360) |
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| Rate at which brokers and dealers borrow short-term money |
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-Short-term unsecured public debt by large companies
-maturity up to 270 days
-cost of debt is smaller than a loan from a bank
-usual denomination: $100k
-fairly safe bc backed by a line of credit, only well known companies with high credit ratings |
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-rate at which banks in London lend each other money
-quoted on dollar denominated loans
-rate is the middle two quartiles of the average rate at which member banks will borrow |
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| rate at which banks in the euro zone lend each other euros |
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| the rate at which banks in the euro zone lend each other Hong Kong dollars |
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-postdated check, typically within 6 months, a claim on the bank endorsing the order for payment
-traded on the secondary-market
-used widely in foreign trade
-sell at a discount from the face value |
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| Treasury Notes and Treasury Bonds |
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T-note: up to 10 years
T-bond: up to 30 years
-semiannual coupon payments
-price quote: percentage of the face value, 1/32
-low risk except for inflation |
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| The average rate of return that will be earned on a bond if held to maturity |
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| Treasury Inflation-Protected Securities (TIPS) |
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| 1997, principal is adjusted according to increases in the CPI |
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| Federal Agency Debt- Mortgage Market |
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Bag up mortgage loans from secondary markets, raise capital on open markets by offering bonds to buy up mortgage loans
Include:
Federal Home Loan Bank
Fannie Mae
Freddie Mac
(all government sponsored)
and Ginnie Mae, government agency, therefore the only one guaranteed by the government, however, it is widely acknowledged that the other three will not be allowed to fail |
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| Mortgage Backed Securities |
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-fixed-term, fixed-rate mortgage
-adjustable-rate mortgage- floating rate after one year
-issued by federal agencies that buy up large pools of mortgages and then issue securities that are claims on the cash flows from the mortgages
-known as pass-throughs |
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-issued by states, counties, and cities to finance local expenditures
-general obligation bonds: backed by taxes
-revenue bonds: backed by the revenues from a project or the municipal agency operating the project
-interest is tax free at the federal level, and at the state level if you live in the state the security came from |
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-either one share per vote or CLASS B which has multiple votes per share
separation of ownership and control (lies with managers)
residual claim-what you get as an owner: first profit pays off liabilities, then dividends
-limited liability: investors will not get dividends if the company goes bankrupt, but they themselves cannot be bankrupted by debtors |
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-paid before the common stock dividend, but cannot force a company into bankruptcy
-no voting power
-cumulative dividends
-corporations can exclude 70% of qualified dividends from other corps subject to federal income tax to mitigate double taxation of dividends |
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| American Depository Receipts |
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| represents shares of foreign stock |
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| Wall Street Journal Chart |
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YLD %: dividends paid out/year
PE: price earnings ratio
VOL 1000s: total number of shares
CLOSE: closing price |
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| Dividend per year / share price |
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price per share / earnings per share
high P/E means lots of growth |
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| price-weighted average, 30 largest blue chip comanies |
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| Standard and Poor's Indexes |
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| market-value-weighted index, ratings agencies |
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| largest index so far, covers 6000 stocks |
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right to buy an asset at the strike price on or before the expiration date
-Last= price to buy the option |
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| right to sell an asset at the strike price on or before the expiration date |
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delivery of an asset at a specified maturity date for an agreed-upon price paid at maturity
long position-purchases the asset
short position- delivers the asset |
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| Certificates of Deposit: a time deposit with a bank; the bank pays interest and principal at the end of the fixed term |
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| dollar-denominated deposits at foreign banks or foreign branches of American banks- escape regulation of the Fed |
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| Market the IPO and advise the firm of the price it should sell for. The firm sells the securities to the underwriting firms at a lower price and sell them to the public. The "firm commitment." |
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| The preliminary registration statement filed with the SEC---> final form is called the prospectus |
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| shares are sold directly to a small group of institutional or wealthy investors. This can be a lot cheaper than public offerings. These do not trade on secondary markets. |
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1. Red Herring filed by issuing firm
2. Bookbuilidng by underwriters: revise the offer amount and the offer range, usually on road shows
3. Prospectus is accepted by SEC, potentially shelf registration
4. Underwriters announce price, tombstone adverts, firm commitment, best effort
5. IPO underpricing, Lockup period, usually 180 day period where stocks increase alot |
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| shares are sold directly to a small group of institutional or wealthy investors. This can be a lot cheaper than public offerings. These do not trade on secondary markets. |
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| buyers and sellers much seek each other out directly |
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| i.e. middle men markets, real estate, primary markets |
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| i.e. over the counter securities |
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| all trading converges in one place i.e. NYSE |
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now a publicly traded company, an annual license permits traders to conduct business
companies need to be large enough to have their stock traded continuously
specialists |
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OTC dealer market
computer-linked network
mostly I.T. companies, dealer market |
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| executed immediately at current prices |
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specify the prices at which to buy or sell as security
LIMIT BUY: buy at or below the stipulated price
LIMIT SELL: sell at or above the specified limit |
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The trade is not executed unless the stock hits a price limit
STOP LOSS: sell stock if it falls below a certain level
STOP BUY: buy stock if the price rises above a specified level |
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| expire at the close of the trading day, and canceled if not executed |
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| the portion of the purchase price contributed by the investor |
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| ratio of the investor's equity to the market value of the securities |
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| New Equity-Old Equity / Old Equity |
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| Stock#p-Liability / Assets(Stock#p) = maintenance margin |
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an investor borrows a share of stock from a broker (on a loan) and sells it, and then later teh seller purchases a share of stock to replace the borrowed share
proceeds must be kept on account with the broker
margin requirement- must have some personal equity put in |
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| value of each share expressed as assets- liabilities on a per share basis |
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Private firms borrow money directly from the public
Semiannual coupon payments- principal returned at end
Secured Bonds: have specific collateral backing them in the event of bankruptcy
Debentures: unsecured bonds
Subordinated Debintures: lower-priority claim to the firm's assets in the event of bankruptcy
Callable Bonds: the firm can repurchase the bond from the holder at a stipulated call price
Convertible Bonds: bondholder can convert each bond into a specific number of stocks |
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| A bond with a face value of less than $1000 |
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| Traders buy and sell a specific security among themselves so it looks like the security has a high volume of trading, increasing the interest of outsiders and giving the dealers a profit |
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| Traders sell stocks to set off the price at which stop orders have been set, which in turn further drives down prices and more stop orders. Exchange officials can pause stop orders if this happens |
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| the most recent batch of Treasury Securities of a given maturity |
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| Tactic to avoid a hostile takeover, such as issuing preferred stocks with specifities attached that could hurt the company after a takeover |
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| U.S. Treasury options eligible for immediate purchase by commercial banks, typically those that are callable within ten years |
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| Current trade and quote info is available to the public |
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| liquidating assets and assuming liability to make a takeover look unattractive |
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| Trading on info that has not been revealed to the public |
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| stocks that sell for less than a dollar a share |
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| To sell a minor equity stake in a portion of a company through IPO. Generally around 20%. |
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| Paid to a raider to get him to stop a takeover attempt |
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| guarantee that an executive will receive great benefits if the company is taken over and his position is terminated |
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ignored by analysts because it is in a small or out-of-favor sector
also known as a wallflower
can be bargains |
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| reallocation of spending from military to domestic |
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| procedure in securities firms that separates different departments so that it is harder to commit insider trading |
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| potential acquirer sought out to take over a company so that it does not get raided by a black knight |
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| Allows the holder to vote on some corporate matters, but not on the election of the board |
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