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Financial markets and institutions > from ch 12 to end - final > Flashcards

from ch 12 to end - final Flashcards

1
Q

“Spot” in ForEx

A

settlement within a couple days

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2
Q

“forward: in ForEx

A

settlement for some date in the future

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3
Q

“swap” in ForEx

A

the simultaneous transacting of a spot and a forward transaction

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4
Q

what are the impacts of a weaker $

A
  • higher inflation
  • more competitive exports
  • foreign currency earnings translate back to more USD
  • fewer foreign currency units needed to repay USD debt
  • more expensive foreign goods
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5
Q

initial margin

A

cover future movement in the underlying index

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6
Q

variation margin

A

covers the actual movement in prices each day and sometimes intraday

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7
Q

futures or forwards

A

lock in a rate or price to be paid or received in the future for a specified amount of a financial instrument or commodity at a specified date

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8
Q

futures

A

standardized agreements and traded on an exchange

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9
Q

forwards

A

traded OTC and are customized

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10
Q

details of forwards and futures

A

the dollar amount, financial instrument, specified price, and date of delivery

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11
Q

interest rate swaps

A

an exchange of payments based on a “notional” payment amount

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12
Q

what are interest rate swaps commonly used for?

A

the exchange of a fixed rate of interest for a floating rate of interest

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13
Q

details of interest rate swaps

A
  • Notional principal value to which the interest rates are applied
  • Fixed interest rate
  • Formula and type of index used to determine the floating rate
  • Frequency of payments
  • Maturity date
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14
Q

cross currency swap

A

similar to an interest rate swap except that:
- there is a periodic exchange of payments in two different currencies

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15
Q

details of a cross-currency swap

A
  • principal value to be exchanged and to which the interest rates are applied
  • fixed interest rate, if any
  • formula and type of index used to determine the floating rate(s)
  • frequency of payments
  • maturity date
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16
Q

credit default swap

A

a contract that protects investors against the risk of default on specific debt securities

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17
Q

how do payments in a CDS work?

A
  • The buyer provides periodic(usually quarterly) payments(premium) to the seller who is providing protection(insurance)
  • The seller receives the payments from the buyer but is obligated to reimburse the buyer only if the securities specified in the swap agreement default
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18
Q

total return swaps

A

allows investors to potentially buy large stakes that couldn’t be purchased directly in the equity market

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19
Q

options contracts

A

Gives you the right but not the obligation to buy/sell in the future at a specified price

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20
Q

details of an options contract

A
  • Specifies the type of option - right to buy or sell
  • strike price, aka, the exercise price
  • formula and type of index used to determine the floating rate
  • premium or cost
  • date or dates that the options can be exercised
  • maturity date
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21
Q

Call option

A

right to buy underlying financial instrument at exercise(strike) price within a specified period of time

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22
Q

in the money for a call option

A

MP > exercise/strike price

23
Q

at the money

A

MP = exercise/strike price

24
Q

out of the money for a call option

A

MP < exercise/strike price

25
Q

put option

A

right to sell underlying financial instrument at exercise(strike) price within a specified period of time

26
Q

in the money for a put option

A

MP < exercise price

27
Q

out of the money for a put option

A

MP > exercise price

28
Q

London Interbank Offered Rate (LIBOR)

A
  • Was the most widely used floating rate index
  • Prior to the great recession, this rate reflected an active market for the rate at which banks would borrow from/lend to one another
29
Q

banks

A
  • facilitate the flow of funds from savers to borrowers
  • Deposit accounts for savers
  • Loans for borrowers
30
Q

Net Interest Margin

A

difference between the interest income generated on assets(loans), relative to the amount paid on liabilities(deposits) is the largest income generator for most banks

31
Q

deposit “beta”

A

Lag in any increase in rates to depositors and increase the rate on loans asap

32
Q

how are banks funded?

A
  • deposit accounts
  • borrowed (wholesale) funds
  • long-term sources of funds
33
Q

what is generally the largest source of funding for banks?

A

deposit accounts

34
Q

demand deposit (checking account0

A

requires small minimum balance pays no interest

35
Q

savings deposit

A
  • higher interest than a checking account
  • does not permit check writing
  • little/no required minimum
36
Q

certificates of deposit (CDs)

A

require a minimum amount of funds to be deposited for a specified period

37
Q

money market deposit account

A
  • Differs from conventional time deposits in that they do not specify a maturity
  • Provide limited check-writing and number of withdrawals per month
38
Q

federal funds purchased

A

depository institutions borrow short-term funds from each other at or around the federal funds rate

39
Q

repurchase agreement

A

One party sells securities to another with an agreement to repurchase the securities at a specified date and price

40
Q

eurodollar borrowings

A

Short-term borrowings of U.S. dollars from foreign banks or foreign branches of U.S. banks outside the United States

41
Q

Primary credit rate

A

a lower interest rate for best-capitalized institutions

42
Q

Secondary credit rate

A

a higher interest rate for less well capitalized institutions

43
Q

federal funds sold

A

depository institutions to lend short-term funds to each other at or around the federal funds rate

44
Q

reverse repurchase agreement

A

bank lends funds and takes securities as collateral from another institution with an agreement to return the securities and receive the cash back at a specified date and price

45
Q

LFI rating system is composed of the following three components:

A

1) Capital Planning and Positions
2) Liquidity Risk Management and Positions
3) Governance and Controls

46
Q

CAMELS components

A
  • capital adequacy
  • asset quality
  • management
  • earnings
  • liquidity
  • sensitivity to market risk
47
Q

basics of a savings and loans institution

A
  • A deposit institution specializing in mortgage lending
  • Typically, <$1B in assets and serving local communities
  • Classified as either stock owned or mutual (owned by depositors)
48
Q

basics of finance companies

A
  • Specialty providers of short- and medium-term credit
  • May be independently owned or a subsidiary within a larger organization (e.g., Ford providing auto loans)
  • > $1 Trillion in assets across Finance Companies
49
Q

consumer financial protection bureau

A

responsible for regulating various consumer finance products and services that may be offered by finance companies and other institutions

50
Q

credit union basics

A
  • A special form of mutual depository institution owned by the depositors
  • Offer similar accounts and services as banks, but are nonprofit
  • Lower loan rates and higher deposit rates
51
Q

mutual fund

A

buys investments with money pooled from multiple investors and invests those funds in a wide variety of assets

52
Q

securities firms and broker-dealer basics

A
  • Act as an intermediary between investors and issuers in equity offerings
  • Provide advisory services to corporations and governments
  • Provide liquidity to markets through market-making activities
  • Sell securities to their clients and perform analysis of companies
  • Perform proprietary trading activities
53
Q

Financial Industry Regulatory Agency

A

a non-profit agency that overseas securities firms

Financial markets and institutions (8 decks)

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