Chapter 21

Stock Exchanges

Location where stocks are bought & sold.

Stocks

Shares of ownership in an organization; prices rise when investors believe in their future profit.

Stockholders

Owners of a corporation who elect the board of directors.

Stockbroker

Person who buys and sells stocks and other investments for customers.

Full-service brokers

Provide information about current stock market trends and other types of investments.

Discount brokers

Provide less service & information than full-service brokers.

Computerized stock trading

Low cost automated systems used by most major stock exchanges.

Stock Prices based on

Demand, profitability, economy, political situation, and social trends.

Bond

Certificate representing money borrowed by a company or another organization to be repaid over a long period of time; helps organizations raise debt capital.

Corporate Bonds

A debt certificate issued by a multinational company or another corporate enterprise; usually sold in $1,000 increments.

Mortgage Bond

Debt secured by a specific asset or property; collateral can include equipment, a building, or land.

Debenture Bond

A corporate bond without collateral; considered unsecured debt.

Maturity Date

Date the loan will be repaid.

Interest Calculation

Interest = Face Value × Interest Rate × Time in Years. Example: $1,000 × 0.10 × 1 = $100.

Rate of Return

Annual Income / Cost of Investment; for example: $72 / $1,000 = 0.072.

Treasury Bills

T-Bills - short-term government securities ranging from 91 days to 1 year.

Treasury Notes

T-Notes - intermediate securities issued for 1-10 years.

Treasury Bonds

T-Bonds - long-term securities issued for 10-30 years.

U.S. Savings Bonds

Purchased at half of face value; example: $100 bonds cost $50.

Municipal Bonds

Debt certificate issued by a state or local government; earnings are typically tax-exempt.

Retirement Accounts

Accounts designed to provide income after retirement.

Tax-Exempt Income

Income that is not subject to federal income taxes.

Tax-Deferred Income

Income that will be taxed upon withdrawal of funds.

External Bonds

Bonds aimed at investors in other countries and paid in their local currency.

Internal Bonds

Bonds aimed at investors in the country issuing the bond and payable in native currency.

Multiple Currency Bonds

Bonds payable in several currencies.

Foreign Government Bonds

Bonds issued by foreign governments to finance infrastructure projects.

Face Risks

Include exchange rates, currency stability, and changes in government.

Over-The-Counter Market (OTC)

Network of stockbrokers who buy and sell stocks of companies not listed on a stock exchange.

NASDAQ

National Association of Securities Dealers Automated Quotations; a major computerized trading system for OTC stocks in the U.S.

Neuer Markt

German stock market that trades stocks of emerging companies in the EU.

Future Market

Market for buying and selling commodities contracts.

Foreign Exchange Market

Market for buying & selling currencies needed for international trade.

Eurodollar

U.S. dollar deposited in a bank outside the United States.

Euro

Official currency of the European Union (EU).

Futures Market

Allows investors to buy or sell contracts on future prices of commodities.

Saving

The storing of money for future use.

Investing

Putting money to work in a business venture; usually has higher risks and potential returns than saving.

Goals of Investing

Include current income and long-term growth.

Current Income

Income from investments for living expenses; sources include dividends, interest, and rent.

Long-Term Growth

Investment focus for long-term financial security, including retirement planning.

Capital Gain

Profit made from the resale of investments, affected by supply and demand.

4 Main Factors when Choosing Investments

Rate of return, liquidity, taxes, and safety.

Liquidity

Ability to easily convert an asset into cash without a loss of value.

Safety

The risk associated with an investment; higher returns often come with higher risks.