CFA Certificate practice Module 1

Financial services industry

Industry that offers a range of products and services to those who have money to invest and those who need money and help channel funds between them.

Financial capital

Money provided to individuals, companies, and governments to finance their needs.

Assets

Items that have value and include real assets and financial assets.

Real assets

Physical assets, such as land, buildings, machinery, cattle, and gold.

Physical capital

The means of production; tangible goods such as equipment, tools, and buildings.

Financial assets

Claims on other assets; for example, a share of stock represents ownership in a company or a claim to some of the company's assets and earnings.

Portfolio

The group of assets in which savings are invested.

Securities

Financial assets that can be traded, such as shares and bonds.

Financial markets

Places where buyers and sellers can trade securities; also called securities markets or capital markets.

Direct finance

When providers and users of capital interact, the providers usually have a direct claim on the users (e.g., right to certain assets and earnings generated by the user). See also direct investments.

Indirect finance

The use of financial intermediaries to find and channel funds between providers and users of capital. Because financial intermediaries sit between providers and users, the former do not have direct claims on the latter. See also indirect investments.

Financial intermediaries

Organizations that go between those who have money and those who need money.

Investment industry

Subset of the financial services industry that comprises all the participants that are instrumental in helping savers invest their money and spenders raise capital in financial markets.

Capitalism

An economic system that promotes private ownership as the means of production and markets as the means of allocating scarce resources.

Investment banks

Financial intermediaries that assist companies and governments in raising capital and can provide other services, such as strategic advisory services, brokerage and dealing services, and research services; also known as merchant banks.

Sell-side analysts

Analysts who work for the organizations, typically an investment bank, that sell securities. They collect and analyze information about a company and its competitors and then prepare a report that is shared with potential investors.

Retail investors

Individual investors with the least amount of investible assets.

High-net-worth investors

Individual investors with a higher amount of investible assets relative to retail investors.

Pension plans

Institutional investors who hold investment portfolios for the benefit of future and current retirees.

Endowment funds

Long-term funds owned by non-profit institutions.

Foundations

Grant-making institutions funded by gifts and by the investment income that they produce.

Sovereign wealth funds

Funds created by governments to invest surpluses for the benefit of current and future generations of their citizens.

Buy-side analysts

Analysts who work for organizations, typically a type of institutional investor, that buy securities. They analyze data about companies and the markets in which they operate and review potential investments.