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16 Cards in this Set
- Front
- Back
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ADVERSE SELECTION |
problem that people or firms that worse than average risks are more likely to seek out loans than borrowers that are better than average risks |
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ASYMMETRIC INFORMATION |
one party in a transaction knows more than another (1) adverse selection (2) moral hazard |
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BANK |
financial intermediary that accepts deposits from savers and makes loans to borrowers. |
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MORAL HAZARD |
existence of a contract changes the behavior of a party to the contract . (ex; firm receiving a bank loan behaves differently b/c it has the loan than if didn't have the loan, in a way that harms the bank) |
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CREDIT CRUNCH |
situation a bank do not lend money as they ordinarily would but rather have much higher requirements for borrowers to qualify for loans than normal |
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SPREAD |
difference b/w the average interest rate on a banks assets & the average interest rate on its liabilities |
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SECURITIZATION |
process which a bank sells a loan(which it made previously) to investors |
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DEFAULT RISK (CREDIT RISK) |
possibility that a banks loan customers might not repay their loans as specified in the loan agreement or that the issuer of securities the bank owns will not pay interest or principal when due |
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INTEREST- RATE RISK |
risk that a change in the market interest rates will affect the value of financial assets |
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COVENANT |
part of a loan contract that requires the borrower to act in a certain way or use the borrowed funds for a particular purpose |
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RESERVES |
bank vault cash plus its deposits at the Federal Reserve bank |
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EXCESS RESERVES |
banks total reserves minus its required reserves |
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FEDERAL FUNDS MARKET |
market in which banks w/ excess reserves lend them to banks that desire additional reserves |
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FEDERAL FUNDS RATE |
interest rate in the Federal funds market |
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DISCOUNT WINDOW |
place where banks can request loans from the Federal Reserves |
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DISCOUNT RATE |
interest rate a bank pays on a loan from the Fed's discount window |
