Stock Markets Overview

Flashcards covering key concepts from stock market lectures, including financing sources, stock types, market orders, SEC regulations, and trading practices.

What serves as a source of financing for firms aside from debt financing or retained earnings financing?

Corporate stock.

What type of stock represents the fundamental ownership claim in a corporation?

Common stock.

What are the legal owners of a corporation called?

Stockholders.

What type of claim do common stockholders have on the firm's assets in case of bankruptcy?

Residual claim.

What type of trading occurs in secondary stock markets?

Trading of stocks that have already been issued.

What is the difference between a market order and a limit order?

A market order is executed at the best available price, while a limit order specifies a price at which the order should be executed.

What is an Initial Public Offering (IPO)?

The first public issue of a financial instrument by a firm.

What are preferred stocks?

Hybrid securities that pay fixed dividends and typically do not have voting rights.

What do the Dow Jones Industrial Average and S&P 500 Index represent?

They are stock market indexes that measure the performance of groups of stocks.

What is the primary purpose of the SEC?

To ensure full and fair disclosure of information on securities issues.

What is the significance of a red herring prospectus?

It is a preliminary version of the prospectus that describes a new security issue.

How are stock market indexes used in relation to economic indicators?

They might be used to forecast future economic activity.

What is market efficiency?

The speed with which financial security prices reflect unexpected news.

What does the term 'circuit breaker' refer to in stock trading?

An imposed halt in trading that gives buyers and sellers time to assimilate incoming information.

What are American Depository Receipts (ADRs)?

Certificates that represent ownership of a foreign stock.

What is the main characteristic of cumulative preferred stock?

Missed dividend payments go into arrears and must be made up before any common stock dividends can be paid.