Introduction

Question 1

Liquidity

Answer 1

How quickly an asset can be exchanged for goods without financial loss

Question 2

Loans

Answer 2

Where one party agrees to lend another party money in return for interest

Question 3

Bonds

Answer 3

Pieces of paper (like IOUs) which borrowers issue in return for a loan and which are bought by investors, who can sell them to other parties.
Normally medium term (lasting between 5 - 25 years)

Question 4

Maturity (bond/loan)

Answer 4

The period for which a bond or loan lasts

Question 5

Coupon (bond)

Answer 5

The interest rate that a bond pays

Question 6

Bills (related to bonds)

Answer 6

Shorter term bonds lasting three months or so

Question 7

Equities

Answer 7

Issued only by companies and offer a share in the assets and the profits of the firm, which has led to their being given the more common name of shares. Different in that they confer ownership of something more than a piece of paper.

Question 8

Dividend

Answer 8

Generally announced semi-annually or quarterly, a sum payable to each shareholder as a proportion of the profit

Question 9

Derivatives

Answer 9

Financial assets that are based on other products; their value is derived from elsewhere. For example, futures, options and swaps

Question 10

Hedging

Answer 10

The process whereby an institution buys or sells a financial instrument in order to offset the risk that the price of another financial instrument or commodity may rise or fall

Question 11

Leverage

Answer 11

Gives investors an opportunity for a large profit with a small stake.

Question 12

Glass-Steagal act

Answer 12

1933 act in the wake of 1929 financial crash - separated investment and commercial banks. At the time, over-zealous speculation and trading from commercial banks was considered main culprit for crash. Aimed to prevent a loss of customer deposits due to investment failures. Repealed in 1999 with the Gramm-Leach-Bliley Act.