Chapter 3 - Financial Instruments, Markets, and Institutions Flashcards
Bear Market
A financial market in which prices are falling.
Adjustable Rate Mortgage (ARM’s)
A mortgage in which the interest rate and payments change periodically during the life of the loan.
Bond
A liability issued by a government, or a business promising to pay the holder a fixed cash amount at a specific maturity date and (usually) to make regular interest payments in the interim.
Bull Market
A financial market in which prices are rising.
Call Options
An option contract in which the option buyer has the right (but not the obligation) to buy a specified quantity of the underlying asset at a specific price until the expiration date of the option.
Capital Market
The market for stocks and long-term debt instruments.
Collateral
Assets such as equipment, account receivable, inventory or real estate pledged to a lender to secure a loan.
Commercial Bank
A financial institution that offers a wide variety of services, including checking accounts and business loans.
Commercial Paper
Short-term debt instruments issued by finance companies and large business firms.
Common Stock
Ownership interest in a company; such ownership provides a residual claim to the company’s earnings, paid in the form of dividends.
Consols
Perpetual bonds, which have no maturity date but pay a fixed cash flow (interest) forever.
Convertible Preferred Stock
Preferred stock that can be converted into common stock at a predetermined price.
Coupon Securities
Bonds that make periodic interest payments prior to maturity. In some cases the bonds have actual coupons attached, which bondholders remove and send in at regular intervals to collect interest.
Credit Unions
Depository institutions specializing in consumer loans that are organized around a common link.
Derivative Financial Instrument
A financial instrument such as a swap or an option or futures contract that derives its value from some other, underlying, financial asset.
Dividends
Earnings of a corporation that are distributed to stockholders.
Federal Home Loan Banks
Government sponsored banks from whom savings and loans associations can borrow money.
Federal National Mortgage Association (Fannie Mae)
A private corporation which certain ties to the government that issues debt instruments that provide claims primarily to pools of government-insured mortgages.
FHA-VA Mortgage
A mortgage insured either by the Federal Housing Authority (FHA) or by the Veterans Administration (VA).
Financial Intermediaries
Institutions with financial claims on both sides of the balance sheet that act as go-betweens in funneling funds from saver-lenders to borrower-spenders.
Financial Markets
Markets in which financial assets can be traded.
Fixed-Rate loan (mortgage, security)
A loan (mortgage, security) that carries an unchanging interest rate throughout the life of the instrument.
Futures Contract
A standardized agreement, traded on an organized futures exchange, for delivery of a specific commodity or security on a specified future dat and at a specified price.
Index Fund
A mutual fund whose goal is to mimic the performance of one of the financial markets indices, often the S&P500
Interest
A charge paid by a borrower to a lender for the use of the lender’s money.
Intermediated Markets
Markets in which funds flow from saver-lenders to borrower-spenders through financial intermediaries.
Life Insurance Company
Companies that sell life insurance, annuities and other savings-oriented products.
Long
The buyer of a financial asset, usually an options or futures contract, who is also said to “take a long position.”
Money Market
The financial market for short-term securities.
Mortgage
A (usually long-term) loan for the purchase of a home or other building, where the home or building serves as collateral in case of default.
