CTP Chapter 3 Flashcards
The price or yield at which a dealer will sell a security.
ask price
A financial statement that reports a company’s financial condition—including assets, liabilities, and shareholders’ equity—at a point in time. Also called a statement of financial position.
balance sheet
The price or yield at which a dealer will purchase a security.
bid price
An entity that serves as an intermediary in the purchase and sale of capital market securities. It trades securities for its own account or on behalf of its customers. When executing trade orders on behalf of a customer, the institution acts as a broker. A broker that executes trades for its own account is also a dealer, and may be referred to as a brokerage firm.
broker-dealer
A factor that measures whether the amount of capital maintained relative to the nature and extent of an institution’s risks is sufficient given management’s ability to identify, measure, monitor, and control these risks.
capital adequacy
A subsidiary of a large industrial corporation that finances purchases of the corporation’s products.
captive finance company
The capital contributed by stockholders and earnings retained in the business. Also refers to an account on corporate financial statements that reflects this amount.
common equity
An account through which an account holder uses a bank to transfer funds to, and receive deposits from, a third party. Also known as a checking account or a current account.
demand deposit account (DDA)
A regulatory safeguard that protects the assets of smaller deposit customers (typically consumers, although corporate accounts are also often covered up to a certain amount) who would be most harmed by a bank failure.
deposit insurance (deposit guarantee)
A brokerage firm that lets investors make trades at reduced prices, but provides little or no investment advice.
discount brokerage
An investment bank function that involves a securities sale to investors by an investment bank or syndicate of investment banks (sometimes performed by a brokerage firm on behalf of the investment bank or syndicate).
distribution
An individual or institution to which certain property is given to hold in trust according to a trust agreement.
fiduciary
A bank account where deposit balances may be held in a currency other than that of the country in which the bank is located.
foreign currency account
The conversion of one country’s currency into that of another
foreign exchange (FX)
A financial market in which contracts for future delivery (futures) of currency or commodities are bought and sold
forward market
A regulatory restriction on the amount that a financial institution can lend or invest in a particular company or industry, based on the quality of the financial institution’s existing loan portfolio.
impairment of capital rule
A type of nonbank financial institution that sells insurance products. From a corporate perspective, insurance companies are primarily long-term lenders to companies. They are significant investors in real estate, particularly commercial real estate (e.g., shopping centers), as well as long-term bonds. Insurance companies also compete with banks for short- and medium-term loans. They provide mortgage funding, leasing services, guaranteed investment contracts (similar to bank certificates of deposit, generally paying interest for one to five years), and universal life insurance policies with long-term savings features.
insurance company
A financial intermediary that performs a variety of services, such as: (1) underwriting, by acting as an intermediary between an issuer of securities and the investing public; (2) providing custodial services; (3) facilitating mergers, acquisitions, divestitures, and other corporate reorganizations; and (4) acting as a broker/financial advisor for institutional clients.
investment bank
Types of debt (bonds or notes) issued by city, county, or state government entities that generally have some type of income tax exemption for any interest paid on them. Commonly called munis.
municipal securities
An investment of either common or preferred stock in an operating company that is not publicly traded on an exchange. This investment sometimes involves the acquisition of an entire company.
private equity
The practice of the direct sale of long-term loans to institutional investors, such as insurance companies and hedge funds.
private placement
A central bank requirement that establishes the minimum percentage of customer deposits that financial institutions must hold as reserves and not lend out to other customers. This is an important part of managing monetary policy. In the United States, it is also a factor in the computation of earnings credits, since it represents a US financial institution’s compensation for the level of balances it is required to maintain with the Federal Reserve. Since 2020, the Federal Reserve has set the reserve requirement rate at 0%.
reserve requirement
A committed line of credit established for a specified period of time, often on a multiyear basis. These credit agreements are formal, contractual commitments with loan agreements, including covenants.
revolving credit agreement (revolving line of credit)
Government revenue from the issuance of coin and currency, which is based on the difference between the value of the money and the cost to produce it. Historically, it arose from the manufacture of coins, which were worth more than the metal used to mint the coins.
seigniorage
The market for immediate trading of currency or commodities
spot market
The difference between the bid and ask price of a particular security or asset. Represents the dealer’s gross profit on a specific transaction.
spread
An analytical exercise that assumes an adverse change in one or more of a firm’s funding sources, or a major shock to a company’s core business due to a litigation crisis, competitor’s action, product recall, production plant disaster, financial crisis, or other source of business trauma. The proposed change in funds availability may involve the loss of one or more of a firm’s borrowing facilities, a sudden and large increase in borrowing costs, or both. Such changes may reduce the firm’s credit rating, violate loan covenants, or cause a technical default on a credit facility.
stress test
The act of requiring a purchaser to buy one product or service in order to be allowed to buy a second, typically unrelated, product or service
tying
A bank that offers both commercial and investment banking services, with investment banking services offered through the investment banking arm of a commercial bank’s holding company.
universal bank
