Lesson 3 Flashcards
It is one sector of an economy, having
foremost participants being institutions, markets, and
investment banking
Financial Environment.
An institution that is doing the vital
purpose of guiding finances to individuals or businesses with excess resources or shortages of funds
Financial Institution
It is a trading floor wherein trading of
Financial securities, including stocks and bonds, and precious metals and derivatives occur at low transaction costs.
Financial Market.
It is a special division of banks related to
capital creation for other companies, governments, and other businesses.
Investment Banking
It is a chance which the result of actual gains of
investments will be different from an expected outcome or return.
Financial Risk
is one sector of an economy, having foremost participants being financial institutions, financial markets, investors, and stock exchange.
financial environment
represents a more significant portion of a well-developed economy.
sector (financial corp.)
are any business entity that offers goods or services to users.
Institutions
are persons or businesses that invest money into companies for financial gains.
investors
are the financial environment making all this possible.
markets
These are institutions doing the vital purpose of
guiding finances to individuals or businesses with
excess resources or with shortages of resources
Financial Institutions
Among these are banks, thrifts, insurance companies,
finance companies, securities firms, and investment
banks, pension funds, and mutual funds.
Financial Institutions
Risks Financial Institutions Face
Interest Rate Risk
Credit Risk
Operational Risk
Market Risk
Liquidity Risk
Systemic Risk
Sovereign Credit Risk
Insolvency Risk
Foreign Currency Risk
It is also known that interest risk negatively affects
the bank’s cash flow from changing interest
rates.
Interest Rate Risk
The risk a borrower will fail to meet its
obligations under agreed terms
Credit Risk
The risk of loss ensuing from not adequate or
unsuccessful internal processes, labor force, and
systems or from other external activities such as
errors by employees, systems breakdowns,
fraud or other criminal act or any event that
disrupts business processes
Operational Risk
The risk that the value of an investment will
decrease due to changes in the financial market /
in market factors
Market Risk
The risk that over a specific horizon, the bank will
be unable to settle obligations when due
Liquidity Risk
The risk that an occurrence will trigger a loss of
economic value or confidence in a substantial
portion of the financial system
Systemic Risk
This is known as country risk, is the risk of a
government or a country fittingly unable to meet
its credit obligations
Sovereign Credit Risk
Also known as bankruptcy risk, it is the risk that
an individual or especially an entity will not satisfy
its debts
Insolvency Risk
Also known as currency risk, is the risk on the
losses an international financial transaction can
suffer because of currency fluctuations.
Foreign Currency Risk
This refers to a marketplace, where creation and trading of financial assets, such as stocks, bonds, derivatives, currencies etc. take place.
Financial Markets
Types of Financial Markets
Money market
Capital market
Derivatives market
Foreign Exchange market
involves the trading of short-term debt financing and
investment. (CDs, repo, commercial paper)
Money market
involves the trading of long-term debt securities. (stocks, bonds, treasury bills).
Capital market
Capital markets consist of:
➢ Stock market
➢ Bond market
provides financing by issuing shares of
common stock and allowing the succeeding trading from there.
Stock market
provides financing by the issuance of
bonds and permit the subsequent trading.
➢ Bond market
provides instruments for the management of
financial risk. (futures contracts, forwards contracts, swaps, options)
Derivatives market
facilitates the trading of foreign exchange.
Foreign Exchange market
facilitate the trading of commodities
Commodity markets
provide standardized forward contracts for trading products at a specific date in the
future
Futures markets
enables the trading of digital assets and financial technologies
Cryptocurrency market
is where financial instruments like securities, currencies, and commodities are traded for
fast delivery to exchange cash
Spot market
which banks lend funds to one another for a specified term.
Interbank lending market
Newly issued securities are bought or sold in primary
markets through initial public offerings (IPO)
Primary markets
The transactions in the primary markets exist between
issuers and investors.
Primary markets
These markets allow investors to buy and sell existing
securities.
