Chapter 2 - The Financial System and Level of Interest Rates Flashcards
Financial Market
General term that includes a number of different types of markets for the creation and exchange of financial assets such as stock and bonds.
Financial Institutions
Firms such as commercial banks, credit unions, insurance companies, pension funds, and finance companies that provide financial services to the economy.
Financial Assets
Assets that are claims on cash flows from other assets such as business loans, stocks, or bonds.
Real Assets
Non Financial assets such as productive assets like equipment etc.
Investment Banks
Firms that specialize in helping companies sell new security issues (stocks or bonds).
Money Center Banks
Large commercial banks that provide both traditional and investment banking services throughout the world.
Origination
Process of preparing a security issue for sale.
Underwriting
The process by which the investment banker helps the company sell its new security issue. In the most common type of underwriting arrangement, called firm-commitment underwriting, the investment banker buys the new securities from the issuing company and resells them to investors.
Distribution
The process of marketing and reselling the securities to investors.
Primary Market
Any market where companies sell new security issues (debt or equity).
Secondary Market
Any market where owners of outstanding securities can sell them to other investors.
Marketability
The ease with which a security can be sold and converted into cash.
Liquidability
The ability to convert an asset into cash quickly without loss of value.
Money Markets
Global markets where short-term debt instruments, which have maturities of less than one year, are traded.
What are private placements?
Transactions that take place in private markets they are the sale of an unregistered security directly to an investor, such as an insurance company or a wealthy individual
