Chapter 1 - Investment environment and investment management process

Vocabulary flashcards covering key concepts from the lecture notes.

Investing

The act of employing money over time to increase wealth, using funds from assets, savings, or borrowing; distinguishes real and financial investments.

Financing

The process of obtaining funds for investment or operations, including how firms raise capital (e.g., issuing stocks and bonds).

Real investments

Investments in tangible assets such as land, machinery, or factories.

Financial investments

Investments in paper or electronic contracts such as stocks, bonds, or other marketable securities.

Investment environment

The set of investment vehicles and financial markets and conditions available to investors.

Investment vehicles

Financial instruments or assets (stocks, bonds, etc.) used to invest funds, characterized by return and risk.

Financial markets

Platforms where buyers and sellers trade securities, enabling price discovery, liquidity, and lower transaction costs.

Investment management process

Five-step framework: setting investment policy, analyzing and evaluating vehicles, forming a diversified portfolio, portfolio revision, and measuring performance.

Direct investing

Investing directly in financial markets by buying/selling assets and managing the portfolio oneself.

Indirect investing

Investing through financial intermediaries that pool funds and manage portfolios.

Financial intermediaries

Institutions that pool funds and provide professional portfolio management, liquidity, and diversification (e.g., banks, mutual funds, pension funds).

Speculation

Short-term, high-risk investments aimed at profiting from market fluctuations, often treated as investments with higher risk.

Individual investors

Retail investors; individuals investing on their own.

Institutional investors

Large entities such as investment companies, banks, and pension funds that invest substantial sums and often use professional management.

Open-end funds

Mutual funds that can issue or redeem shares; price per share is based on net asset value (NAV).

Closed-end funds

Publicly traded funds with a fixed number of shares; price may differ from NAV.

Primary market

Market where new securities are issued and sold for the first time (e.g., IPOs) with underwriters.

Secondary market

Market where previously issued securities are traded among investors; brokers, exchanges, OTC, and ATS are all parts.

Money market

Market for short-term debt instruments (less than 1 year) such as T-bills, CDs, commercial paper, and repos; characterized by low risk and high liquidity.

Capital market

Market for long-term securities (greater than 1 year) such as bonds and stocks; higher risk and used to finance long-term needs.

Investing

The act of employing money over time to increase wealth, using funds from assets, savings, or borrowing; distinguishes real and financial investments.

Financing

The process of obtaining funds for investment or operations, including how firms raise capital (e.g., issuing stocks and bonds).

Real investments

Investments in tangible assets such as land, machinery, or factories.

Financial investments

Investments in paper or electronic contracts such as stocks, bonds, or other marketable securities.

Investment environment

The set of investment vehicles and financial markets and conditions available to investors.

Investment vehicles

Financial instruments or assets (stocks, bonds, etc.) used to invest funds, characterized by return and risk.

Financial markets

Platforms where buyers and sellers trade securities, enabling price discovery, liquidity, and lower transaction costs.

Investment management process

Five-step framework: setting investment policy, analyzing and evaluating vehicles, forming a diversified portfolio, portfolio revision, and measuring performance.

Direct investing

Investing directly in financial markets by buying/selling assets and managing the portfolio oneself.

Indirect investing

Investing through financial intermediaries that pool funds and manage portfolios.

Financial intermediaries

Institutions that pool funds and provide professional portfolio management, liquidity, and diversification (e.g., banks, mutual funds, pension funds).

Speculation

Short-term, high-risk investments aimed at profiting from market fluctuations, often treated as investments with higher risk.

Individual investors

Retail investors; individuals investing on their own.

Institutional investors

Large entities such as investment companies, banks, and pension funds that invest substantial sums and often use professional management.

Open-end funds

Mutual funds that can issue or redeem shares; price per share is based on net asset value (NAV).

Closed-end funds

Publicly traded funds with a fixed number of shares; price may differ from NAV.

Primary market

Market where new securities are issued and sold for the first time (e.g., IPOs) with underwriters.

Secondary market

Market where previously issued securities are traded among investors; brokers, exchanges, OTC, and ATS are all parts.

Money market

Market for short-term debt instruments (less than 1 year) such as T-bills, CDs, commercial paper, and repos; characterized by low risk and high liquidity.

Capital market

Market for long-term securities (greater than 1 year) such as bonds and stocks; higher risk and used to finance long-term needs.

Stocks (Equity)

Financial instruments representing ownership shares in a corporation, giving holders a claim on earnings and assets, and potential for capital appreciation.

Bonds (Debt Securities)

Debt instruments issued by governments or corporations to borrow money, promising to pay interest (coupon payments) to the bondholder and return the principal at maturity.

Investment Risk

The probability or possibility of an actual investment's return being different from the expected return, including the potential for loss of principal.

Investment Return

The gain or loss on an investment over a specified period, typically expressed as a percentage of the initial investment, encompassing income and capital appreciation.

Underwriter

A financial institution (often an investment bank) that assists companies in issuing new securities to the public by purchasing the securities from the issuer and reselling them to investors.