Chapter 1 - Industry Overview Flashcards
Financial capital
Money provided to individuals, companies, and governments to finance their needs.
Assets
Items that have value and include real assets and financial assets.
Real assets
Physical assets, such as land, buildings, machinery, cattle, and gold.
Physical capital
The means of production; tangible goods such as equipment, tools, and buildings.
Financial assets
Claims on other assets; for example, a share of stock represents ownership in a company or a claim to some of the company’s assets and earnings.
Portfolio
The group of assets in which savings are invested.
Securities
Financial assets that can be traded, such as shares and bonds.
Financial markets
Places where buyers and sellers can trade securities; also called securities markets.
Financial intermediaries
Organisations that act as middlemen between those who have money and those who need money.
Financial institutions
Financial intermediaries, such as banks and insurance companies, whose role is to collect money from savers and to invest it in financial assets.
Banks
Financial institutions that collect deposits from savers and transform them into loans to borrowers.
Deposit-taking institutions
Financial institutions that take deposits, such as banks; also called depository institutions.
Insurance companies
Financial institutions that help individuals and companies offset the risks they face; also among the largest investors.
Fraud
Intentional deception, such as deliberately causing or falsely reporting losses to collect insurance settlements.
Moral hazard
Tendency of people to be less careful about avoiding losses once they have purchased insurance, potentially leading to losses occurring more often when they are insured than when they are not.
Adverse selection
Tendency of people who are most at risk to buy insurance, causing insured losses to be greater than average losses.
Investment industry
Subset of the financial services industry that comprises all the participants that are instrumental in helping savers invest their money and spenders raise capital in financial markets.
Capitalism
An economic system that promotes private ownership as the means of production and markets as the means of allocating scarce resources.
Investment banks
Financial intermediaries that assist companies and governments raise capital and can provide other services, such as strategic advisory services, brokerage and dealing services, and research services; also known as merchant banks.
Financial services industry
Industry that offers a range of products and services to those who have money to invest and those who need money and help channel funds between them.
