Business Chapter 10

Financial markets

transfer funs from savers to borrowers

Depository Institutions

financial intermediary that obtains funds by accepting checking or savings deposits (or both) and uses these funds to make loans to borrowers

Commercial Banks

most common depository institution

Credit Unions

depository institution that is organized as a cooperative (not for profit organizations) that are owned by depositors

Savings and Loans Associations (S&Ls or thrifts)

depository institution that has traditionally obtained most of its funds by accepting savings deposits, which have been used primarily to make mortgage loans

Institutional Investors

major holders of corporate bonds and government securities; gather use pools of financial capital from other sources and use these funds to acquire a portfolio of many different assets

Securities Brokers

financial intermediary that acts as a agent for investors who want to buy and sell financial securities

Securities Dealers

financial intermediary that participates directly in securities markets, buying and selling stocks and other securities in its own account

Investment Bankers

financial intermediary that specializes in helping firms raise financial capital by issuing securities in primary markets

Federal Reserve Act of 1913

law that established the Federal Reserve System as the central bank of the US

Banking Act of 1933 (Glass- Steagall Act)

law that established the Federal Deposit Insurance Corporation (FDIC) to insure bank deposits. It also prohibited commercial banks from selling insurance or acting as investment banks

Securities Act of 1933

first major federal law regulating the securities industry. It requires firms issuing new stock in a public offering to file a registration statement with the SEC

Securities and Exchange Act of 1934

A federal law dealing with securities regulation that established the SEC to regulate and oversee the securities industry

Securities and Exchange Commission

Federal agency with primary responsibility for regulating the securities industry

Financial Services Modernization Act of 1999 (Gramm-Bliley-Leach Act)

act that overturned the section of the Banking Act of 1933 that prohibited commercial banks from selling insurance or performing the functions of investment banks

Commons stock

basic form of ownership in corporation

Preferred Stock

gives its holder preference over common stockholders in terms of dividends and claims on assets

Bond

formal debt instrument (IOS) issued by a corporations or government entity

Par Value of bond

value of bond at maturity

Coupon Rate

interest paid on a bond, expressed as a percentage of the bond's par value

Current yield

amount of interest earned on a bond, expressed as a percentage of the bond's current market price

convertible securities

bond or share of preferred stock that gives it holder the right to exchange it for a stated number of shares of common stock

conversion ratio

indicates the number of shares of common stock exchanged for each convertible security

Mutual Funds

institutional investor that raises funds by selling shares to investors and uses the accumulated funds to buy a portfolio of many different securities

Net Asset Value Per Share

value of a mutual fund's securities and cash holdings minus any liabilities, divided by the number of shares of the fund outstanding

Exchange Traded Fund (ETF)

shares traded on securities markets that represent the legal right of ownership over part of a basket of individual stock certificates or other securities

Primary Securities Market

market where newly issued securities are traded

Public offering

primary market issue in which new securities are offered to any investors who are willing and able to purchase them

Private placement

primary market issue that is negotiated between the issuing corporation and a small group of accredited investors

Secondary Securities Market

market where previously issued securities are traded

underwriting

arrangement under which an investor banker agrees to purchase all shares of a public offering at an agreed- upon price

Dow Jones Industrial Average

index that tracks stock prices of thirty large, well known US corporations

Standard and Poor's 500

stock index based on prices of 500 major US corporations in a variety of industries and market sectors.