Finance Chapter 11: Securities and Markets Key Terms Questions and Correct Answers A 100% A+

Finance Chapter 11: Securities and Markets Key Terms Questions and Correct Answers A 100% A+ primary market - CORRECT ANSWER-original issuer market in which securities are initially sold secondary market - CORRECT ANSWER-market in which existing securities are traded among investors flotation - CORRECT ANSWER-initial sale of newly issued debt or equity securities initial public offering (IPO) - CORRECT ANSWER-initial sale of equity to the public investment bankers (underwriters) - CORRECT ANSWER-main activity is marketing securities and dealing with the securities markets public offering - CORRECT ANSWER-sale of securities to the investing public private placement - CORRECT ANSWER-sale of securities to a small group of private investors due diligence - CORRECT ANSWER-detailed study of a corporation prospectus - CORRECT ANSWER-highly regulated document that details the issuer's operations and finances and must be provided to each buyer of a newly issued security underwriting agreement - CORRECT ANSWER-contract in which the investment banker agrees to buy securities at a predetermined price and then resell them to investors offer price - CORRECT ANSWER-price at which the security is sold to investors spread - CORRECT ANSWER-difference between the offer price and the price paid by the investment bank best-effort agreement - CORRECT ANSWER-agreement which the investment bankers try to sell securities of the issuing company; but they assume no risk for the possible failure of the flotation self registration - CORRECT ANSWER-allows firms to register security issues (both debt and equity) with the SEC and have them available to sell for two years Dutch auction - CORRECT ANSWER-a bidding process, which allows smaller firms and individual investors to purchase securities tombstones - CORRECT ANSWER-announcements of securities offerings to be placed in newspapers and other publications syndicate - CORRECT ANSWER-group of several investment banking firms that participate in the underwriting and distributing a security issue aftermarket - CORRECT ANSWER-the period after a new issue is initially sold to the public; during this period, members of the syndicate may not sell the securities for less than the offering price market stabilization - CORRECT ANSWER-intervention of the syndicate to buy back securities to prevent a larger price drop underpricing - CORRECT ANSWER-represents the difference between the aftermarket stock price and the offering price flotation costs - CORRECT ANSWER-composed of direct costs, the spread, and underpricing broker - CORRECT ANSWER-one who assists the trading process by buying or selling securities in the market for an investor dealer - CORRECT ANSWER-satisfies the investor's trades by buying and selling securities from his or her own inventory