D775 WGU Section 1

Personal Finance

Managing individual or household financial activities

Public Finance

Managing a government's revenues, expenditures, and debt

Business Finance

Managing a company's financial activities and strategies

Capital Appreciation

when a stock is bought at a lower price than what it is sold at.

Preferred stocks

provide more stability with fixed dividends and higher priority in asset claims but usually lack voting rights, offering less control over corporate governance.

Common stocks

offer the potential for higher returns and voting rights but come with greater risk due to their lower priority in claims on assets.

. Abcd

The alphabet

Bonds

loans that various entities (like businesses, governments, or individuals) issue, or sell, to raise capital.

maturity

a specific date when the last coupon is due along with the original face value of the bond

junk bonds/ speculative bonds

high-risk, and investors hope to earn a relatively higher return due to that risk.

Corporate Bonds

Issued by firms to finance operations, expansions, and other business activities. Typically carries higher yields due to higher risk

public bonds:

Issued by government groups. There are two main kinds municipal and treasury.

Municipal Bonds / munis

Issued by states or local governments and municipalities fund public projects, like infrastructure such as public roads, hospitals, parks, and fire departments.

Treasury bonds / treasuries

When firms have extra cash sitting in their account- short-term, non-risky investments for the cash.

How do companies raise capital through debt and equity financing?

Companies can issue bonds (debt financing), which must be repaid with interest, or sell stock (equity financing), which gives ownership to investors but does not require repayment.

Financial derivatives

They derive their value from the performance of underlying assets, indexes, or rates.

Options

financial contracts that give the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price, known as the “strike price,” before a specified date

Futures

standardized contracts obligating the buyer to purchase or the seller to sell an asset at a predetermined price on a specified future date.

Mutual Funds

typically open-end investment companies that issue shares to the public and are priced daily based on their net asset value (NAV

Exchange-traded funds

trade on stock exchanges like individual stocks and can be bought and sold throughout the trading day

Hedge Funds

private investment partnerships for accredited investors that employ diverse strategies to generate high returns, often with higher risk

Pension Funds

large pools of capital collected from employees for retirement savings, managed to ensure growth and sustainability of the fund.

Public Markets

buying and selling of securities, such as stocks and bonds, on organized exchanges where the general public can participate

Private Markets

transactions of equity, debt, or other securities that are not publicly traded, typically involving institutional investors, private equity firms, venture capitalists, and accredited individual investors

NYSE

known for its strictest listing requirements and auction-based trading,

NASDAQ

recognized for its electronic trading platform and focus on technology stocks.

Regulators

oversee these exchanges to maintain fair, efficient, and transparent market

Securities and Exchange Commission (SEC

regulates securities markets, enforcing laws to protect investors and maintain orderly functioning

Commodity Futures Trading Commission (CFTC)

Oversees futures and options markets, ensuring they operate free from fraud and manipulation.

IPO

when a company sells shares to the public for the first time.

Why use IPO

raise capital, expand operations, and increase their market presence.

Primary Markets

where new securities are issued and sold for the first time.

Secondary Markets

where existing securities are traded among investors. Provides liquidity, enabling investors to buy and sell securities without the need for the issuing firm's involvement. NYSE and NASDAQ

Dealer Markets

transactions are facilitated by market makers, or dealers, who buy and sell securities for their own accounts; NASDAQ

Auction Market

Centralized mechanism where all buy and sell orders for a security are aggregated, and the price is determined by the highest price a buyer is willing to pay and the lowest price a seller is willing to accept; NYSE

Depository Institutions

such as commercial banks, savings and loan associations, and credit unions, accept deposits from people and businesses and provide loans

Investment Institutions

including investment banks, mutual funds, and hedge funds, help individuals and organizations invest in securities and other assets.

Investment Banks

assist companies in raising capital by underwriting new security issues, facilitating mergers and acquisitions, and providing advisory services

Mutual Funds

pool resources from many investors to purchase a diversified portfolio of stocks, bonds, or other securities, offering individual investors access to professional management and diversification.

