Market Organization & Structure Flashcards
What does “Allocationally Efficient” mean?
A characteristic of markets, a financial system, or an economy that promotes the allocation of resources to their highest-value uses.
What are “Currencies”?
Monies issued by national monetary authorities.
What are “Spot Markets”?
Markets in which specific assets are exchanged at current prices.
“Spot Markets” are often referred to as cash markets.
What is a “Primary Market”?
The market where securities are first sold and the issuers receive the proceeds.
What are “Secondary Markets”?
The market where securities are traded among investors.
What is a “Money Market”?
The market for short-term debt instruments (one-year maturity or less).
What are “Capital Markets”?
Financial markets that trade securities of longer duration, such as bonds and equities.
What are “Traditional Investment Markets”?
Markets for traditional investments, which include all publicly debts and equities and shares in pooled investment vehicles that hold publicly-traded debts and/or equities.
What are “Alternative Investment Markets”?
Markets for investments other than traditional securities investments.
What is a “Hedge Fund”?
A private investment vehicle that is distinguished by their investment strategy rather than their investments.
What is an “Exercise Price”?
The pre-agreed upon execution price in an option contract.
Also referred to as a “Strike Price”
What is an “Underlying”
The asset referred to in the derivative contract.
What is a “Forward Contract”?
A derivative contract for the future exchange of an underlying at a fixed price set at the signing of the contract.
What is “Counterparty Risk”?
The risk that the other party to a contract will fail to honor the terms of the contract
What is a “Futures Contract”?
A variation of a forward contract that has essentially the same basic definition but with some additional features:
It has a clearinghouse guarantee against credit losses, a daily settlement of gains and losses, and an organized electronic or floor trading facility.
What is a “Clearinghouse”?
An entity associated with a futures market that acts as a middleman between the contracting parties and guarantees to each party the performance of the other.
What is “Initial Margin”?
The ratio of the price of collateral to the value of cash exchanged in a repo.
A value of 1.0 or 100% indicates overcollateralization.
What is “Maintenance Margin”?
A minimum balance set below the initial margin that each contract buyer and seller must hold in the futures margin account from trade initiation until a final settlement at maturity.
What is “Variation Margin”?
The difference between current margin required and the current collateral price in a repurchase agreement.
Variation margin, also known as Mark to Mark Margin, is additional cash that an investor needs to deposit to their trading account to maintain adequate money for loss deduction after losses have occurred.
*Variation margin is the cash that an investor deposits to his margin accounts to maintain adequate money for loss deduction after losses have occurred.
What is a “Swap Contract”?
An agreement between two parties to exchange a series of future cash flows.
What is an “Interest Rate Swap”?
A swap in which the underlying is an interest rate.
It can be viewed as a currency swap in which both currencies are the same and can be created as a combination of currency swaps.
What is a “Commodity Swap”?
A type of swap involving the exchange of payments over multiple dates as determined by specified reference prices or indexes related to commodities.
What is a “Currency Swap”?
A swap in which each party makes interest payments to other in different currencies.
What is an “Equity Swap”?
A swap transaction in which at least one cash flow is tied to the return on an equity portfolio position, often an equity index.
What is a “Broker”?
An agent who executes orders to buy or sell securities on behalf of a client in an exchange for commission.
What are “Block Brokers”?
A broker (agent) that provides brokerage services for large-size trades.
What are “Exchanges”?
Places where traders can meet to arrange their trades.
What are “Dark Pools”?
Alternative trading systems that do not display orders that their clients send to them.
What are “Dealers”?
Financial intermediaries, such as commercial banks or investment banks, who transact as counterparties with derivative end users.
What is a “Broker-Dealer”?
A financial intermediary (often a company) that may function as a principal (dealer) and as an agent (broker) depending on the type of trader.
What are “Arbitrageurs”?
Traders who engage in arbitrage.
What is a “Special Purpose Vehicle”?
A non-operating entity created to carry out a specified purpose, such as leasing assets or securitizing receivables; can be a corporation, partnership, trust, or LLC.
Also called a “Special Purpose Entity”
What are “Depository Institutions”?
Commercial Banks, savings and loan banks, credit unions, or similar institutions that raise funds from depositors and other investors and lend it to borrowers.
What does “Position” mean?
The quantity of an asset that an entity owns or owes.
What is a “Long Position”?
A position in an asset or contract in which:
(1) One owns the asset; or
(2) One has an exercisable right under the contract.
