Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Money And Banking > Chapter 2 > Flashcards

Chapter 2 Flashcards

0
Q

Who are primary lender-savers?

A

Borrow funds to finance actives
Households
Also business, and govt (state and local) foreigners and their government

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
1
Q

What is the purpose of a financial market?

A

Channel funds from households, firms, and governments that have saved surplus funds by spending less than their income to those who have a shortage of funds because they wish to spend more than their incomes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Who are primary borrower-spenders?

A

Businesses and governments

Borrow to spend

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is he direct route?

A

Borrowers borrow finds direct from lenders by selling securities (financial instruments) claims on borrowers future income or assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is a bond?

A

A debt security promising to make periodic payments for specified period in time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is a stock?

A

A security that entitles the owner to a share of the company’s profits or assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Why are financial markets important?

A

They promote financial efficiency and allow money to transfer from someone with no investment opportunities to someone with them

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the order of lender-savers?

A

Household
Business firms
Government
Foreigners

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the order of borrower-spenders?

A

Business firms
Government
Household
Foreigners

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is a debt instrument?

A

Bond/mortgage
Contractural agreement by borrower to pay holder of the instrument fixed dollar amounts at regular intervals until a specified date when final payment is made

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the maturity of debt?

A

Number of years until instruments expiration date

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

When is a debt instrument short-Term?

A

Maturity less than a year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

When is a debt instrument long-term?

A

If it’s maturity is 10 years or longer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is an intermediate term?

A

Debt instruments with maturity between 1 and 10 years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is an equity?

A

Common stock
Claims to share in net income and asset of a business
Pay dividends periodically
Right to vote etc

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is a residual claimant?

A

Disadvantage to owning corporation’s equities
Must pay debt holders before equity holders
Benefit more from any success of the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is a primary market?

A

Financial market which issues new securities

Bonds or stocks

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is a secondary market?

A

Financial market in which securities that have been previously issued can be resold.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Who is an important part of the primary market?

A

Investment banks
Underwriting securities
Guarantees a price then sells to public

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What are examples of secondary markets?

A 
New York a Stock Exchange 
NASDAQ 
Bonds market
Futures markets
Options markets
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Who are brokers?

A

Agents of investors who match buyers won sellers of securities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Who are dealers?

A

Link buyers and sellers by buying and selling securities at a stated price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are two functions of the secondary market?

A

Make it easier and quicker to sell financial instruments to raise cash
Make financial instruments more liquid
Make easier for firm to sell in primary market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What are two ways secondary markets can be organized?

A

Exchanges and over the counter market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is exchanges?

A

Where buyers and sellers of securities meet in one central location to conduct trades
Ex) New York Stock Exchange

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What is the over the counter market?

A

Dealers at different locations have an inventory of securities stand ready to buy and sell securities over the counter to anyone willing to accept their price
Computers make this very competitive

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What is the money market?

A

Financial market in which only short-term debt instruments are traded
Generally less than 1 year
Traded more often and are more liquid
Smaller fluctuations, safer investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What is the capital market?

A

The market in which long term debt and equity instruments are traded
Greater than 1 year
Usually held by intermediaries

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What are money market instruments?

A

Short terms to maturity, least price fluctuations, less frisky investment
U.S. Treasury bills
Negotiable bank certificates of deposit
Commercial paper
Federal funds and security repurchase agreements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What are US treasury bills?

A

Short term debt instruments
1, 3, 6 month maturities to finance the federal government
No interest payments
Bought at a discount

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What is prime rate?

A

Base interest rate on corporate bank loans

Indicator of the cost of business borrowing from banks

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What is the federal funds rate?

A

Interest rate charged on overnight loans in the fed funds market
Sensitive indicator of the cost to banks of borrowing funds from other banks and the stance of monetary policy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What is treasury bill rate?

A

The interest rate on US treasury bills

Indicator of general interest rate movements

33
Q

What is libor rate?

A

British bankers association avg of interbank rates for dollar deposits in the lord market

34
Q

What is the most liquid of all money market instruments?

A 
US treasury bills 
Most actively traded 
Also safest, no possibility of default 
    U.S. Gov can always pay because it can raise taxes or issue currency 
Held by banks
35
Q

What is a negotiable bank certificate of deposits ?

A

CD, debt instrument sold by a bank to depositors that pays annual interest of a given amount and at maturity pays back original purchase price
Sold in secondary market
Funds for commercial banks

36
Q

What is commercial paper?

A

Short term debt instrument issued by large banks and well known corporations
Growing fast

37
Q

What are repurchase agreements?

A 
Short term loans
Less than 2 weeks 
Treasury bills serve as collateral 
Source of bank funds 
Most important lenders are large corporations
38
Q

What are fed funds?

A

Overnight loans between banks of their deposit and the federal reserve
By banks to other banks

39
Q

What is the federal firms rate?

A

Interest rate on fed funds
Closely related to credit market conditions in the banking system and stance of monetary policy
High, banks stopped for funds
Low, banks’ credit needs are low

40
Q

What are capital market instruments?

A

Debt and equity instruments with maturities of greater than one year
Wider price fluctuations
Risky investments

Corporate stocks 
Residential mortgages 
Corporate bonds
US government securities 
US government agency securities 
State and local government bonds 
Bank commercial loans 
Commercial and farm mortgages
41
Q

What are stocks?

