Financial System Quiz Flashcards
How can funds be obtained in the financial market?
1) Issuance of debt instruments
2) Issuance of equities
How are secondary markets organized?
1) Centralized exchange
2) OTC market
What is the difference between the Money and Capital market?
Short-term instruments are exchanged in the money market, and long-term instruments in the capital market.
List the money market instruments
1) US Treasury bills
2) Certificates of deposit
3) Commercial paper
4) Repos
5) Federal Funds
US Treasury Bills
Issued by the US government to finance government expenditure + sold at discount prices.
Certificates of Deposit
Sold by banks and pays annual interest of a given amount and at maturity pays back face value + must remain untouched for whole period.
Commercial Paper
Issued by large banks and well known big corporations (e.g. Microsoft) used by firms to repay short-term liabilities.
Repos
Short-term loans for which Treasury bills serve as collateral (firm purchases t-bills from bank, and bank repurchases some time later).
Federal Funds
Overnight loans between banks at the Federal Reserve.
What is the name of the rate of borrowing costs?
Prime rate
List the capital market instruments
1) Stocks
2) Mortgages
3) Corporate bonds
4) Government securities
5) State and local government bonds
6) Consumer & bank commercial loans
Stocks
Equity claims on the net income and assets of a corporation.
Mortgages
Loans used to purchase structure which becomes collateral for loans.
What are mortgage-backed securities?
Debt instruments backed by a bundle of individual mortgages whose interest and payments are paid to the holder of the security.
Corporate bonds
Long-term bonds that sends the holder an interest payment twice per year and pays off the face value when the bond matures.