Money & Capital Markets

Front 1

Bankers' acceptances

Back 1

short-term instruments backed by a bank

Front 2

Basis point

Back 2

1/100 of 1%; .0001; or 1/10,000

Front 3

Bond

Back 3

capital market instrument (debt), with a fixed rate & term > 1 year

Front 4

Business cycle

Back 4

patterns in the economy of growth, stability, recession, etc.

Front 5

Capital market

Back 5

the market for long or intermediate-term money instrument, usually more than one year

Front 6

Certificates of deposit

Back 6

promises to pay by a bank; they may be greater than or less than 1 year

Front 7

Collateralized mortgage obligations (CMOs)

Back 7

bonds backed by mortgages guaranteed by GNMA, FNMA, Freddie Mac, or conventional

Front 8

Commercial mortgage backed securities (CMBSs)

Back 8

RTC started by selling pools of commercial mortgages to investors through investment bankers & guaranteed the fund

Front 9

Commercial paper

Back 9

short-term borrowing by corporation, unsecured

Front 10

Debt

Back 10

borrowed capital

Front 11

Deed of trust

Back 11

a legal document, like a mortgage, but transfers title to a trustee

Front 12

Demand deposits

Back 12

funds that can be withdrawn, such as checking accounts

Front 13

Disintermediation

Back 13

money flowing out of financial institution

Front 14

Dividends

Back 14

equity income earnings

Front 15

Equity

Back 15

capital, other than borrowed capital

Front 16

Eurodollars

Back 16

$ deposited outside the U.S.

Front 17

FNMA

Back 17

Federal National Mortgage Associatio; secondary mortgage market participant

Front 18

Farmer mac

Back 18

secondary mortgage market participant that buys rural mortgages (serves banks that make up the Farm Credit System)

Front 19

FDIC

Back 19

Federal Deposit Insurance Corporation; insures deposits in member banks

Front 20

Federal discount rate

Back 20

the rate the Federal Reserve charges member banks for short term loans

Front 21

Federal funds

Back 21

the rate charged among banks on a short-term basis

Front 22

Federal Open Market Committee (FOMC)

Back 22

regulation tool of the Federal Reserve, where securities are bought and sold to maintain targets

Front 23

Federal Reserve System

Back 23

the central bank in charge of managing money and credit and promote orderly growth of the economy

Front 24

Financial Institution Reform, Recovery & Enforcement Act (FIRREA)

Back 24

established the OTC (Office of Thrift Supervision under the Treasury), to oversee S&Ls

Front 25

Fractional reserve banking

Back 25

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)

Front 26

Freddie Mac

Back 26

secondary mortgage market particpant buying S&L originated mortgages, primarily

Front 27

General partnership

Back 27

a partnership where all partners are liable for the acts of other partners

Front 28

Ginnie Mae

Back 28

a secondary mortgage market participant that is government funded & guarantees pools of targeted mortgages

Front 29

Home equity loan

Back 29

a loan using equity in a house as security for the debt

Front 30

Inflation

Back 30

price escalation caused by increasing money supply relative to increasing goods & services

Front 31

Installment sale contract

Back 31

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

Front 32

Insurance company

Back 32

a major source of debt and equity capital

Front 33

Interest rate

Back 33

the cost of borrowed capital

Front 34

Interim financing

Back 34

borrowing/lending for short-term (usually construction) with a permanent loan taking out or paying off the interim loan

Front 35

International equity capital

Back 35

equity capital from other than the U.S.

Front 36

Joint venture

Back 36

2 or more entities joined for a specific project

Front 37

Junior lien

Back 37

encumbrance on property other than that in first priority (e.g. second liens)

Front 38

Junior mortgage originators

Back 38

those who loan on properties that have existing debt

Front 39

Key economic indicators

Back 39

rates & economic indexes that the market watches to project the future direction of the markets or its current condition

Front 40

Land contract

Back 40

same as contract for deed or installment land contract; contract for future delivery of a deed given contractual conditions

Front 41

Limited partnership

Back 41

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

Front 42

Money

Back 42

the medium of exchange and transacting for goods/services. Currency in hand of public plus demand deposit

Front 43

Money market

Back 43

the market for short-term money instruments

Front 44

Mortgage

Back 44

a legal instrument to pledge property to secure a loan

Front 45

Municipal notes

Back 45

debt secured by local governments that is not subject to federal income tax

Front 46

Mutual savings bank

Back 46

a source of capital for morgages (65-75% of portfolio)

Front 47

Pension fund

Back 47

accumulated capital of retirement funds managed by a trustee

Front 48

Purchase-money mortgage (PMM)

Back 48

seller financing usually to cover the difference between the first mortgage & buyer's down payment

Front 49

Prime rate

Back 49

the interest rate charged by banks to their best customers on short-term, unsecured basis

Front 50

Real estate investment trust (REIT)

Back 50

pools funds of small investors to buy or lend in real estate; generally a trust organized in Massachusetts

Front 51

Real estate mortgage investment conduit (REIMICs)

Back 51

an equity type investment in a pool of mortgages where the holders of the mortgages are taxed, but not the holders of the REIMIC

Front 52

Repurchase & reverse repurchase agreements

Back 52

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

Front 53

Reserve requirement

Back 53

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)

Front 54

Reverse annuity mortgage

Back 54

a negative amortization mortgage against equity with no payments but the balance increases due to accumulated interest

Front 55

Risk rating

Back 55

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

Front 56

Savings & loan association

Back 56

financial institutions supervised by FHLBB until 1989, bow under OTS

Front 57

Secondary mortgage market

Back 57

the market for buying already originated loans

Front 58

Securitization of real estate interests

Back 58

trading mortgages & equity by use of financial securities in the money & capial markets

Front 59

Stock

Back 59

evidence of ownership in a corporation

Front 60

Stock corporation

Back 60

a legal entity that issues stock for its organizing capital

Front 61

Syndication

Back 61

a partnership, private or public, that pools funds for the buying or development of real estate

Front 62

Time deposits

Back 62

money that can be withdrawn only after notification, such as CDs

Front 63

Treasury bill or note

Back 63

a T-bill is short-term borrowing by the government of 3 months, 6 months, or 1 year. T-notes are longer term borrowing

Front 64

Trust

Back 64

where legal title to property is placed in the hands of a trustee, by a settlor, for a beneficiary

Front 65

Venture capital

Back 65

$ used for equity capital

Front 66

Inverse yield curve

Back 66

atypical representation of interest rates whereby short-term interest rates are higher than long-term interest rates

Front 67

Fiscal policy

Back 67

the budget established by Congress and managed by the Department of the Treasury

Front 68

Nominal interest

Back 68

the real interest rate plus premiums by investors

Front 69

Real interest

Back 69

the nominal rate less inflation

Front 70

Federal Reserve System:
Federal Open Market Committee

Back 70

7 governors, 5 federal reserve bank presidents

Front 71

Federal Reserve System:
Board of governors

Back 71

7 governors appointed by President & confirmed by the Senate

Front 72

Federal Reserve System:
Federal Advisory Council

Back 72

12 members, 1 from each federal reserve bank

Front 73

Federal Reserve System:
12 Federal Reserve Banks

Back 73

9 directors on each board; member banks elect 6 (3 banking & 3 commerce, agriculture, industry) & Board of Governors appoints 3

Front 74

Federal Reserve System:
6200 Member Banks

Back 74

represent 85% of US banking activity

Front 75

Functions of Federal Reserve Board

Back 75

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.

Front 76

Rate of inflation

Back 76

price level (year t) - price level ( year t-1) divided by Price level (year t-1)