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29 Cards in this Set

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Maturity
number of years (term) until an instrument's expiration date
short-term
Any period of time up to one year (maturity)
long-term
Any period of time longer than 10 years (maturity)
intermediate term
Any period of time from one year to 10 years (maturity)
Equities (common stock)
claims to share in net income and the assets of a business
Dividends
Periodic payments to the holder of equities, which are considered long term since there is no maturity date
Primary market
financial market in which new issues of a security (bonds, stock) are sold to initial buyers by a corporation or a government agency borrowing the funds
Secondary market
financial market in which securities that have been previously issued can be resold
Investment Bank
Financial institution that assists in the initial sale of securities in the primary market
Underwriting
guarantees a price for a corporation's securities
Brokers
Agents of investors who match buyers and sellers
Dealers
Links buyers and selling by buying and selling securities at stated prices
Exchanges
Buyers and sellers of securities meet in one central location to conduct trades
Over the Counter Market
Dealers at different locations who have an inventory of securities stand ready to buy and sell securities to anyone who comes to them and is willing to accept their prices
Money Market
Financial market in which only short-term debt instruments are traded
Capital Market
Market in which longer-term debt and equity instruments are traded
Foreign Bond
Traditional instruments in the international bond market
Eurobond
A bond denominated in a currency other than that of the country in which it is sold
Eurocurrencies
Foreign currency deposited in banks outside their home country
Euro Dollars
U.S. dollars deposited in foreign banks outside the U.S. or in Foreign branches of U.S. banka
Financial intermediation
Process of indirect finance using financial intermediaries
Transaction Costs
The time and money spent in carrying out financial transactions
Economies of Scale
The reduction in transaction costs per dollar of transactions as the size of transactions increases
Risk
Uncertainty about returns investors will earn on assets
Risk Sharing/Asset Transformation
Risky assets are turned into safer assets for investors
Diversification
Investing in a collection of assets whose returns do not always move together, with the result that overall risk is lower than for individual assets
Asymmetric Information
One party often doesn't know enough about the other party to make accurate decisions
Adverse Selection
Occurs when potential borrowers who are the most likely to produce and undesirable outcome are the ones who most actively seek out a loan
Moral Hazard
The risk the borrower might engage in activities that are undesirable from an lender's point of view