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