Secondary markets
is a market where investors purchase securities or assets from other investors, rather than from issuing companies themselves.
Secondary markets
is a special division of banks related to
capital creation for other companies, governments, and other businesses.
Investment banking
include underwriting new debt and equity securities for all corporations, assisting in the
sale of securities, and facilitating mergers and acquisitions, reorganizations, and broker trades for both institutions and
private investors
Investment banking activities
means that a lender verifies the income,
assets, debt and property details, in order to issue final
approval for the loan.
Underwriting
Is a financial expert who takes a look at your finances and assesses how much risk a lender will take on if they decide to give you a loan.
underwriter
There are two types of Investment
Banking services
- Sell-side
- Buy-Side
- Services include trading of equity, derivatives,
promotion of securities and the like are offered;
- Sell-side
- These are advisory services to companies
interested in buying investment like insurance firms,
pension funds, and the like.
- Buy-Side
The global marketplaces were buyers, and
Sellers trade financial assets, such as stocks, bonds, foreign currencies, commodities, and derivatives worldwide
International Financial Market.
Also referred to as FOREX or F.X. is the trading of one
currency of a country for another country’s currency.
Foreign Exchange
It is an agreement of financial services globally and
provided to clients by a bank of one country to the clients of a bank of another
country.
International Banking
It represents the maximum price that a buyer is willing to pay for a stock share or other security
Bid Price
It represents the minimum price that a seller is willing to take for the same stock share or other security.
Ask Price
Usually refers to financial transactions involving the exports and imports.
Trade Financing
It is a strategy intended to lower investment risk by using call options, put options, short-selling, or futures contracts. It can help lock in return on
investment to reduce the volatility of an investment portfolio, thus reducing the
risk of losing on the portfolio.
Hedging
These contracts give a buyer the right to buy or sell the
underlying asset, or the security wherein a derivative contract is based, with an expiration date at a specified price
Options
It is a financial contract that gives the option buyer the right, but not the obligation, to buy a stock, bond, commodity, or other asset or instrument at a specified price within a particular time
Call Option
It is a contract giving the owner the right, but not the obligation to sell–or sell short–a specified amount of an underlying security at a pre-determined price within a specified time frame.
Put Option
It is a legal contract to buy or sell a particular
commodity asset or security at a pre-determined price at a specified time in the future.
Futures Contract
An institution that describes membership from countries worldwide has activities helping one another
and whose members execute a formal agreement. (World Bank, WTO, IMF, GATT, etc.)
International Financial Organization.
It consist mainly of international banking services
and the global money market, accessed by
multinational corporations, traders, or businesses
with import and export transactions
The International Financial Markets
It is an agreement of financial services globally, and provided to clients by a bank of one country to the clients of a bank of another country
International Banking
usually refers to financial transactions involving the exports and imports
Trade Financing
one country to the clients of a bank of another
country, such as:
a. Trade Financing
b. Foreign Exchange
c. Foreign Investments
d. Hedging
is the trading of one currency of a country for another country’s currency.
Foreign Exchange
are better positioned to offer consulting services to their clients for their investing requirements.
Foreign Investments
i.e. Exchange Rate Risk) - It is a strategy
intended to lower investment risk by using call options, put options, swaps or short-selling, and futures contracts. It can help lock in return on investment to reduce the volatility of an investment portfolio, thus reducing the risk of losing on the portfolio.
Hedging
usually short- term such as (foreign currency) deposits,
commercial papers, etc
International Money Market
- it is a large-scale
-money market that allows many central banks to conduct transactions from different countries. This
includes both lending and borrowing funds. It
handles funds in trillions, with the main actors
being central banks and major foreign banks.
International Money Market
MANILA, Sept 19, 2008 (Reuters) - Seven Philippine
banks have a total exposure of $386 million to bankrupt U.S. investment bank____________, according to a newspaper report.
Lehman Brothers
