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Level 53

Financial Intermediates


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share market
formal exchange that facilitates the issue, buying and sell of equity shares
right of perpetual succession
a corporation continues to operate regardless of changes in ownership
agency problem
conflict of interest between owners and managers
rights issue
additional ordinary shares are sold by a corporation to selected institutional investors
Prospectus
is a document that discloses information about a company's earnings, assets, liabilities, products and services, stocks, and qualifications of its management.
market capitalization
number of shares issued by listed corporations multiplied by current share prices
Derivative
Financial instrument whose value derives from other commodities or financial instruments.
physical market
where commodity or financial instruments are issued or traded
exchange-traded contracts
standardized financial contracts traded on a formal exchange
over the counter contracts
non-standardized contracts between a writer and a buyer
hedge
strategy that manages or protects against an identified risk exposure
exchange traded funds
units sold in a managed investment scheme that tracks the performance of a specified stock exchange index, foreign currencies or commodities
contracts for difference
an agreement between a buyer and a seller based on an underlying security to exchange the difference between the contract start and close values
option contract
the right but not the obligation to buy or sell a commodity or security at a predetermined exercise price
call options
gives the buyer the right but not obligation to buy a specified commodity or financial instrument at a specified price and date
put options
gives the buyer the right but not the obligation to sell a specified commodity or financial asset at a specified price and date
Futures Contract
an arrangement for delivery of an item at some date in the future, where the delivery details are determined when the contract is created
straight corporate bond
long term debt instrument paying a fixed interest coupon; principle payable at maturity
Debenture
long term bond that isn't secured by mortgage on a property
floating rate note
corporate bond that pays a variable rate of interest, principle at maturity
convertible note
hybrid fixed interest debt security that includes an option to convert to ordinary shares at a specified date
contract note
sent by a stockbroker to a client advising details of a share transaction
chess
the electronic securities transaction settlement platform used by the ASX
settlement risk
the possibility that one party to a financial transaction will not deliver value
liquidator
a party appointed to manage the winding up of a company
asic
regulatory body responsible for the supervision of the corporations act
delisting
removal from quotation on a stock exchange of the securities of an entity
investment decision
the capital budgeting process that determines the strategic activities of a firm
net present value
the difference between the cost of an asset and the present value of future cash flows
present value
comparison of the anticipated cash flow from an investment to the initial investment
promoter
the company seeking to list as a corporation on a stock exchange
out-clause
specific conditions that preclude an underwriting agreement from being fully enforced
Proxy
document giving one person the authority to act for another, typically the power to vote shares of common stock
placement
additional ordinary shares are sold by a corporation to selected institutional investors
Systematic Risk
Cannot be diversified and is relevant. Measured by beta. Beta determines the level of expected return on a security or portfolio (SML)
Unsystematic Risk
The risk that effects at most a small number of assets; it is also called unique or asset-specific risk. For example, oil strike by a single company.
beta
responsiveness of a stocks expected return to changes in teh value of the complete marekt portfolio of that stock
Passive investment
a buy and hold approach in which an investor does not make portfolio changes based on short-term expectations of changing market or security performance
index funds
acquire shares so that a portfolio replicates a specific share market index
portfolio variance
the correlation of pairs of securities within an investment portfolio
Strategic asset allocation
Selecting proportion to be invested in different types of securities. Proportion of assets in each asset clase is termed portfolio balance or normal asset allocation. The target weights depend on investment objective, time horizon, risk tolerance
tactical asset allocation
portfolio structured to take account of a dynamic investment enviroment
direct investment
an investor buys and sells shares directly thought a stockbroker
stockbroker
acts as the ages for an investor in buying and selling of stock market securities
discount broker
executes buy and sell orders for clients, does not provide investment advise or services
full service advisory broker
executes buy and sell orders for clients, also provides other services to clients including investment adivse
indirect investment
investing thought a funds manager in a unit trust of a managed fund
program trading
computer-generated orders to buy or sell many stocks at the same time cause rapid adjustments of institutional portfolios
efficient market hypothesis
share prices reflect all available information; superior profits are not avaliable
weak form efficiency
share price changes are not independent and not based on historic price data
semi strong form efficiency
all publicly available information is fully reflected in a share price
strong form efficency
all publicly available information and private research is fully reflected in share price
Behavioral Finance
Examines investment behavior, its effect on financial markets, how cognitive biases may result in anomalies, and whether investors are rational. Traditional finance models, including efficient markets, are based on an assumption that the marke…
herding instinct
tendency of investors to follow the signals given or actions taken by other investors
trading noise
investors are distracted by the volume of shore term chatter in the market
heuristic behaviour
where an investor accepts an investment outcome that does not solely seek to maximize return on invesment
framing behaviour
an investor is directly influenced by the manner in which an investment opportunity is presented
market inefficencies
actions that may occur in a market that would not normally be supported by rational explanation