FNCE 3000 The Markets and Investments

What is the goal of any business? (Including Financial sectors)

To maximize the wealth of its owners

What does an insurance company do?

Help businesses and individuals manage risk

What is another term for insurance companies?

Carriers

What does an investment bank do?

Help businesses and governments in obtaining capital

Investment banks products/services

Mergers and Aquisitions (MSA), Securities underwritingW

Insurance companies products/services

Insurance policies

Lending institutions products/services

Loans, bank accounts

Lending institutions sources of revenue

Various fees, interest

Insurance companies source of revenue

Insurance premiums and investment income

Investment banks source of revenue

Flotation costs

What is commercial?

Business

What is an example of commercial?

Commercial loans

What is a premium?

The price of a policy

What is an example of a premium?

Insurance premiums

What are flotation costs?

A percentage of the total value of securities underwritten

What is an example of a flotation cost?

Underwriting fees

What are three examples of securities?

Bonds, preferred stock, common stock

What is an insurance policy?

A contract between you and the carrier

Who pays flotation costs?

The issuer to the underwriter

What does M&A stand for?

Mergers and aquisitions

What do securities brokers provide?

They buy and sell securities for their clients.

Do “stockbrokers” help investors buy and sell investments other than stock?

Yes. Stockbrokers can also help clients sell bonds and other types of investments.

Why do many securities brokers lose their licenses?

Engaging in wrongful acts (e.g. Stealing from clients)

What is the traditional source of revenue for securities brokers?

Commissions when buying or selling securities

What does SIE stand for?

Securities Industry Essential

What is a market?

A place where buyers and sellers meet to exchange goods or services.Wha

What is a bull market/bullish?

Market prices (values) are going up

What is a bear market/bearish?

Market prices (values) are falling.

What is a flat/sideways market?

Prices are neither going up or down enough to be inconsistent. Prices are more constant.

Who are public markets open to?

Public investors

Who are private markets open to?

Insurance companies, large banks and pension funds, individuals and couples who qualify as accredited investors.

Which is more regulated: Public or Private markets?

Public markets

Who is SEC?

The Securities and Exchange Commission

What is SEC responsible for?

Regulating US public financial markets with the goal of protecting public investors

SEC is part of which government?

The Federal

What are two public markets?

New York Stock Exchange and the NASDAQ

What does SEC stand for?

The Securities and Exchange Commission

What is an Initial Public Offering?

The first time a private corporation sells its stock to public investors

What is a seasoned offering?

Subsequent issuance of stock by a public company

What is a primary market?

Transactions involving the issuance of new securities

What is a secondary market?

Markets in which transactions involve previously issued securities

What are two services an investment bank provides?

Mergers and acquisitions, securities underwriting

What are three functions of a securities underwriter?

Helps with SEC compliance, determining the price of issuer’s securities, finding investors interested in securities

Who are the buyers in the primary and secondary markets?

Investors

Who are the sellers in the primary and secondary markets?

Issuers

Are seasoned offerings occurring in the primary or secondary market?

Primary

Are issuers involved in transactions that occur in the secondary market?

Not really. They’re considered “non-issuer” transactions.

What are two examples of secondary markets?

The New York Stock Exchange, NASDAQ

Does what’s happening in secondary markets influence primary markets?

Yes. Gauge for investor sentiment, liquidity, and asset pricing.

Which market do companies prefer to conduct IPOs?

Bullish

What does IPO stand for?

Initial Public Offerings

What is an efficient market?

Where all participants have the same info or have access to the same info

What is the first implication to the efficient markets hypothesis?

If all investor’s have the same info, it gets factored into the security’s price as soon as it becomes available

What is the second implication to the efficient markets hypothesis?

Market reacts to new info about a security if it’s different than what they expected

What is the third implication of the efficient markets hypothesis?

It is impossible to consistently beat an efficient marketW

What is the fourth implication of the efficient markets hypothesis?

The longer the number of market participants, the greater the market efficiency

What are two examples of debt capital?

Bank loans, debt securities

What are two examples of equity capital?

Preferred stock, common stock

What is a dividend?

Payment of a corporation’s profits to its shareholders

What are the two types of capital?

Debt and equity

What does income mean in the context of investing?

Periodic cash flow that the investment will give you.

What are three examples of income?

Interest, rent, dividends

Does a corporation need to pay dividends?

No

What does the Board of Directors do when it comes to dividends?

Decides if they will pay and how much of the profit will be distributed

What is growth?

Increase in the investment’s market value

What is another term(s) for growth?

Appreciation, capital gain