FIN 3303: CHAPTER 2
33 Cards in this Set
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Three ways to transfer capital flows with surplus capital
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Direct transfer, through an investment bank, and through a financial intermediary
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Direct Transfers
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When business sells its stocks or bonds directly to savers, without going through any type of financial institution.
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Primary Market Transaction
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When new securities are involved and the corporation receives the sale proceeds.
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Financial Intermediary
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It uses the funds received from exchanging its securities to buy and hold businesses' securities, while the saver hold the intermediary's securities.
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Physical Asset Markets
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They are for products such as wheat, autos, real estate, computers and machinery.
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Financial Asset Markets
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Stocks, bonds, notes, and mortgages are comprised within this.
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Spot Market
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Markets in which assets are bought or sold for "on-the-spot" delivery
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Future Markets
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Markets in which participants agree today to buy or sell an asset at some future date.
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Money Markets
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Markets for short-term highly liquid debt securities.
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Capital Markets
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Markets for intermediate- or long-term debt and corporate stocks.
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Primary Markets
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The markets in which corporations raise new capital.
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Secondary Markets
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Markets in which existing, already outstanding securities are traded among investors.
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Private Markets
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Where transactions are negotiated directly between two parties.
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Public Markets
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Where standardized contracts are traded on organized exchanges.
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Derivatives
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Any security whose value is derived from the price of some other "underlying" asset.
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Different Types of Financial Institutions
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Investment banks, Commercial banks, Financial services corporations, Credit unions, Pension funds, Life insurance companies, Mutual funds, Exchange traded funds, Hedge funds, and Private equity companies.
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Investment Banks
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The help corporations design securities with features that are currently attractive to investors, buy these securities from the corporation, an resell them to savers.
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Commercial Banks
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Traditional "department stores of finance" because they serve a variety of savers and borrowers.
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Financial Services Corporations
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Large conglomerates that combine many different financial institutions within a single corporation.
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Credit Unions
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Cooperative associations whose members are supposed to have a common bond, such as being employees of the same firm.
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Pension Funds
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Retirement plans funded by corporations or government agencies for their workers and administered primarily by the trust departments of commercial banks or by life insurance companies.
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Life Insurance Companies
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...
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Mutual Funds
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Corporations that accept money from savers and then use these fund to buy stocks, long-term bonds, or short-term debt instruments issued by businesses or government units.
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Money Market Funds
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An open-ended mutual fund that invests in short-term debt securities such as US Treasury bills and commercial paper.
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Exchange Traded Funds
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Similar to regular mutual funds and are often operated by mutual fund companies. They buy portfolio stocks of a certain type and then sell their own shares to the public.
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Hedge Funds
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A collective investment scheme, often structured as a limited partnership, that invests private capital speculatively to maximize capital appreciation. They are largely unregulated and target large minimum investments investors.
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Private Equity Companies
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Organizations that operate much like hedge funds; but they buy and then manage entire firms.
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Physical Location Exchanges
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They are tangible entities. Each of the larger ones occupies its own building, allows a limited number of people to trade on its floor, and has an elected governing body-its board of governors.
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Over-the-Counter-Market
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The trading is done directly between two parties, without any supervision of an exchange.
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Dealer Markets
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Markets that includes all facilities that are needed to conduct security transactions, but the transactions are not made on the physical location exchanges.
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Closely Held Corporations
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Companies that are so small that their common stocks are not actively traded.
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Publicly Owned Corporations
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Corporations where the stocks of most large companies are owned by thousands of investors, most of whom are not active in management.
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Types of Stock Market Transactions
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Outstanding shares of established publicly owned companies that are traded: the secondary market, additional shares sold by established publicly owned companies: the primary market, and initial public offerings made by privately held firms: the IPO market.
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FIN 3303: EXAM 1