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40 Cards in this Set
- Front
- Back
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Financial Markets
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Place where financial claims are bought and sold
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Financial Intermediaries
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Institutions that issue liabilities to SSU and use the funds so obtain acquire liabilities of DSUs
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Financial Institutions
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Facilitate flows of funds from savers to borrowers
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Surplus Spending Units
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Purchase financial claims issued by DSUs
have income for the period that exceeds spending, resulting in saving |
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Deficit Spending Units
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sells financial claims on itself (liabilities) or sells equity to obtain needed funds
spending for the period that exceeds income |
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Marketabiliity
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Ease with which financial claim can be resold
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Private placement
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The speed placement with low transaction costs ( sells entire issue with a single placement)
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Investment bankers
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Help DSUs market create financial claims
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Underwrite
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Risk bearing function of the investment banker, occurs when bankers guarantees fixed proceeds to security issue while uncertain of eventual resale price
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Brokers
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Buy or sell at best possible price for their clients
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Dealers
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"Make markets" by carrying inventories of security
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Bid Price
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Highest price it offers when purchasing a security
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Ask Price
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Lowest price accepted for seller
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Bid-ask spread
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dealer's gross profit
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Disintermeidation
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SSUs take their funds out of financial institutions and invest in direct claims in the direct financial market
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commercial paper
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short term IOUs
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over the counter markets
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no central location market
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futures market
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market in which people trade contracts for future delivery of securities, commodities, or the value of securities
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future contract
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future time when the contract is scheduled to be settled by the exchange of cash for the contracted goods
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option market
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a market in which options are traded
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option contract
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a contractual agreement that allows the holder to buy or sell a specific asset at a predetermined price is called the strike price. Options to buy assets are called potions. Options to see assets are put options
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euro-dollar market
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short term
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euro bond market
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long term
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money markets
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markets in which commercial banks and other business adjust their liquidity position by borrowing, lending, or investing for short periods of time
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t-bills
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direct obligations of the US government and thus are considered to have no default risk
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negotiable certificates of deposit
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large0denomination time deposits of the nation's largest commercial banks
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federal fund
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bank deposits held with the Federal Reserve bank
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federal fund market
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market in which banks make short term unsecured loans to one another and the fed funds interest rate is the interbank lending rate
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capital markets
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capital goods are financed with stock or long term debt instruments
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corporate bonds, municipal bonds are ___ term bonds
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long term bonds
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credit risk
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possibility that the borrower will fail to make either interest or principal payments in the amount and at the time promised
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interest rate risk
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risk of fluctuations in a security's price or reinvestment income caused by changes in the market interest rates
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liquidity risk
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risk that a financial institution will be unable to generate sufficient cash inflow to meet required cash outflows
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foreign exchange risk
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fluctuation in the earnings or value of a financial institution that rises from fluctuations in exchange rates
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political risk
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fluctuation in value of a financial institution resulting from the actions of the us or foreign government
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Denomination Divisibility
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pool savings of many small SSUs into large investments
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Currency Transformation
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buy and sell financial claims denominated in various currencies
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Maturity Flexibility
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offer different ranges of maturities to both DSUs and SSUs
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Credit Risk Diversification
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Assume credit risks of DSUs; spread risk over many different types of DSUs
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Liquidity
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Gives SSUs and DSUs different choices about when, to what extent, and for how long to commit to financial relationships
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