Commercial Banks and Other Financial Intermediaries Part 1 Flashcards
A financial market can be categorized as either a _______ market or a financial intermediaries market.
Securities. A securities market is one where agents trade debt and equity claims of the final borrowers. So, shares of Microsoft are bought and sold in securities markets.
The market for savings deposits of ______ banks is an example of the financial intermediaries market.
Commercial. Commercial banks act as financial intermediaries because they accept the savings deposits of customers, and then lens out these funds to borrowers. This activity is called financial intermediation or indirect finance.
A money market is a market where securities and equities with an initial maturity period of less than _____ months are traded.
Twelve. This is the market for short-term securities—for example, Treasury Bills.
A primary market sells _____ securities to first purchasers, whereas a secondary market deals in secondhand securities.
New.
The equity market trades in securities with ownership rights, whereas the debt market trades securities with promises to pay the loaned amounts with _______.
Interest. “Securities” are documents that indicate wither ownership or creditorship; i.e. stocks indicate ownership of a company whereas bonds indicate an obligation to pay back certain amount of money plus interest. Since there are two types of securities, it makes sense that there are two types of markets; equity markets and debt markets.
An exchange, which trades securities from a single main location, is a _______ market which trades securities.
Secondary. This is the definition of an exchange. An example is the New York Stock Exchange.
When John Jones asks his ______ to buy shares in a particular company, then this secondary market is called over-the -counter market.
Stockbroker. These securities are traded from the dealer’s inventories at prices given by the dealer at different locations.
The key function of the money and capital markets is to facilitate the _______ of funds from economic agents that have surplus money, and do it at a reasonable cost.
Raising. These markets provide governments, companies, and individuals with an effective means to raise funds.
A financial instrument can also be called a financial _____, a security, or a financial asset.
Claim.
The face value of a security is the amount the holder can expect when a bond matures, or the ______ price of that bond stated on the security.
Nominal. Face value is also called par value.
If Tina Williams sells her bond with a face value of 10,000at9900, then she has sold it at a _______.
Discount. This means that the security was sold at an amount less than the face value.
When Sara Sims sold her General Motors bond for $2000 ______ than the face value, she sold it at a premium.
More. This term describes the sale of a security at a price above its face value.
A mortgage is an example of a debt security, where the principle borrowed is returned over the duration of the loan period along with payments of _______.
Interest. Remember, we had stated that there were securities that included ownership, and securities that indicated debt. A mortgage is an example of a debt security.
A ______ is a security issued by the US treasury which is sold at a discount so that the income from the bill equals the difference between the purchase price and face value.
Treasury Bill. The Treasury Bill pays out income to the holder. So, for example, I buy a Treasury Bill maturing in 90 days with a face value of 20,000 but I only paid 19,000 for it. This means i can expect income of $1,000 over 90 days.
Short-term, unsecured promissory notes sold at a _______ by large corporation with good credit ranking are called prime paper.
Discount. It can also be called commercial paper. It is quick
