FMGT 80 CAPITAL MARKEST MANAGEMENT (MIDTERM EXAM TEST SAMPLE)

MONEY

a liquid asset used to facilitate transactions of value. It is used as a medium of exchange between individuals and entities.

LIQUIDITY

ease of converting an asset into cash without loss; the depth of a financial market.

BANGKO SENTRAL NG PILIPINAS (BSP)

the only authorized government entity to print money and is responsible for the proper administration of the monetary banking credit system of the republic to achieve monetary stability and create conditions conducive to economic developments.

MONEY SUPPLY

total amount of money—cash, coins, and balances in bank accounts—in circulation.

INTEREST

cost of credit; it is the price paid for the use of someone else's money

RATE OF INTEREST

the amount a lender charges a borrower and is a percentage of the principal—the amount loaned).

BASIS POINT

term used in finance to refer to changes in values or interest rates.

YIELD CURVE

illustrates the structure, which relates the yield on debt instruments with different terms of maturity.

FINANCIAL MARKETS

Refer broadly to any marketplace where the trading of securities occurs, including the stock market, bond market, forex market, and derivatives market, among others.

FINANCIAL INTERMEDIARIES

An entity that acts as the middleman between two parties in a financial transactions, such as commercial bank, investment banks, mutual funds and pension funds.

COMMERCIAL BANKS

The most important depository institution in terms of size. Also a prime source of funds to consumers.

CERTIFICATE OF DEPOSIT

time deposit issued by a bank with a specified interest rate and maturity.

LONG-TERM NEGOTIABLE CERTIFICATE OF DEPOSIT

a bank product offered to investors looking for a relatively safe investment, but with higher interest rates than a regular savings account or short-term time deposit.

THRIFT INSTITUTIONS

A place for savers, especially individuals with modest sums, to deposit funds.

MUTUAL SAVINGS BANKS

owned by its depositors, but the bank itself is managed by a board of trustees.

SAVINGS AND LOAN ASSOCIATIONS

Primarily as a source of mortgage loans and has evolved into a thrift institutions that accepts deposits from anyone and makes a variety of loan.

REQUIRED RESERVES

funds that banks must hold against deposit liabilities. The minimum amount that all banks must maintain as a reserve is determined by the Monetary Board

RESERVE REQUIREMENTS

refer to the percentage of bank deposits and deposit substitute liabilities that banks must set aside in deposits with the BSP which they cannot lend out, or where available through reserve-eligible government securities.

DEPOSIT SUBSTITUTES

defined as an alternative form of obtaining funds from the public, other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose of relending or purchasing of receivables and other obligations.

EXCESS RESERVES

reserves held by a bank in excess of those it must hold to meet its reserve requirements.

CORRESPONDENT BANK

a bank that provides services on behalf of another, equal or unequal, financial institution. It can facilitate wire transfers, conduct business transactions, accept deposits, and gather documents on behalf of another financial institution.

SECONDARY RESERVES

Short-term securities especially Treasury bills, held by banks to increase their liquidity

DEPOSIT INSURANCE

essentially the assured amount a bank depositor gets in the case that the bank cannot fulfill its obligations. It is mandatory by law and is designed to maintain financial stability.

PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC)

pays deposit insurance on all valid deposits up to Maximum Deposit Insurance Coverage (MIDC) of P500,000 per depositor of a closed bank.

MONETARY POLICY

set of actions to control a nation's overall money supply and achieve economic growth.

LIFE INSURANCE COMPANIES

also performs the role of a financial intermediary because they receive the funds of savers, create a claim on themselves, and lend the funds to borrowers.

PENSION PLAN

a retirement plan that requires an employer to make contributions to a pool of funds set aside for a worker's future benefit.

PERSONAL EQUITY RETIREMENT ACCOUNT (PERA)

is a voluntary retirement contribution plan that gives you the freedom to save and invest up to PhP100,000 annually. Also, the returns are completely tax-free.

MONEY MARKET MUTUAL FUND

type of mutual fund that invests in high-quality, short-term debt instruments, cash, and cash equivalents.