Hedge Funds

typically catering to high-net-worth individuals and institutional investors, engage in more complex and often higher-risk investment strategies aiming for high returns

Insurance Companies

Provide risk management by underwriting policies collect premiums from policyholders and invest these funds to generate income, which is used to pay claims; pooling risk among many policyholders.

Pensions Funds

invest in a variety of asset classes, including stocks, bonds, real estate, and private equity, manage retirement savings for individuals, investing contributions to grow the fund's assets over time

Public equity raising

selling shares of the company to the public through stock exchanges,Access to a large pool of capital from a broad investor base and increases the company's visibility and credibility

private equity raising

Securing funds from private investors, such as venture capitalists, private equity firms, or angel investors. Often used by start-ups and growing companies that prefer a more flexible and less regulated funding approach.

Gross Domestic Product (GDP)

represents the total value of all goods and services produced within a country over a specific period.

Consumer Price Index (CPI)

measures changes in the price level of a market portfolio, also known as a market basket of consumer goods and services over time.

Markets Baskets

In the context of CPI- consists of eight major categories: Housing, Transportation, Food and beverages, Medical care, Recreation, Education and communication, Apparel, Other goods and services

Producer Price Index (PPI)

Tracks prices at the wholesale level, reflecting cost changes from the perspective of the producer. Various components such as finished goods, intermediate goods, and raw materials across different industries, including manufacturing, agriculture, mining, and services

inflation

rate at which the general level of prices for goods and services rises, reduces the purchasing power of money.

demand-pull inflation

Inflation that occurs when aggregate demand in an economy outpaces aggregate supply, leading to higher prices.

cost-push inflation

increased production costs lead to higher prices.

Central Banks

monitor inflation closely and adjust monetary policy to maintain price stability

Consumer confidence

reflecting how optimistic consumers feel about their financial situation and the overall economy, also plays a significant role; higher confidence tends to encourage more spending

Consumer spending

Critical component of economic activity, accounting for a substantial portion of total demand in an economy, including essentials like food, clothing, and housing, as well as discretionary items such as entertainment and luxury goods

Full employment

The lowest level of unemployment over the long-term that will not spur inflation. About 4 to 4.5 percent of unemployment

Yield Curve

Graph that plots the interest rates of bonds with equal credit quality but differing maturity dates

Recession

When the GDP is negative for two consecutive quarters.

Inverted Yield Curve

when short-term rates exceed long-term rates, is often viewed as a predictor of economic recession

Time Value of Money

The financial principle that money available today is worth more than the same amount in the future due to its earning potential

Financial Statements

Reports that provide information about a company's financial performance, including the balance sheet and income statement

Preferred Stock

A type of stock that provides fixed dividends and has a higher claim on assets than common stock but usually lacks voting rights

Initial Public Offering (IPO)

The first sale of a company's shares to the public, allowing it to raise capital through stock markets

Market Capitalization

The total value of a company's outstanding shares of stock, calculated as stock price multiplied by the number of shares

Treasury Bonds

Long-term debt securities issued by the U.S. government, considered one of the safest investments

Investment Fund

A pool of money collected from multiple investors and managed by professionals to invest in a diversified portfolio of assets

Municipal Bonds

Bonds issued by local governments to finance public projects like schools and infrastructure, often offering tax benefits

Corporate Bonds

Debt securities issued by companies to raise capital, typically offering higher yields than government bonds due to increased risk

Dividend Policy

A company's strategy for distributing profits to shareholders, either through regular payments or reinvestment in the business

Agency Problems

when there is a conflict of interest between the management (agents) and the shareholders (principals) of a company

corporate social responsibility (CSR)

which is the ethical obligation of businesses to contribute positively to society and minimize their negative impact

subprime mortgage crisis

lenders issued high-risk loans to borrowers with poor credit histories, most likely knowing many of them were unable to pay their mortgage.

offshoring

the practice of relocating business processes or production to countries with lower labor costs, raises some ethical questions, particularly regarding low pay and poor working conditions