Chapters 2 Flashcards
Commercial Banks
Institutions that provide savers with a secure place to invest their funds and that offer loans to individual and business borrowers.
Investment Bank
Institutions that assist companies in raising capital, advise firms on major transactions such as mergers or financial restructurings, and engage in trading and market making activities.
Shadow Banking System
A group of institutions that engage in lending activities, much like traditional banks, but do not accept deposits and therefore are not subject to the same regulations as traditional banks.
Financial Markets
Forums in which suppliers and demanders of funds can transact business directly.
Private Placement
The sale of new security directly to an investor or group of investors.
Public Offering
The sale of either bonds or stocks to the general public.
Primary Market
Financial market in which securities are initially issued; the only market in which the issuer is directly involved in the transaction.
Secondary Market
Financial market in which preowned securities (those that are not new issues) are traded.
Money Market
A financial relationship created between suppliers and demanders of short term funds.
Marketable Securities
Short-term debt instruments, such as US Treasury Bills, commercial paper, and negotiable certificates of deposit issued by the government, business, and financial institutions, respectively.
Capital Market
A market that enables suppliers and demanders of long-term fund to make transactions.
Bond
Long-term debt instrument used by business and government to raise large sums of money, generally from a diverse group of lenders.
Preferred Stock
A special form of ownership having a fixed periodic dividend that must be paid prior to payment of any dividends to common stock holders.
Broker Market
The securities exchanges on which two sides of a transaction, the buyer and seller, are brought together to trade securities.
Securities Exchanges
Organizations that provide the marketplace in which firms can raise funds through the sale of new securities and purchasers can resell securities.
Dealer Market
The market in which the buyer and seller are not brought together directly but instead have their orders executed by securities dealers that “make markets” in the given security.
Market Makers
Securities dealers who “make markets” by offering to buy or sell certain securities at stated prices.
Nasdaq Market
An all-electronic trading platform used to execute securities trades.
Over-The-Counter Market
Market where smaller, unlisted securities are traded.
Bid Price
The highest price offered to purchase a security.
Ask Price
The lowest price at which a security is offered for sale.
Efficient Market
Establishes correct prices for the securities that firms sell and allocates funds to their most productive uses.
Securitization
The process of pooling mortgages or other types of loans and selling claims or securities against that pool in the secondary market.
Mortgage-Backed Securities
Represent claims on the cash flows generated by a pool of mortgages.
