Understanding Business Chapter 19 – Flashcards
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Initial Public Offering (IPO)
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The first public offering of a corporation's stock.
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Investment Bankers
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Specialists who assist in the issue and sale of new securities.
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Institutional Investors
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Large organizations-such as pension funds, mutual funds, and insurance companies-that invest their own funds or the funds of others.
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Stock Exchange
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An organization whose members can buy and sell (exchange) securities for companies and individual investors.
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Over-the-Counter (OTC) Market
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Exchange that provides a means to trade stocks not listed on the national exchanges.
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NASDAQ
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A nationwide electronic system that links dealers across the nation so that they can buy and sell securities electronically.
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Securities and Exchange Commission (SEC)
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The federal agency that has responsibility for refulating the various stock exchanges.
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Prospectus
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A condensed version of economic and financial information that a company must file with the SEC before issuing stock; the prospectus must be sent to prospective investors.
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Stocks
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Shares of ownership in a company.
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Stock Certificate
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Evidence of stock ownership that specifies the name of the company, the number of shares it represents, and the type of stock being issued.
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Dividends
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Part of a firm's profits that the firm may distribute to stockholders as either cash payments or additional shares of stock.
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Common Stock
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The most basic form of ownership in a firm; it confers voting rights and the right to share in the firm's profits through dividends, if approved by the firm's board of directors.
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Preferred Stock
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Stock that gives its owners preference in the payment of dividends and an earlier claim on assets than common stockholders if the company is forced out of business and its assets sold.
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Bond
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A corporate certificate indicating that a person has lent money to a firm (or a government).
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Maturity Date
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The exact date the issuer of a bond must pay the principal to the bondholder.
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Interest
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The payment the Issuer of the bond makes to the bondholders for the use of the borrowed money.
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Debenture Bonds
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Bonds that are unsecured (i.e., not backed by any collateral such as equipment).
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Sinking Fund
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A reserve account in which the issuer of a bond periodically retires some part of the bond principal prior to maturity so that enough capital will be accumulated by the maturity date to pay off the bond.
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Stockbroker
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A registered representative who works as a market intermediary to buy and sell securities for clients.
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Diversification
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Buying several different investment alternatives to spread the risk of investing.
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Capital Gains
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The positive difference between the purchase price of a stock and its sale price.
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Stock Splits
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An action by a company that gives stockholders two or more shares of stock for each one they own.
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Buying Stock on Margin
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Purchasing stocks by borrowing some of the purchase cost from the brokerage firm.
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Junk Bonds
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High-risk, high-interest bonds.
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Mutual Fund
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An organization that buys stocks and bonds and then sells shares in those securities to the public.
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Exchange-Traded Funds (ETFs)
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Collections of stocks, bonds, and other investments that are traded on exchanges but are traded more like individual stocks than like mutual funds.
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Dow Jones Industrial Average (the Dow)
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The average cost of 30 selected industrial stocks, used to give an indication of the direction (up or down) or the stock market over time.
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Program Trading
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Giving instrucitons to computers to automatically sell if the price of a stock dips to a certain point to avoid potential losses.
