Chapter 1 Flashcards
Role of Financial Markets and Institutions
Explain a financial market
A market in which financial assets (securities) such as stocks and bonds can be purchased or sold.
Surplus units
Participants who receive more money than they spend. (Investors)
Deficit Units
Participants who spend more money than they receive. (Borrowers)
Securities
a claim on the issuer (stock or bond)
Debt Securities
represent debt ( also called credit, or borrowed funds)
Equity Securities
Represent equity or ownership in the issuer (stocks)
Money vs Capital Markets
Money market is typically a market that matures is 1 year or less while a capital market is longer than one year to mature.
Primary vs Secondary Markets
a Primary market facilitates the issuance of new securities, while a secondary market facilitates the trading of existing markets.
Liquidity
the degree to which securities can be sold without loss of value
Money Market securities
one year or less maturity securities ( t-bills, commercial paper, CD’s)
capital markets securities
commonly issued to finance the purchase of capital assets such as buildings, equipment, or machinery.
Mortgage backed securities
debt obligations representing claims on a package of mortgages. There are many forms, simplest is the investors who purchase these securities receive monthly payments that are made by the home owners on the mortgages baking the security.
Stocks
represent partial ownership in the corporation that issued them.
Derivative Securities
financial contracts whose values are derived from the values of underlying assets ( such as debt securities or equity securities)
Speculation
allows investors to use derivatives to guess on movements in the value of the underlying assets without actually purchasing.
