Chapter 2 (2)

eurobond market

the market in which corporations and governments typically issue bonds denominated in dollars and sell them to investors located outside the US

international equity market

a market that allows corporations to sell blocks of shares to investors in a number of different countries simultaneously

the efficient-market hypothesis

theory describing the behaviour of a market in which (1) securities are in equilibrium, (2) security prices fully reflect all available information and react swiftly to new information, and (3) because stocks are fully and fairly priced, investors need not waste time looking for mispriced securities

Securities Act of 1933

an act that regulates the sale of securities to the public via the primary market

Securities Exchange Act of 1934

an act that regulates the trading of securities such as stocks and bonds in the secondary market

Securities and Exchange Commission (SEC)

the primary government agency responsible for enforcing federal securities laws

Private equity

external equity financing that is raised via a private placement, typically by private early-stage firms with attractive growth prospects

angel financing

private equity financing provided to a young firm by a wealthy individual investing his or her own money

venture capital

equity financing provided by a firm that specializes in financing young, rapidly growing firms. Venture capital firms raise pools of money from outside investors which they then use to purchase equity stakes in small private companies

angel investors (angels)

wealthy individual investors who make their own investment decisions and are willing to invest in promising start-ups in exchange for a portion of the firm’s equity

venture capitalists (VCs)

formal business entities that take in private equity capital from many individual investors, often institutional investors such as endowments and pension funds or individuals of high net worth, and make private equity investment decisions on their behalf

Initial Public Offering (IPO)

the first public sale of a firm’s stock

Prospectus

a portion of a security registration statement that describes the key aspects of the issue, the issuer, and its management and financial position

investment bank

financial intermediary that specializes in selling new security issues and advising firms with regard to major financial transactions

IPO offer price

the price at which the issuing firm sells its securities

total proceeds

the total amount of proceeds for al shares sold in the IPO. Calculated as the IPO offer price times the nr of IPO shares issued

market price

the price of the firm’s shares as determined by the interaction of buyers and sellers in the secondary market

market capitalization

the total market value of a publicly traded firm’s outstanding stocks. Calculated as the market price times the nr of share of stock outstanding

securitization

the process of pooling mortgages or other types of loans and then selling claims or securities against that pool in the secondary market

mortgage-backed-securities (MBS)

securities that represent claims on the cash flows generated by a pool of mortgages

subprime mortgages

mortgage loans made to borrowers with lower incomes and poorer credit histories as compared to “prime” borrowers