Chapter 2 (1)

preferred stock

a special form of ownership having a fixed periodic dividend that must be paid prior to payment of any dividends to common stockholders

financial institutions

an intermediary that channels the savings of individuals, businesses, and governments into loans or investments

commercial banks

institutions that provide savers with a secure place to invest their funds and that offer loans to individual and business borrowers

investment banks

institutions that assist companies in raising capital, advise firms on major transactions such as mergers or financial restructurings, and engage in trading and market-making activities

shadow banking system

a group of institutions that engage in lending activities, much like traditional banks, but do not accept deposits and therefor are not subject to the same regulations as traditional banks

financial markets

forums in which suppliers of funds and demanders of funds can transact business directly

private placement

the sale of a new security directly to an investor or group of investors

public offering

the sale of either bonds or stocks to the general public

primary market

financial market in which securities are initially issued; the only market in which the issuer is directly involved in the transaction

secondary market

financial market in which preowned securities (those that are not new issues) are traded

money market

a market where investors trade highly liquid securities with maturities of 1 year or less

marketable securities

short-term debt instruments, such as U.S. Treasury bills, commercial paper, and negotiable certificates of deposit issued by government, business, and financial institutions, respectively

eurocurrency market

international equivalent of the domestic money market

capital market

a market that enables suppliers and demanders of long-term funds to make transactions

bond

long-term debt instrument used by business and government to raise large sums of money, generally from a diverse group of lenders

common stock

a unit of ownership, or equity, in a corporation

broker market

the securities exchanges on which the two sides if a transaction, the buyer and the seller, are brought together to trade securities

dealer market

the market in which the buyer and seller are not brought together directly but instead have their orders executed by securities dealers who “make markets” in the given security

ask price

the lowest price a seller is willing to accept for a security

bid price

the highest price a buyer is willing to pay for a security