Chapter 11: Financial Markets

savings

n. income not used for consumption (p. 318)

investment

n. the use of income today in a way that allows for a future benefit (p. 318)

financial system

n. all the institutions that help transfer funds between savers and investors (p. 318)

financial asset

n. a claim on a borrower's property (p. 319)

financial intermediary

n. an institution that collects funds from savers and invests these funds in financial assets (p. 319)

financial market

n. a situation in which buyers and sellers exchange financial assets (p. 319)

financial intermediary

n. an institution that collects funds from savers and invests these funds in financial assets (p. 319)

mutual fund

n. an investment company that gathers money from individual investors and uses the money to purchase a range of financial assets (p. 320)

capital market

n. a market in which long-term financial assets are bought and sold (p. 322)

money market

n. a market in which short-term financial assets are bought and sold (p. 322)

primary market

n. a market for buying newly created financial assets directly from the issuing entity (p. 322)

secondary market

n. a market in which financial assets are resold (p. 322)

investment objective

n. a financial goal that is used to determine if an investment is appropriate (p. 324)

risk

n. the possibility for loss on an investment (p. 327)

return

n. the profit or loss made on an investment (p. 327)

diversification

n. the practice of distributing investments among different financial assets to maximize return and limit risk (p. 327)

stock exchange

n. a secondary market where securities are bought and sold (p. 330)

capital gain

n. the profit made from the sale of securities (p. 330)

common stock

n. a share of ownership in a corporation that gives the holder voting rights and a share of profits (p. 331)

preferred stock

n. a share of ownership in a corporation giving the holder a share of profits but, in general, no voting rights (p. 331)

stockbroker

n. an agent who buys and sells securities for customers (p. 332)

future

n. a contract to buy or sell a stock on a specified future date at a preset price (p. 333)

option

n. a contract giving an investor the right to buy or sell stock at a future date at a preset price (p. 333)

stock index

n. an instrument used to measure and report the change in prices of a set of stocks (p. 334)

bull market

n. a situation in which stock market prices rise steadily over time (p. 335)

bear market

n. a situation in which stock market prices decline steadily over time (p. 335)

par value

n. the amount that a bond issuer promises to pay the buyer at maturity (p. 338)

maturity

n. the date when a bond is due to be repaid (p. 338)

coupon rate

n. the interest rate a bond-holder receives every year until the bond matures (p. 338)

yield

n. the annual rate of return on a bond (p. 338)

junk bond

n. a high-risk, high-yield corporate bond (p. 339)