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15 Cards in this Set

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  • Back
Name 3 instruments that trade on the money market or the market for short-term debt instruments (one year or less)?
1. large denomination certificates of deposit
2. federal funds
3. bankers acceptances
What are bankers acceptances (BA)?
a vehicle created to facilitate commercial trade transactions
What are the four groups that US banks can be classified into?
1. money center banks- raise funds from domestic and international money markets, rely less on depositors
2. regional banks- rely on deposits
3. Japanese banks- city banks, local banks, long-term credit banks, trust banks and mutual banks
4. Yankee banks- foreign banks with US branches
What is a certificate of deposit (CD)?
financial asset issued by a bank or thrift that indicates a specified sum of money has been deposited at the issuing depository institution; help finance bank activities; no maximum maturity, minimum is 7 days
What is a negotiable CD?
allows initial depositor to sell the CD in the open market prior to the maturity date
What are the four types of CDs?
1. CDs issued by domestic banks
2. CDs denominated in US dollars but issued outside the US; Eurodollar CDs
3. CDs denominated in US dollars and issued by a foreign bank with a branch in the US; Yankee CD
4. CDs issued by savings and loan associations and savings banks; Thrift CDs
What are term CDs?
CDs issued with a maturity greater than one year
What is a floating-rate CD (FRCD)?
CD whose interest rate changes periodically in accordance with a predetermined formular that indicates the spread above some index at which the rate will reset periodically
What is the London interbank offered rate (LIBOR)?
the rate paid on Eurodollar CDs; viewed globally as the cost of bank borrowoing since they are effectively the rates at which major international banks offer to pay each other to borrow money by issuing a Eurodollar CD with given maturities
The yields on CDs depend on what 3 factors?
1. credit rating of the issuing bank
2. maturity of the CD
3. supply and demand for the CD
What are prime CDs?
issued by highly rated domestic banks; trade at a lower yield than nonprime CDs; Yankee CDs trade at a higher yield than domestic CDs because of unfamiliarity
Why is the federal funds rate higher than the repo rate?
in repo, lender has a security as collateral
What is the effective funds rate?
rate most often cited for the fed funds market; usually first to move of rates
What is accepting financing?
the use of a bankers acceptance to finance a commercial transaction
What are accepting banks?
a bank that creates a bankers acceptance