BUSN Chapter 10

Financial markets

markets that transfer funds from savers to borrowers

Depository institution

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

credit union

a depository institution that is organized as a cooperative, meaning that it is owned by its depositors

Savings and loan association

a 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

don't accept deposits but amass huge pools of financial capital from other sources and use these funds to acquire a portfolio of many different assets

Securities broker

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

securities dealer

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

investment bank

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

Federal Reserve Act of 1913

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

Banking Act of 1933

The 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

The 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 Securities and Exchange Commission to regulate and oversee the securities industry


the federal agency with primary responsibility for regulating the securities industry

Financial Services Modernization Act of 1999

an 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

Common stock

the basic form of ownership in a corporation

Capital gain

the return on an asset that results when its market price rises above the price the investor paid for it

preferred stock

a type of stock that gives its holder preference over common stockholders in terms of dividends and claims on assets


a formal debt instrument issued by a corporation or government entity

maturity date

the date when a bond will come due

par value

the value of a bond at its maturity; what the issuer promises to pay the bondholder when the bond matures

coupon rate

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

current yield

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

convertible security

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

financial diversification

a strategy of investing in a wide variety of securities in order to reduce risk

mutual fund

an 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

the 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

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

the market where newly issued securities are traded. Where the firms that issue securities raise additional financial capital

Secondary securities market

the market where previously issued securities are traded

public offering

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

Private placement

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

initial public offering (IPO)

the first time a company issues stock that may be bought by the general public


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

registration statement

a long, complex document that firms must file with the SEC when they sell securities through a public offering

Accredited investor

an organization or individual investor who meets certain criteria established by the SEC and so qualifies to invest in unregistered securities

stock exchange

an organized venue for trading stocks and other securities that meet its listing requirements

market makers

securities dealers that make a commitment to continuously offer to buy and sell the stock of a specific corporation listed on the NASDAQ exchange or traded in the OTC market

Over-the-counter market (OTC)

the market where securities that are not listed on exchanges are traded

Electronic communications network (ECN)

an automated, computerized securities trading system that automatically matches buyers and sellers, executing trades quickly and allowing trading when securities exchanges are closed

market order

an order telling a broker to buy or sell a specific security at the best currently available price

limit order

an order to a broker to buy a specific stock only if its price is below a certain level, or to sell a specific stock only if its price is above a certain level

stock index

a statistic that tracks how the prices of a specific set of stocks have changed

Dow Jones Industrial Average

an index that tracks stock prices of thirty large, well-known U.S. corporations

Standard & Poor's 500

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