banking & finance Flashcards
how do banks make money from loans?
by the interest they charge
what is a leveraged loan?
a loan given to a company that is already in a lot of debt (highly leveraged)
-typically has higher interest rates because it’s higher risk
what is a bridge loan?
A loan that is given to a company in between doing two things.
what is a mezzanine loan?
a loan that has no collateral but it has warrants (the right to ownership - a tradable derivative)
what is structured finance?
security (loans pooled together by lender) traded on the stock market
what are bond yields?
The relationship between bond prices/bond yields
Bond yields are a measure of the profit you will make from your bond investment.
Bond prices and bond yields have an inverse correlation. When bond prices are going up, bond yields are going down. When bond prices are going down, bond yields are going up.
https://www.learningmarkets.com/understanding-bond-yields/
what does it mean when the bond yield curve is inverted?
In the US last week, yield on long term 10-year government bonds is lower than those of the equivalent shorter term 2-year bonds.
This means that demand for long term bonds is currently higher than short term bonds and therefore the price of long term bonds has risen. If the price of a bond rises, it’s yield will always fall. Normally, the longer the investment period on a bond, the more return you’ll receive as there is generally greater uncertainty over the long term - this is known as the yield curve.
What happened last week was that the curve inverted, meaning short term bonds gave a better return than long term bonds, which tends to happen when investors aren’t confident in short term economic prosperity. The yield curve is a strong indicator of a coming recession and the last time it inverted was in 2007 - just before the financial crash.
what is inflation?
A more exact definition ofinflationis a situation of a sustained increase in the general price level in an economy.Inflationmeans an increase in the cost of living as the price of goods and services rise.
