Introduction to Financial Markets Vocabulary

Flashcards covering key vocabulary and concepts from the Introduction to Financial Markets lecture notes.

Investment

Using savings to get a return on it in the future.

Inflation

The rate at which the cost of living increases.

Real Rate of Return

The return on an investment after accounting for inflation.

Interest

An amount charged to the borrower for using the lender’s money, usually calculated as a percentage of the principal balance.

Macroeconomic Factors

Economy-related factors that govern interest rates, such as demand for money, government borrowings, supply of money, and inflation rate.

Short-Term Financial Options

Savings bank accounts, money market/liquid funds, and fixed deposits with banks.

Savings Bank Account

A basic banking product offering low interest rates (4%-5% p.a.).

Money Market or Liquid Funds

Mutual funds investing in short-term fixed income instruments, prioritizing capital protection and liquidity.

Fixed Deposits with Banks

Term deposits suitable for investors with low risk appetite, typically for 6-12 months, with interest rates varying based on the term.

Post Office Savings Schemes

Low-risk saving instruments, such as the Post Office Monthly Income Scheme, offered through post offices with fixed interest rates.

Public Provident Fund (PPF)

A long-term savings instrument with a 15-year maturity, offering tax benefits on investments and accrued interest.

Company Fixed Deposits

Short- to medium-term borrowings by companies at a fixed interest rate, payable monthly, quarterly, semi-annually, or annually.

Bonds

Fixed income (debt) instruments issued for more than one year to raise capital, typically with a fixed interest rate and maturity date.

Debentures

Instruments debt issued by private corporate sector.

Mutual Funds

Funds operated by an investment company, pooling money from the public and investing in various assets like shares and debentures.

Net Asset Value (NAV)

The value of all shares held by a fund, minus expenses, divided by the number of units issued.

Stock Exchange

A body constituted for assisting, regulating, or controlling the business of buying, selling, or dealing in securities.

Share

An equal unit of small denomination into which the total equity capital of a company is divided.

Debt Instrument

A contract whereby one party lends money to another on pre-determined terms with regards to rate and periodicity of interest, repayment of principal amount by the borrower to the lender.

Derivative

A product whose value is derived from the value of one or more basic variables, called the underlying asset.

Mutual Fund

A body registered with SEBI that pools money from investors and invests in various financial instruments or securities.

Index

A basket of securities and the average price movement of the basket of securities indicates the index movement, whether upwards or downwards.

Depository

A bank wherein the deposits are securities in electronic form.

Dematerialization

The process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited to the investor’s account with his Depository Participant (DP).

Securities

Instruments such as shares, bonds, scrips, stocks, government securities, derivatives, units of collective investment schemes, etc.

Primary Market

Provides opportunity to issuers of securities; Government as well as corporates, to raise resources to meet their requirements of investment and/or discharge some obligation.

Securities Market

A place where buyers and sellers of securities can enter into transactions to purchase and sell shares, bonds, debentures etc.

Securities and Exchange Board of India (SEBI)

The regulatory authority in India established to protect investors' interests, promote the development of the securities market, and regulate the securities market.

Face Value

The nominal or stated amount assigned to a security by the issuer.

Premium

When a security is sold above its face value.

Discount

When a security is sold for less than its face value.

Public Issue

An offer to the public to subscribe to the share capital of a company.

Rights Issue

When a listed company which proposes to issue fresh securities to its existing shareholders as on a record date.

Preferential issue

An issue of shares or of convertible securities by listed companies to a select group of persons.

Initial Public Offering (IPO)

When an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public.

Cut-Off Price

In a book built issue, the price at which the issuer and lead manager decides to allot shares after considering the book and the investors’ appetite for the stock.

Draft Offer document

The offer document in draft stage.

Abridged Prospectus

A shorter version of the Prospectus and contains all the salient features of a Prospectus. It accompanies the application form of public issues.

Lock-in

Indicates a freeze on the sale of shares for a certain period of time.

Listing of Securities

Admission of securities of an issuer to trading privileges (dealings) on a stock exchange through a formal agreement.

Listing Agreement

The agreement between a company and a stock exchange that specifies the terms and conditions of listing and the disclosures that shall be made by a company.

Delisting of securities

Permanent removal of securities of a listed company from a stock exchange.

American Depositary Receipt (ADR)

A physical certificate evidencing ownership of American Depositary Shares (“ADSs”). The term is often used to refer to the ADSs themselves.

American Depositary Share (ADS)

A U.S. dollar denominated form of equity ownership in a non-U.S. company. It represents the foreign shares of the company held on deposit by a custodian bank in the company’s home country and carries the corporate and economic rights of the foreign shares, subject to the terms specified on the ADR certificate.

Global Depository Receipts (GDRs)

A global finance vehicle that allows an issuer to raise capital simultaneously in two or more markets through a global offering.

Limit Order

An order to a broker to buy or sell securities when the market price reaches a specified level.

Market Order

An order to a broker to buy or sell securities immediately at the best available current price.

Liquidity

A measure of how easily an asset can be converted into cash without affecting its market price.

Security Analysis

The process of evaluating securities and markets to forecast future values and make investment recommendations.

Portfolio Management

A strategy of selecting a diversified portfolio of investments that matches the risk and return objectives of an investor.

Broker

An individual or organization that acts as an intermediary between a buyer and seller for a fee or commission.

Dealer

A firm that buys or sells securities for its own account.

Interest Rate Risk

The risk that an investment's value will decrease due to changes in interest rates.

Credit Risk

The risk that a borrower will not repay a loan or debt obligation.

Operational Risk

The risk of loss due to inadequate or failed internal processes, people, and systems, or external events.

Political Risk

The risk of loss due to political instability or changes in government regulations.

Currency Risk

The risk that arises from the effect of changes in currency exchange rates.

Systematic Risk

The complete collapse of an asset or company, leading to total loss of investment.

Diversification

The process of spreading investments across different asset classes to reduce risk.