Introduction to Financial Markets Lecture Notes

Flashcards summarizing key vocabulary related to financial markets based on lecture notes.

Financial System

The financial system comprises the financial markets, financial intermediaries, and other financial institutions that execute the financial decisions of households, firms/businesses, and governments.

Portfolio Management

The process of putting together and maintaining the proper set of investments to meet the objectives of the investor under any restrictions imposed.

Yield Curve

A graph that shows how interest rates vary with the term or time to maturity of similar quality bonds.

Cumulative Frequency

The sum of the frequencies for a given data value and all previous data values.

Market Capitalization

The total market value of a company's outstanding shares, calculated by multiplying the share price by the total number of outstanding shares.

Equity Market

The financial market where shares are issued, invested in, and traded.

Derivatives

Financial instruments that derive their value from the values of underlying securities or other variables.

Interest Rate Swap

An agreement to exchange cash flows based on different interest rates, typically exchanging fixed-rate payments for floating-rate payments.

Circle Flow Diagram

A model that shows how money flows through the economy between households and firms.

Compound Interest

Interest calculated on the initial principal and also on the accumulated interest of previous periods.

Primary Market

The market for the issuance of new securities directly from the issuer to investors.

Secondary Market

The market where previously issued securities are bought and sold among investors.

Normal Distribution

A symmetrical probability distribution characterized by its bell-shaped curve, where most outcomes cluster around the mean.

Hedging

The practice of reducing risk by taking an offsetting position in a related security.

Expected Return

The weighted average of all possible returns of a security, based on the probabilities of each outcome.

Arbitrage

The simultaneous purchase and sale of an asset in different markets to profit from price differences.

Capital Asset Pricing Model (CAPM)

A model that describes the relationship between risk and expected return, used to determine a theoretically appropriate required rate of return.

Securities Transfer Tax (STT)

A tax levied on the transfer of shares or securities in South Africa, charged at a rate of 0.25%.

Debt Market

A financial market where securities that represent an obligation to pay back borrowed money at a later date are traded.

Cumulative Relative Frequency

The cumulative frequency divided by the total number of observations, expressed as a percentage.