Lecture 1: Introduction to Securities Markets

Flashcards covering the vocabulary and concepts from the BE304 Introduction to Finance lecture on securities markets, including types of investments, market structures, and trading mechanisms.

Investment

Any asset into which funds can be placed with the expectation that it will generate positive income and/or increase its value.

Return

The reward for owning an investment, which includes income from the investment and any increase in its value.

Risk

The uncertainty surrounding the return that a particular investment will generate.

Investment portfolio

A collection of different investments typically constructed to meet one or more investment goals.

Short-term investments

Conservative investments with lives of $1$ year or less that provide high liquidity.

Commercial paper

Short-term unsecured promissory notes issued by a company to raise short-term cash.

Repurchase agreements (“Repos”)

Agreements involving the sale of securities by one party to another with a promise by the seller to repurchase the same securities from the buyer at a specified date and price.

Certificates of deposit (CDs)

Bank-issued time deposits that specify a fixed interest rate and maturity date.

Common stock

An equity investment representing an ownership share in a corporation with no maturity date.

Dividends

Periodic payments that a corporation makes to its shareholders.

Capital gains

An increase in a stock price above an investor’s initial purchase price.

Fixed-income securities

Investments such as bonds that offer periodic cash payments that may be fixed or vary according to a predetermined formula.

Bonds

Long-term debt instruments issued by corporations and governments where the bondholder has a contractual right to periodic interest plus the return of the face, or par, value at maturity.

Par value

The original loan amount of a bond, also known as the face value, to be returned at maturity.

Convertible securities

Special fixed-income instruments that permit holders to convert them into a specified number of shares of common stock.

Preferred stock

An ownership interest in a corporation with a fixed dividend rate and no voting rights, giving holders preferential rights to dividends over ordinary shareholders.

Mutual funds

A portfolio of securities created by pooling the funds of many different investors and managed by an investment company.

Exchange-traded funds (ETFs)

Investment funds similar to mutual funds, except their shares trade on exchanges and can be bought or sold any time the exchange is open.

Hedge funds

Funds that pool resources from different investors, typically requiring higher minimum investments and being less regulated than mutual funds.

Derivative securities

Securities such as options and futures contracts that derive their value from an underlying asset like a stock or commodity.

Money market

The market where low-risk, short-term debt securities are bought and sold.

Capital market

The market where long-term securities such as stocks and bonds are bought and sold.

Primary market

The market in which new issues of securities, such as an Initial Public Offering (IPO), are sold by the issuer to investors.

Secondary market

The market in which existing securities are resold among investors, providing continuous pricing and liquidity.

Long purchase

A transaction where investors buy securities expecting them to increase in value so they can be sold later for a profit.

Margin trading

A transaction technique using funds borrowed from brokerage firms to purchase securities.

Margin

The amount of equity, expressed as a percentage, in an investment that is not borrowed.

Initial margin

The minimum amount of equity that must be provided by the investor at the time of purchasing securities.

Maintenance margin

The absolute minimum amount of margin or equity that an investor must keep in the account at all times.

Margin call

A notification from a broker to an investor stating they must deposit additional funds to meet margin requirements.

Short selling

The practice of selling securities that the seller does not own by borrowing them and selling them in the hope of buying them back later at a lower price.