A

Equity claims on net income of a corporation
Largest in capital market
Individuals hold 1/2

42
Q

What are mortgages and mortgage backed securities?

A

Loans to households or firms to purchase land, housing, or other real structures in which structure is the collateral

Largest debt market
Primarily residential

43
Q

What is a mortgage back security?

A

Bond like debt instrument backed by a bundle of individual mortgages, who’s interest and rpm piles are paid to holders of securities

44
Q

What are corporate bonds?

A

Long term bonds issued by corporations with strong credit ratings
Send holder interest payment twice a year to pay off face value when bond matures

45
Q

What is a convertible bond?

A

Corporate bonds that can be converted to a specified number of shares of stock at maturity date

Reduce interest payments
Life insurance companies

46
Q

What federal agencies are a part of mortgage market?

A

Federal national mortgage association Fannie Mae
Government national mortgage association ginnie Mae
Federal home loan mortgage corporation Freddie Mac

Sell bonds to buy mortgages

Not liquid

47
Q

What are US government securities?

A

Long term debt instruments issued by Us treasury to finance deficit of fed government
Most widely traded bonds
Most liquid security traded in capital market

48
Q

What are Us government agency securities?

A

Long term bonds issued by various government agencies (ginnie mae) to finance personal items like mortgages

49
Q

What are state and local government bonds?

A

Municipal bonds
Long term debt instruments issued by state and local governments to finance schools, roads, and large programs

Inters payments exempt from federal income tax and state tax

Commercial banks, biggest buyer

50
Q

What are consumer and bank commercial loans?

A

Loans to consumer and businesses made principally by banks or finance company’s

51
Q

Why have international financial markets grown?

A

Increase in pool of savings

Deregualtion of finically markets

52
Q

What are foreign bonds?

A

Traditional instruments in the international bond market

Sold in foreign country, denominated in that country’s currency

53
Q

What is a Eurobond?

A

Bond denominated in a currency other than that of the country it is sold in
Larger than US corporate bonds

54
Q

What are eurocurrencies?

A

Foreign currencies deposited in banks outside home country

55
Q

What are Eurodollar?

A

Most important Eurocurrency

US dollars deposited in foreign banks outside US or foreign branches of US banks

56
Q

What is true of world stock markets?

A

US not necessarily the largest anymore

Now mutual funds that concentrate on trading foreign markets

57
Q

How does the secondary market work?

A

Borrow funds from lender savers and then use to make loans to borrower spenders

58
Q

What is financial intermediation?

A

Primary route for moving funds from lenders to borrowers

59
Q

What are transaction costs?

A

Time and money spent in carrying out Funchal transactions

Problem for people with excess funds

60
Q

Why can finial intermediaries reduce transaction costs?

A

Expertise in lowering them and they can take advantage of scale

61
Q

What are economies of scale?

A

Reduction in transition cost per dollar as the size of transitions increase

62
Q

What is liquidity services?

A

Services that make it easier for costumers to conduct transactions

63
Q

What is risk?

A

Uncertainty about returns investors will earn on assets

Low transaction cost reduce exposure to risks

64
Q

What is risk sharing?

A

Done by intermediaries
Create and sell assets with risk characteristics that people are comfortable with

Asset transformation
Risky asset turned into safer ones

65
Q

What is diversification?

A

Entails investing in a portfolio of assets whose return do not always move together, therefore lowering risk

66
Q

What is asymmetric information?

A

One party does not know enough about the other to make accurate decisions

67
Q

What is adverse selection?

A

Problem created by asymmetric information before transaction occurs

68
Q

What is moral hazard?

A

Asymmetric information after transaction

69
Q

What do financial intermediaries help with?

A

Provide liquidity services
Promote risk sharing
Solve information problems

70
Q

What are economies of scope?

A

Lower cost of information production for each service by applying one information resource to many different services

71
Q

What is conflict of interests?

A

Economies of scope
Too many objectives
May withhold some info

72
Q

What are categories of financial intermediaries?

A

Depository institutions
Contractual savings institutions
Investment intermediaries

73
Q

What are depository institutions?

A

Banks

Accept deposits from individuals and make loans

74
Q

What is a thrift institution?

A

Saving and loan association, mutual savings bank, and credit union

75
Q

What is a commercial bank?

A

Raise funds by issuing check able deposits, savings deposits, time deposits
Use funds to buy commercial, consumer, and mortgage loans
Largest intermediary, most diverse assets

76
Q

What are savings and loan associations and mutual savings banks?

A

Depository institutions
Saving, time, and check able deposits
Used to use for residential housing loans

77
Q

What is a credit union?

A

Money from shares, make consumer loans

78
Q

What are contractual savings institutions?

A

Acquire funds on periodic intervals on a contractual basis

Long term securities

79
Q

Life insurance companies

A

Annuities, annual income payments upon retirement

Acquire funds from premiums

80
Q

What does government regulate financial markets?

A

Increase information available investors, ensure soundness of financial system

81
Q

What is financial panic?

A

Widespread collapse of financial intermediaries

Money And Banking (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions