Investment
the act of redirecting resources from being consumed today so that they may create benefits in the future; the use of assets to earn income or profit
Financial System
the system that allows the transfer of money between savers and borrowers
Financial Asset
Claim on the property or income of a borrower
Financial Intermediary
Institution that helps channel funds from savers to borrowers
Mutual Fund
fund that pools the savings of many individuals and invests this money in a variety of stocks, bonds, and other financial assets
Diversification
Spreading out investments to reduce risk
Portfolio
A collection of financial assets
Prospectus
An investment report to potential investors
Return
the money an investor receives above and beyond the sum of money initially invested
Coupon Rate
The interest rate that a bond issuer will pay to a bondholder
Maturity
the time at which payment to a bondholder is due
Par Value
the amount that an investor pays to purchase a bond and that will be repaid to the investor at maturity
Yield
The annual rate of return on a bond if the bond were held to maturity
Savings Bond
low-denomination bond issued by the United States government
Municipal Bond
a bond issued by a state or local government or municipality to finance such improvements as highways, state buildings, libraries, parks and schools
Corporate Bond
A bond that a corporation issues to raise money to expand its business
Securities and Exchange Commission
An independent agency of the government that regulates financial markets and investment companies
Junk Bond
A lower rated, potentially higher paying bond
Capital Market
market in which money is lent for periods longer than a year
Money Market
Market in which money is lent for periods of less than a year
Primary Market
Market for selling financial assets that can only be redeemed by the original holder
Secondary Market
Market for reselling financial assets
Share
portion of stock
Equities
claims of ownership in a corporation
Capital Gain
the difference between a higher selling price and a lower purchase price, resulting in a financial gain for the seller
Capital Loss
the difference between a lower selling price and a higher purchase price resulting in a financial loss to the seller
Stock Split
The division of a single share of stock into more than one share
Stockbrocker
A person who links buyers and sellers of stock
Brokerage firm
A business that specializes in trading stocks
Stock Exchange
a market for buying and selling stock
Nasdaq
American market for OTC securities
OTC Market
The over-the-counter market;an electronic marketplace for stock that is not listed or traded on an organized exchange.
Futures
contracts to buy or sell at a specific date in the future at a price specified today
Options
Contracts that give investors the choice to buy or sell stock and other financial assets
Call Option
The option to buy shares of stock at a specified time in the future
Put Option
the option to sell shares of stock at a specified time in the future
Bull Market
a steady rise in the stock market over a period of time
Bear Market
A steady drop in the stock market over a period of time
The Dow
Index that shows how certain stocks have traded
S&P 500
index that shows the price changes of 500 different stocks
Great Crash
the collapse of the stock market in 1929
Speculation
the practice of making high-risk investments with borrowed money in hopes of getting a big return
Do you owe state or federal income on municipal bonds?
They are safe and tax exempt
A stock split is most likely to occur when?
When the price of stock becomes so high that it discourages potential investors from buying it.
Entrepreneur
ambitious leader who combines land, labor, and capital to create and market new goods and services
An exapmle of credit risk
Credit risk is the risk of loss due to a debtor's non-payment of a loan or other line of credit (either the principal or interest (coupon) or both). The default events include a delay in repayments, restructuring of borrower repayments, and bankruptcy.
Why did the Great Crash happen?
Prices for many stocks soared far above their real values in terms of the company's earnings and assets