Essentials of investment

Investment is committing __ for future value.

money

Real assets are assets producing __ and services.

goods

Financial assets are claims on __ assets.

real

Fixed income or debt securities pay a specific __ amount for a set time.

cash

Money market consists of __, low-risk debt securities.

short-term

Derivatives are financial instruments whose value is based on an __ asset.

underlying

Call options give the holder the right to __ an asset at a specified strike price.

purchase

The quote by Winston Churchill states that markets may be the worst way to allocate __ except for all others that have been tried.

capital

Bonds promise a __.

return

Stocks give the risk of success or __.

failure

Agency problems refer to conflicts between __ and stockholders.

managers

Market signals lead to efficient capital allocation only if investors act on __ information.

accurate

The allocation of an investment portfolio involves distributing investments across broad __ classes.

asset

Security analysis analyzes the __ of a security.

value

The risk-return trade-off indicates that higher expected returns involve greater __.

risk

Financial intermediaries are institutions that connect __ and lenders.

borrowers

The Glass-Steagall Act separated commercial banking from __ banking.

investment

The primary market is where __ issues of securities are offered to the public.

new

The secondary market is where previously issued securities are bought and __.

sold

The 2008 financial crisis significantly impacted Fannie Mae and Freddie Mac due to __ securities.

mortgage-backed

Credit default swaps allow investors to offset __ risk.

credit

Systemic risk refers to the risk of the banking system __ down.

breaking

The Dodd-Frank Wall Street Reform Act increased regulation and oversight of financial institutions after the __ crisis.

2008

Modern portfolio theory is a theory for constructing portfolios to maximize __ for a given risk level.

returns

A Treasury bill is a short-term U.S. government security with a maturity of up to __ year(s).

one

A certificate of deposit (CD) means a bank pays __ and principal at the end of a fixed term.

interest

Commercial paper is short-term unsecured __ issued by large corporations.

debt

A banker's acceptance is a time draft accepted by a bank, promising payment at a future __.

date

Eurodollars are dollar-denominated deposits at __ banks.

foreign

Repurchase agreements (repos or RPs) are often __ borrowing by dealers in government securities.

overnight

Federal funds refer to funds in commercial bank accounts at the __ Reserve Bank.

Federal

LIBOR is the lending rate among __ in the London market.

banks

The TED spread is an indicator of distress in the U.S. market compared to __.

London

Treasury inflation-protected securities (TIPS) adjust their principal with __.

inflation

Municipal bonds are debt securities issued by states, municipalities, or counties, often __ exempt.

tax

Mortgage-backed securities are financial instruments secured by a collection of __ loans.

mortgage

A residual claim is last in line to have a claim on __.

assets

Preferred stock behaves like an infinite maturity __, paying fixed dividends.

bond

An American Depository Receipt (ADR) represents foreign stocks traded in the __.

U.S.

The Dow Jones Industrial Average includes the oldest 30 blue-chip __.

stocks

The Standard & Poor's 500 Index (S&P 500) covers __ firms.

500

The NASDAQ Composite index includes stocks traded on the __ exchange.

NASDAQ

An equally weighted index means each stock contributes equally to the index __.

value

In a market-value weighted index, component weights are proportional to their market __.

capitalization

International firms indexes include Nikkei (Japan), FTSE (U.K.), DAX (Germany), Hang Seng (Hong Kong), TSX (Toronto), and __.

MSCI

A put option gives the holder the right to __ an asset for a specified strike price.

sell

A futures contract calls for the delivery of an asset at a specified __ date.

maturity

The premium is the purchase price of an __.

option

A primary offering is the first time a __ is sold by the issuer.

security

A secondary offering is the subsequent sale of __ already issued.

shares

Private placement involves the direct sale of securities to a small number of __ investors.

institutional

Underwriters purchase securities from an issuing company and __ them to the public.

resell

A prospectus is a description of the firm and the __ it is issuing.

security

Algorithmic trading uses computer programs to execute trades based on predefined __.

rules

High-frequency trading (HFT) is characterized by extremely fast __.

execution

Blocks refer to large transactions of stock, typically __ shares or more.

10,000

Dark pools are private exchanges or forums for trading securities that are not accessible to the investing __.

public

Margin is the portion of a purchase price contributed by the investor; the remainder is borrowed from a __.

broker

A short sale involves selling borrowed securities with the expectation of buying them back later at a __ price.

lower

The bid-ask spread is the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to __ (ask).

accept

The bid price is the highest price a buyer is willing to pay for a __.

security

A unit investment trust (UIT) holds a fixed portfolio of securities until a specified __ date.

termination

An open-end fund (mutual fund) issues new shares when investors buy and redeems shares when investors sell at Net Asset __ (NAV).

Value

A close-end fund has a fixed number of shares that trade on __.

exchanges

Commingled funds are pooled investment funds offered by __ or investment companies.

banks

A real estate investment trust (REIT) is a company that owns, operates, or finances __ real estate.

income-generating

A money market fund invests in short-term, low-risk __ instruments.

debt

An equity fund primarily invests in __.

stocks

Specialized sector funds concentrate investments in a particular __ or sector.

industry

A bond fund invests in bonds and other __ securities.

debt

International funds invest in securities from markets outside one's home __.

country

Balanced funds invest in a mix of stocks and __ to provide both growth and income.

bonds

Asset allocation funds automatically adjust the proportion of assets in various categories based on certain __.

criteria

Index funds aim to match the performance of a specific market __.

index

A front-end load is a sales charge paid when shares are __.

purchased

A back-end load is a sales charge paid when shares are __.

sold

12b-1 fees are annual fees charged by mutual funds to cover marketing and __ costs.

distribution

Soft dollars refer to a practice where brokerage firms provide research or other services to fund managers in exchange for brokerage __.

commissions