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Finance > Chapter 2 > Flashcards

Chapter 2 Flashcards

1
Q

Intermediary

A

A financial institution that facilitates the transfer of funds between borrowers and lenders

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2
Q

Bill

A

A short term debt instrument that is issued at a discount to its face value

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3
Q

Discount

A

The difference between the fave value and the price of a financial asset, such as a bond or bill, where the face value exceeds the price

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4
Q

Discount instrument

A

Financial asset that when first issued, is below its face or par value, and when repaid at maturity includes principal and interest

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5
Q

Balance sheet

A

Statement of an individuals or organisations assets, liabilities and equity at a given date

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6
Q

Transaction costs

A

The costs involved in making financial deals, such as the costs of issuing new securities

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7
Q

Economies of scale

A

Economies of scale occur when the average cost of producing a product or service decreases as the amount produced increases

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8
Q

Price discovery

A

The revealing of information about future cash market prices

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9
Q

Deep markets

A

Markets where there are numerous buyers and sellers

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10
Q

Thin markets

A

Markets in which there are not many buyers and sellers

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11
Q

Arbitrage

A

The simultaneous buying and selling of a product to take advantage of price differences. In this process, the price differences are reduced

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12
Q

Liquidity

A

The quickness and ease of converting assets into cash. Sometimes called marketability

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13
Q

Intertemporal

A

An adjective meaning across time

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14
Q

Hedging

A

The practice of managing risk exposure, often by using contracts (such as derivatives) that have an offsetting exposure

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15
Q

Forward contract

A

An agreement by two parties to carry out a financial transaction at a future (forward) point in time

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16
Q

Money market

A

A market in which short term debt instruments with maturities up to a year are traded

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17
Q

Capital markets

A

The financial markets where the longer term, relatively riskier debt and equity securities trade

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18
Q

Primary market

A

Financial market in which new securities are sold and most of the funds raised go to the issuer

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19
Q

Secondary market

A

Financial market in which existing securities are bought and sold between investors

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20
Q

Auction

A

A market where the orders of traders are matched directly by the brokers

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21
Q

Dealer

A

In the case of financial markets, an agent that takes ownership of the financial assets, and then makes a market by buying and selling those assets to investors

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22
Q

Intermediated

A

Parties are bought together by the help of a mediator

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23
Q

Bank bills

A

Unsecured short-term marketable securities issued by companies with payment arranged through a bank

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24
Q

Broker

A

An agent who, for a fee or commission, carries out transactions such as the buying and selling of shares for a client

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25
Q

Over-the-counter (OTC) market

A

A market that is not organised by an exchange organisation

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26
Q

Repos

A

Repurchase agreements where financial institutions sell some of their government securities in exchange for cash, simultaneously agreeing to buy them back at a fixed later date

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27
Q

Treasury bill

A

Short-term debt instruments issued by the government for short-term financing

28
Q

Certificates of deposit

A

Short-term debt instruments mainly issued by banks requiring short-term funding. Investors providing the funds do have the flexibility to sell them in the liquid secondary market before the deposit held by the bank matures

29
Q

Promissory note

A

A written promise by the borrower to pay the lender a specified amount of money at some future specified date. Usually a short-term instrument issued by a corporate of good credit standing

30
Q

Commercial paper

A

A short-term debt instrument issued directly into the market by companies with good credit ratings, with the aid of a financial institution, and known in New Zealand as promissory notes

31
Q

Yield

A

The return on an investment, normally expressed as a percentage of its current value. By convention, it is quotes as an annual rate

32
Q

Capital notes

A

Bond issues that are not supported by any underlying security and pay higher interest than corporate bonds supported by underlying assets

33
Q

Preference shares

A

Shares that give their holders priority over ordinary shareholders and have some characteristics common to debt instruments

34
Q

Convertible notes

A

Debt instruments that can be converted into shares

35
Q

Rights issue

A

If a company is seeking extra funds, it may offer the existing shareholders the right to subscribe for the extra shares. The right is renounceable if it can be sold to another party. The right is non-renounceable if it can be exercised only by the shareholder and not be sold.

36
Q

Market index

A

A measure of price levels in a market

37
Q

Spread

A

The difference between buying and selling quotations

38
Q

Exchange rate

A

The price at which one foreign currency can be exchanged for another

39
Q

Spot market

A

A market that involves transactions that are settled without delay

40
Q

Forward market

A

A market for forward contracts that involve delayed settlement

41
Q

Derivative instrument

A

Any instrument whose value is derived from the underlying asset on which it is based

42
Q

Futures contract

A

An exchange-traded, legal contract between a buyer, who agrees to take delivery of a specified asset at a predetermined time, and a seller who agrees to delver the asset

43
Q

Settlement date

A

Also known as expiry date. It refers to the date when a contract expires

44
Q

Expiry date

A

The date when an option terminates, also known as the expiration date

45
Q

Long position

A

To agree to buy at a future date

46
Q

Short position

A

A selling position - the sale of a financial asset

47
Q

Swaps

A

Financial instruments that involve the exchange of cash flows between two parties

48
Q

Initial margin

A

The preliminary amount that needs to be deposited with a broker by the market player so that a futures contract may be bought or sold

49
Q

Marking to market

A

The process of adjusting an initial deposit of a good to its current market value. Usually occurs daily in the futures market.

50
Q

Margin call

A

The call for extra funds when adverse movements in the price of a contract erode the initial deposit to below a specified level

51
Q

Clearing house

A

A financial institution that guarantees the contract exchange between buyers and sellers of financial contracts; for example, futures contracts

52
Q

Hedger

A

A market player who wishes to protect their existing position by reducing risk

53
Q

Long hedge

A

This is when a market player buys a futures contract to protect an underlying physical position

54
Q

Short hedge

A

This is when a market player sells a futures contract

55
Q

Speculator

A

A market player who takes on risk in order to make a potential profit

56
Q

Expectations

A

Beliefs or views about possible outcomes, such as the future direction of interest rates

57
Q

Arbitrageur

A

A market player who carries out arbitrage

58
Q

Delivery date

A

Date at which the contract expires and the specified transaction is carried out

59
Q

Exercise price

A

The price at which an option is to be settled, also known as the strike price

60
Q

Strike price

A

The price at which an option is to be settled or exercised

61
Q

Call option

A

An option where the buyer has the right, but not the obligation, to buy the underlying asset at a predetermined price before a specified date

62
Q

Put option

A

An option where the buyer has the right, but not the obligation, to sell an underlying asset at a predetermined price before a specified date

63
Q

Premium

A

The payment from the buyer to the seller of an option

64
Q

Writer of an option

A

The seller of an option

65
Q

Exercise an option

A

When the holder of an option uses or takes up the option on or before the expiration date

Finance (13 decks)

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