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Series 6 Unit 1
series 6 unit 1 kaplan
| Question | Answer |
|---|---|
| what is a security? | an investment instrument that represents either ownership interest in a company or a creditor relationship with a company. |
| FINRA | Financial Industry Regulation Authority. is a SRO that regulates participants in the other the counter market securities. |
| Secondary Transaction | securities often trade btwn investors here. they take place on stock exchanges, or OTC or both. |
| Market Makers | maintain inventories of OTC securities and sell to other broker/dealers out of their inventory for their asked offering price. |
| Associated Person | employee, manager, director, officer, or partner or anyone controlled by a member of FINRA |
| Broker | individual or firm that charges a commission for buying and selling |
| dealer | a broker/dealer acting as a principal in a trade or buys and sells for its own account. |
| common stock | primary means of raising business capital. owners can own part of the company and can vote for a BOD, and have say in some day to day details. |
| treasury stock | was outstanding before repurchased, has no voting rights, does not receive dividends, can be reissued or retired. |
| Current Market Value (CVM) | is the price investors pay for stock. it is influenced by supply and demand. this is the most meaningful to investors |
| book value | measure of how much a common stockholder could expect to receive for each share if the corporation were liquidated. |
| limited liability | stockholders cannot lose more than what they put in. |
| Bullish | buying shares that you expect the price of the stock to increase (long) |
| Bearish | buying shares that you expect the price of the stock to decrease (short) |
| short sale | borrowing shares to sell that the investor must eventually replace. |
| statutory voting | allows one vote per share owned for each item on a ballot |
| cumulative voting | stockholders can allocate their votes in any manner they choose. this is best for smaller stockowners |
| preemptive right | the right to buy enough newly issued shares to maintain the % of ownership in the corporation. |
| NASDAQ | stocks that have national and international interests are listed on the quotation system known as the NASDAQ. Tier 1 is most strict and Tier 3 is the least strict |
| preferred stock | par value 100, fixed dividend, has ownership, priority claim over common stock, is price sensitive to interest rates. |
| stock splits | a company can change the number of outstanding shares by means of a stock split. the total value of outstanding stock must be the same before and after the split. (2 for 1 100 shares at $20 are now 200 shares at $10) |
| American Depositary Receipts (ADR's) | facilitate the trading of foreign stocks in the US markets. it is a negotiable security that represents a receipt for shares of stock in a non US corporation, usually from 1 to 10 shares. you will recieve dividends and capital gains or losses |
| rights of ADR | paid with US dollars, paid out by the foreign company in their currency and then exchanged for US dollars. has the right to exhange the holders ADRs for foreign share certificates. |
| rights | short term instruments, exercise prise is below market price, issues to current shareholders only, who may exercise them, sell them on the open market, or let them expire |
| warrant | long term instruments, exercise price is above market price at time of issue; used as sweetners with issues of more speculative corporate bonds; also, owners are not entitled to dividends, though they may sell the warrant on the open market. |
| call option | give the buyer the right to call a security away form someone. you take on the obligation to sell the stock, if the call option is exercised |
| put option | gives the buyer the right to sell a security to someone. obligation to buy the stock if the put option is exercised. |
| trust indenture | a legal contract between the bond issuer and a trustee representing bondholders. corporate bonds of $5 million or more. Federal and Municipal governments are exempt |
| coupon (bearer) bonds | there were no records of ownership so whoever had them at the time of redemption received the interest or sell the bonds. |
| principal only bonds | the names of the owners are recorded on the bonds but are in bearer form. |
| book bonds | do not receive certificates but the agent maintains ownership records. US govt and municipal bonds are available only in book entry form. |
| Bond Maturities | T-bills 52 weeks or less; T-notes 2-10 year maturities; T-bonds 10-30 year maturities |
| sinking fund | used to call bonds, redeem bonds at maturity, or buy back bonds in the open market. cash is deposited into an account with the trustee |
| Refunding | process of raising money to call a bond |
| current yield | measures the bonds annual interest relative to its market price. (annual interst/market price) |
| yield to maturity | reflects the annualized return of the bond if held to maturity. |
| types of US government securities (backed by the US government) | US treasury bills, notes, and bonds; Series EE, HH, and I bonds; new housing authority bonds; Ginnie Mae's |
| types of agency like organizations (not backed by the government) | federal farm credit banks, Freddie Mac, Fannie Mae |
| General Obligations | backed by the taxing power of the issuer, usually safer than revenue bonds. issued by municipalities. raise funds for municipal captial improvements that benefit the entire community. |
| nonmarketable government bonds | EE and HH savings bonds |
| t bills | short term obligations that are issued at a discount from par. issues in $1000 to $1M and mature in 4, 13,26, and 52 weeks. pricing is stated in terms of the annualized interest rates that the discount from par value will yield. |
| T notes | similar to tbill but pay interest every 6 months. denominations of $1000 to $1M and mature in 2 to 10 years. mature at par or refunded. priced at 1/32 of a percentage of par. |
| t bonds | long term securities that pay interest every 6 months mature in 10 years or more and priced like t notes. they are also callable. |
| treasury receipts | when broker dealers buy treasury securities and place them in a trust at a bank and sell separate receipts against the principal and coupon payments. |
| EE bonds | are issued at 50% of their face value in denominations of $50 to $10,000. bonds can be redeemed before maturity but will get lower rate of return |
| HH bonds | pay semiannual interest, come in denominations of $500 to $10,000 and mature in 10 years although can be redeemed at face value anytime. |
| series I bonds | protect US govt securities from inflation. interest accrues monthly and compounds semiannually. protect against loss of purchasing power from inflation. purchased from broker dealer or bank directly. |
| Ginnie Mae | buys FHA and VA mortgages and auctions them to private lenders, which pool the mortgages to create pass through certificates for sale to investors. risk of default is 0. risk if interest rate falls. higher yields than treasuries. |
| freddie mac | public corporation. created to promote the development of a nationwide secondary market in mortgages by purchasing residential mortgages from financial institutions and packaging them into mortgage backed securities for sale to investors |
| fannie mae | publicly held, provides mortgage capital. purchases conventional and insured mortgages from agencies such as FHA and VA backed by FNMA general credit. |
| Collateralized Mortgage Obligations (CMO's) | mortgage backed securities, pool large number of mortgages, usually single family residences. considered safe. risks with interest rates. subject to sate, federal, and local taxes. |
| municipal bonds | 2nd only to US govt in safety. pay interest semi annually the interest payment schedule is set when the bonds are issued. capital gains are taxable and pay lower interest rates on bond issues. better for high tax bracket. |
| revenue bonds | used to finance municipal facilities that generate enough income to support operations and debt service. these include utilities, housing, transportation, education, health, and industrial. |
| special revenue bonds | construct facilities or purchase equipment which is then leased to a corporation. the money from the lease payments is used to pay the principal and interest on the bonds. |
| secured bonds | when the issuer has a identified specific asset as collateral for interest and principal payments |
| mortgage bonds | have real property pledged as collateral |
| collateral trust bonds | usually issued by corporations that own securities of other companies as investments. backed by stocks and bonds of subsidiaries, another companies stocks and bonds, payments or other obligations, and US treasuries. |
| equipment trust certificates | finance the purchase of capital equipment by taking the title to the new equipment is held in a trust, usually a bank, until all certificates are paid in full |
| unsecured bonds | bonds with no specific collateral backing and are either debentures or subordinated debentures |
| guaranteed bonds | backed by a company other than the issuer such as a parent company. insurance is usually the guarantee |
| income bonds | used when a company is reorganizing and coming out of bankruptcy. pay interest only if the corporation has enough income to meet interest payment and the board declares a payment |
| zero coupon bonds | debt obligations that do not make regular interest payments. price of a bond reflects the general interest rate climate for similar maturities. issued by corporations, municipalities, and US treasuries. must pay income tax on them each year |
| convertible bonds | corporate bonds that may be exchanged for a fixed number of shares of the issuing companies common stock. |
| parity | the state of a convertible bond when the price is equal to the market price of the underlying stock. |
| duration | it is a measure of the amount of time a bond will take to pay for itself. used to assess the volatility of a bond in response to interest rate changes |
| money market | short term funds to corporations, municipalities, and US govt. money market securities are debt issues with maturities of one year or less |
| money market instruments | provide a means to finance short term cash requirements. include treasury bills, treasury and agency securities with maturities of less than a year, short term discount notes issued by various smaller agencies |
| bankers acceptance | short term time draft with a specified payment date on back. it is a line of credit. payment is within 270 days. issued at discount and mature at par |
| commercial paper | raise cash to finance accounts receivable and seasonal inventory overages. matures at 270 days. issued at discount form face value. usually for companies with good credit ratings. |
| negotiable CD's | time deposits banks offer. minimum value of $100,000. can be traded in 2nd market before their maturity and are considered money market securities |
| GDP | all the goods and services produced within a nation. |
| CPI | rate of increase or decrease in a range of inflation and consumer prices. |
| fed | conducts monetary policy by influencing the money supply which in turn affects interest rates |
| discount rate | can adjust the money supply by raising or lowering the discount rate, the interest rate the fed charges its members for short term loans. |
| federal open market committee (FOMC) | created to direct the FRB open market operations. |
| expand (loosen) money supply | buy securities from banks. put money into the banks so that they can loan out money. |
| contract (tighten) money supply | sells securities to the banks. the banks will have less money to loan. |
| fiscal policy | based on the assumption that the govt can control the levels of unemployment and inflation by adjusting overall demand for goods and services. reduce inflation by reducing demand for goods increase inflation by increasing demand |
| federal fund rates | interest rate charged on reserves traded among member banks for overnight use in amounts of $1M or more. most volatile of all rates |
| prime rate | rate on corporate loans at large us money center commercial banks |
| discount rate | change on loans to depository institutions |
| broker call loan rate | charge on loans to broker dealers with stock as collateral |
| LIBOR | average interst rate charged when banks in London interbank market borrow unsecured funds from each other. |
| currency exchange rate | importers profit if own currency is stronger (US $ 1.2 to 1.3 foreign goods look cheaper). Exporters profit if own currency becomes weaker (US $ 1.3 to 1.2 our goods look cheaper to foreigners) |
Created by:
Jseveska
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