Treasury bills
short-term U.S. government obligations
Federal funds
short-term funds transferred between financial institutions, usually for no more than one day
Repurchase agreements (repos)
agreements involving security sales by one party to another, with the promise to reverse the transaction at a specified date and price, usually at a discounted price.
Commercial paper
(sometimes called Paper): short-term unsecured promissory notes that companies issue to raise short-term cash.
Negotiable certificates of deposit
bank-issued time deposits that specify an interest rate and maturity date and are negotiable�that is, traded on an exchange. Their face value is usually at least $100,000.
Banker acceptances (BAs)
bank-guaranteed time drafts payable to a vendor of goods.
Treasury notes and bonds
U.S. Treasury long-term obligations to finance the national debt and pay for other federal government expenditures.
State and local government bonds
debt securities issued by state and local (e.g., county, city, school) governments, usually to cover capital (long-term) improvements.
Mortgages
long-term loans to individuals or businesses to purchase homes, pieces of land, or other real property
Mortgage-backed securities
long-term debt securities that offer expected principal and interest payments as collateral. These securities, made up of many mortgages, are gathered into a pool and are thus "backed" by promised principal and interest cash flows.
Corporate bonds
long-term bonds issued by corporations.
Corporate stocks
long-term equity securities issued by public corporations; stock shares represent fundamental corporate ownership claims
derivative security
is a financial security (such as a futures contract, option contract, or swap contract) linked to another, underlying security, such as a stock traded in capital markets or British pounds sterling traded in foreign exchange (forex) markets
Unbiased Expectations Theory
According to this theory, at any given point in time the yield curve reflects the market's current expectations of future short-term rates
Liquidity Premium Theory
that investors will hold long-term maturities only if these securities are offered at a premium to compensate for future uncertainty in the security's value
Market Segmentation Theory
investors have specific maturity preferences, and to encourage buyers to hold securities with maturities other than their most preferred maturity requires a higher interest rate (i.e. a maturity premium)
total risk
The volatility of an investment, which includes current portions of firm-specific risk and market risk.
firm-specific risk
The portion of total risk that is attributable to firm or industry factors. Firm-specific risk can be reduced through diversification.
market risk
general risk that all firms�and all individuals, for that matter�face based upon economic strength both domestically and globally
efficient portfolios
Portfolios with the highest return possible for each risk level
expected return
The average of the possible returns weighted by the likelihood of those returns occurring.
asset pricing
The process of directly specifying the relationship between required return and risk
capital asset pricing model
asset measure based on a beta market measure of risk
market portfolio
In theory, this is the combination of securities that places the portfolio on the efficient frontier and on a line tangent to the risk-free rate. In practice, the S&P 500 Index is used to proxy for this
financial leverage
The use of debt to increase an investment position
beta (?)
A measure of the sensitivity of a stock or portfolio to market risk
Hedge fund
An investment fund structured to avoid regulation. are professionally managed portfolios
efficient market hypothesis (EMH)
a. theory that describes what types of information are reflected in current stock prices.
b. security prices fully reflect all available information