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76 Cards in this Set

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Bankers' acceptances
short-term instruments backed by a bank
Basis point
1/100 of 1%; .0001; or 1/10,000
Bond
capital market instrument (debt), with a fixed rate & term > 1 year
Business cycle
patterns in the economy of growth, stability, recession, etc.
Capital market
the market for long or intermediate-term money instrument, usually more than one year
Certificates of deposit
promises to pay by a bank; they may be greater than or less than 1 year
Collateralized mortgage obligations (CMOs)
bonds backed by mortgages guaranteed by GNMA, FNMA, Freddie Mac, or conventional
Commercial mortgage backed securities (CMBSs)
RTC started by selling pools of commercial mortgages to investors through investment bankers & guaranteed the fund
Commercial paper
short-term borrowing by corporation, unsecured
Debt
borrowed capital
Deed of trust
a legal document, like a mortgage, but transfers title to a trustee
Demand deposits
funds that can be withdrawn, such as checking accounts
Disintermediation
money flowing out of financial institution
Dividends
equity income earnings
Equity
capital, other than borrowed capital
Eurodollars
$ deposited outside the U.S.
FNMA
Federal National Mortgage Associatio; secondary mortgage market participant
Farmer mac
secondary mortgage market participant that buys rural mortgages (serves banks that make up the Farm Credit System)
FDIC
Federal Deposit Insurance Corporation; insures deposits in member banks
Federal discount rate
the rate the Federal Reserve charges member banks for short term loans
Federal funds
the rate charged among banks on a short-term basis
Federal Open Market Committee (FOMC)
regulation tool of the Federal Reserve, where securities are bought and sold to maintain targets
Federal Reserve System
the central bank in charge of managing money and credit and promote orderly growth of the economy
Financial Institution Reform, Recovery & Enforcement Act (FIRREA)
established the OTC (Office of Thrift Supervision under the Treasury), to oversee S&Ls
Fractional reserve banking
a bank can support the reciprocal of its reserve requirements minus one in deposits and thus loans (e.g. a 20% reserve will support $4 in loans)
Freddie Mac
secondary mortgage market particpant buying S&L originated mortgages, primarily
General partnership
a partnership where all partners are liable for the acts of other partners
Ginnie Mae
a secondary mortgage market participant that is government funded & guarantees pools of targeted mortgages
Home equity loan
a loan using equity in a house as security for the debt
Inflation
price escalation caused by increasing money supply relative to increasing goods & services
Installment sale contract
also contracts for deed; they transfer equitable title but not legal title until the loan is paid off or paid down by the terms of the contract
Insurance company
a major source of debt and equity capital
Interest rate
the cost of borrowed capital
Interim financing
borrowing/lending for short-term (usually construction) with a permanent loan taking out or paying off the interim loan
International equity capital
equity capital from other than the U.S.
Joint venture
2 or more entities joined for a specific project
Junior lien
encumbrance on property other than that in first priority (e.g. second liens)
Junior mortgage originators
those who loan on properties that have existing debt
Key economic indicators
rates & economic indexes that the market watches to project the future direction of the markets or its current condition
Land contract
same as contract for deed or installment land contract; contract for future delivery of a deed given contractual conditions
Limited partnership
a partnership where at least some of the partners are not liable for acts of general partners and their risk is limited to their investment
Money
the medium of exchange and transacting for goods/services. Currency in hand of public plus demand deposit
Money market
the market for short-term money instruments
Mortgage
a legal instrument to pledge property to secure a loan
Municipal notes
debt secured by local governments that is not subject to federal income tax
Mutual savings bank
a source of capital for morgages (65-75% of portfolio)
Pension fund
accumulated capital of retirement funds managed by a trustee
Purchase-money mortgage (PMM)
seller financing usually to cover the difference between the first mortgage & buyer's down payment
Prime rate
the interest rate charged by banks to their best customers on short-term, unsecured basis
Real estate investment trust (REIT)
pools funds of small investors to buy or lend in real estate; generally a trust organized in Massachusetts
Real estate mortgage investment conduit (REIMICs)
an equity type investment in a pool of mortgages where the holders of the mortgages are taxed, but not the holders of the REIMIC
Repurchase & reverse repurchase agreements
short-term borrowing by using a pool of securities as collateral; a reverse is where the Fed sells securities to dealers who must sell them back with interest
Reserve requirement
a credit regulation tool of the Federal Reserve where reserves are required to be set aside depending on the type of deposit in an institution (greater % for demand deposits & less % for time deposits)
Reverse annuity mortgage
a negative amortization mortgage against equity with no payments but the balance increases due to accumulated interest
Risk rating
the relative financial condition of a company as evaluated by a service such as Moody's or Standard & Poor's; the risk may also be rated by a market participant evaluating an investment, but "rated" companies are rated by an independent service
Savings & loan association
financial institutions supervised by FHLBB until 1989, bow under OTS
Secondary mortgage market
the market for buying already originated loans
Securitization of real estate interests
trading mortgages & equity by use of financial securities in the money & capial markets
Stock
evidence of ownership in a corporation
Stock corporation
a legal entity that issues stock for its organizing capital
Syndication
a partnership, private or public, that pools funds for the buying or development of real estate
Time deposits
money that can be withdrawn only after notification, such as CDs
Treasury bill or note
a T-bill is short-term borrowing by the government of 3 months, 6 months, or 1 year. T-notes are longer term borrowing
Trust
where legal title to property is placed in the hands of a trustee, by a settlor, for a beneficiary
Venture capital
$ used for equity capital
Inverse yield curve
atypical representation of interest rates whereby short-term interest rates are higher than long-term interest rates
Fiscal policy
the budget established by Congress and managed by the Department of the Treasury
Nominal interest
the real interest rate plus premiums by investors
Real interest
the nominal rate less inflation
Federal Reserve System:
Federal Open Market Committee
7 governors, 5 federal reserve bank presidents
Federal Reserve System:
Board of governors
7 governors appointed by President & confirmed by the Senate
Federal Reserve System:
Federal Advisory Council
12 members, 1 from each federal reserve bank
Federal Reserve System:
12 Federal Reserve Banks
9 directors on each board; member banks elect 6 (3 banking & 3 commerce, agriculture, industry) & Board of Governors appoints 3
Federal Reserve System:
6200 Member Banks
represent 85% of US banking activity
Functions of Federal Reserve Board
1. Credit regulation
2. Reserve requirements
3. Federal discount rate
4. Federal Open Market Committee - When buy securities: money supply increases, interest rate decrease. When sell securities: money supply decreases & interest rate increase.
Rate of inflation
price level (year t) - price level ( year t-1) divided by Price level (year t-1)