Introduction to Financial Assets and Markets

These flashcards cover the key concepts, definitions, and details from the lecture on financial assets, markets, and investment principles.

What is the definition of net savings?

Net savings is the difference between income earned and expenses incurred.

What is an example of a real asset?

A factory is an example of a real asset.

What is the goal of a corporation?

The goal of a corporation is to maximize claims on its real assets.

What are debt securities?

Debt securities are financial instruments that provide regular income payments and return the principal at maturity.

What are the two main classifications of assets?

The two main classifications of assets are real assets and financial assets.

What does the term 'financial market' refer to?

Financial markets are platforms that facilitate the buying and selling of financial assets.

What is the principle-agent issue in corporate governance?

The principle-agent issue arises when there is a conflict of interest between the shareholders (principals) and the management (agents) of a company.

What is meant by the risk-return trade-off?

The risk-return trade-off is the principle that potential return rises with an increase in risk.

What is the role of interest rates in financial markets?

Interest rates influence borrowing costs, investment decisions, and overall economic activity.

What do retail investors refer to in the context of financial markets?

Retail investors are individual investors who buy and sell securities for their personal accounts.

What is an example of a financial asset?

Stocks and bonds are examples of financial assets.

What is the impact of efficient markets on capital allocation?

Efficient markets ensure that capital flows to firms with the best prospects for growth and return.

What does the term 'opportunity cost' imply in investment choices?

Opportunity cost refers to the potential benefits an investor misses out on when choosing one investment over another.

How does government policy affect financial markets during a recession?

During a recession, the government may lower interest rates to stimulate economic activity and encourage borrowing.

What is the main function of financial markets?

The main function of financial markets is to facilitate the allocation of resources by connecting savers and borrowers.

What is a futures contract?

A futures contract is an agreement to buy or sell an asset at a predetermined future date and price.