Financial problem set
EC3314 – Financial Economics Fall 2013
Vinay P NUNDLALL
Problem Set 1
Question 1
Explain what is meant by the following:
a. A broker holding securities in street name
A brokerage account where the customer's securities and assets are held under the name of the brokerage firm, rather than the name of the individual who purchased the security or asset. Although the name on the certificate is not that of the individual, they are still listed as the real and beneficial owner and have the rights associated with the security
b. An asset-backed security and securitization
A financial security backed by a loan, lease or receivables against assets other than real estate and mortgage-backed securities. For investors, asset-backed securities are an alternative to investing in corporate debt. The process through which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors. The process can encompass any type of financial asset and promotes liquidity in the marketplace.
c. A Commercial Paper
An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than 270 days. The debt is usually issued at a discount, reflecting prevailing market interest rates.
d. A Real Estate Investment Trust (REIT)
A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages.
REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate
e. A limit order
The stock is to be bought (sold) at or below (at or above) a stipulated price.
f. A stop-loss order
The stock is to be sold if its price falls below a stipulated level. The trade is executed only when the stock hits the
Vinay P NUNDLALL
Problem Set 1
Question 1
Explain what is meant by the following:
a. A broker holding securities in street name
A brokerage account where the customer's securities and assets are held under the name of the brokerage firm, rather than the name of the individual who purchased the security or asset. Although the name on the certificate is not that of the individual, they are still listed as the real and beneficial owner and have the rights associated with the security
b. An asset-backed security and securitization
A financial security backed by a loan, lease or receivables against assets other than real estate and mortgage-backed securities. For investors, asset-backed securities are an alternative to investing in corporate debt. The process through which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors. The process can encompass any type of financial asset and promotes liquidity in the marketplace.
c. A Commercial Paper
An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than 270 days. The debt is usually issued at a discount, reflecting prevailing market interest rates.
d. A Real Estate Investment Trust (REIT)
A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages.
REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate
e. A limit order
The stock is to be bought (sold) at or below (at or above) a stipulated price.
f. A stop-loss order
The stock is to be sold if its price falls below a stipulated level. The trade is executed only when the stock hits the