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funds that can be withdrawn, such as checking accounts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