UNDERWRITING

purchase of an issue of new securities for subsequent sale by investment bankers; the guaranteeing of the sale of a new issue of securities

MERGER AND ACQUISITION

consolidation of companies or their major business assets through financial transactions between companies.

FINANCIAL ADVISOR

offer valuable advice to their clients

ASSETS MANAGEMENT

the practice of increasing total wealth over time by acquiring, maintaining, and trading investments that have the potential to grow in value.

FULL UNDERWRITING BASIS

Underwriter or Underwriting Syndicate commits to purchase full amount of securities issuance from Issuer.

BEST EFFORTS BASIS

Underwriter or Syndicate will use "best efforts " to sell or distribute securities only with no commitment for full amount to be issued.

ORIGINATING HOUSE

investment banker who makes an agreement to sell a new issue and forms a syndicate to sell the securities.

SYNDICATE

a group of brokerage houses that joins together to underwrite and market a specific sale of securities.

LEAD UNDERWRITERS

the firms that manage the sale of securities

EFFICIENT CAPITAL MARKET

security prices adjust rapidly to the arrival of new information, therefore current prices if securities reflect all information about security.

RANDOM WALK HYPOTHESIS

Changes in security prices occur randomly

FAIR GAME MODEL

current market price reflect all available information about a security and the expected return based upon this price is consistent with its risk.

EFFICIENT MARKET HYPOTHESIS (EMH)

divided into three subhypothesis depending on the information set involved.

WEAK FORM

Prices reflect all security-market information

SEMI-STRONG FORM

Prices reflect all public information

STRONG FORM

Prices reflect all public and private information

STOCK EXCHANGE SPECIALIST

Specialists were responsible for facilitating the trade of a given stock by selling their own stock inventory when there was a large shift in demand, thus ensuring market liquidity.

SECURITY ANALYST

a financial professional who studies various industries and companies, provides research and valuation reports, and makes buy, sell, and/or hold recommendations.

PROFESSIONAL MONEY MANAGERS

is a person or financial firm that manages the securities portfolio of individual or institutional investors.

MENTAL ACCOUNTING

refers to the propensity for people to allocate money for specific purposes.

HERD BEHAVIOR

states that people tend to mimic the financial behaviors of the majority of the herd.

EMOTIONAL GAP

refers to decision-making based on extreme emotions or emotional strains such as anxiety, anger, fear, or excitement.

ANCHORING

refers to attaching a spending level to a certain reference.

SELF-ATTRIBUTION

refers to a tendency to make choices based on overconfidence in one's own knowledge or skill.

CONFIRMATION BIAS

when investors have a bias toward accepting information that confirms their already-held belief in an investment. If information surfaces, investors accept it readily to confirm that they're correct about their investment decision— even if the information is flawed.

EXPERIENTIAL BIAS

when investors' memory of recent events makes them biased or leads them to believe that the event is far more likely to occur again.

LOSS AVERSION

when investors place a greater weighting on the concern for losses than the pleasure from market gains.

FAMILIARITY BIAS

when investors tend to invest in what they know, such as domestic companies or locally owned investments.

LEVERAGE

Use (something) to maximum advantage. also use of another person's or firm's funds in return for agreeing to pay a fixed return for the funds.

OPERATING LEVERAGE

Use of fixed factors of production (fixed costs) instead of variable factors of production (variable costs) to produce a level of output.

FIXED COST

remain the same irrespective of the sale numbers of the company. For example rent, fixed salaries of the employees, taxes.

VARIABLE COST

are directly proportional to sales and it increases when sales rise and vice versa.

FIXED ASSETS TURNOVER RATIO

One means to measure operating leverage is the ratio of sales to fixed assets, also referred to as fixed asset turnover.

BREAKEVEN ANALYSIS

A technique for studying the relationship among fixed costs, variable costs, sales volume, and profits.

DEGREE OF OPERATING LEVERAGE

is a multiple that measures how much the operating income of a company will change in response to a change in sales.

BUSINESS RISK

The inherent uncertainty in the physical operations of the firm. Its impact is shown in the variability of the firm's operating income (EBIT).

DEGREE OF FINANCIAL LEVERAGE

is a leverage ratio that measures the sensitivity of a company's earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure.