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Financial Economics > Quiz 1 Vocab > Flashcards

Quiz 1 Vocab Flashcards

1
Q

Security

A

a claim on the issuer’s future income or assets

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2
Q

Asset

A

any financial claim/ piece of property that is subject to ownership

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3
Q

Bond

A

debt security that promises to make payment periodically for a specified period of time

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4
Q

Bond Market

A

where corporations and government borrow to finance their activities and where IR are determined

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5
Q

Interest Rate

A

the cost of borrowing / the price paid for rental of funds

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6
Q

Financial Crises

A

major disruptions in financial markets that are characterized by sharp declines in asset prices (rises in IR) and the failures of many financial and non-financial firms

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7
Q

Monetary Theory

A

the theory that relates the quantity of money and monetary policy to changes in aggregate activity and inflation

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8
Q

Monetary Policy

A

management of money and IR (fed)

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9
Q

Primary Market

A

a financial market in which new issues of a security are sold to initial buyers by the corp/gov’t agency borrowing the funds

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10
Q

Secondary Market

A

financial market in which securities that have been previously issued can be resold

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11
Q

Exchange (2ndary) Market

A

where buyers and sellers of securities meet in one central location to conduct trade

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12
Q

Over the Counter (2ndary) Market

A

dealers at different locations who have an inventory of securities stand ready to buy/sell to any willing to accept prices
> US Gov’t Bond

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13
Q

Brokers

A

agents of investors who match buyers with sellers of securities

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14
Q

Agents

A

link buyers and sellers by buying and selling securities at stated prices

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15
Q

Money Market

A

financial market in which only short term debt instruments are traded (ie what Money Market Mutual Funds hold)

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16
Q

Capital Market

A

market in which longer-term debt and equity instruments are traded

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17
Q

Certificate of Deposit

A

a debt instrument sold by a bank to depositors that pays an annual IR of a given amount and at maturity pays back the original purchase price

18
Q

Commercial Paper

A

short term debt instrument issued by large banks and well-known corporations

19
Q

Repurchase Agreements

A

short term loans for which T-bills serve as collateral

20
Q

Federal Funds Rate

A

IR on interbank loans

21
Q

Mortgage Backed Securities

A

bond-like debt instrument backed by a bundle of individual mortgages whose interest and principal payments are collectively paid to holders of the security

22
Q

Convertible Bonds

A

allows holder to convert them into a specified number of shares of stock up to maturity date (less IR payments for corp)

23
Q

Euro Bonds

A

a bond denominated in a currency other than that of the country in which it is sold

24
Q

Euro Currencies

A

foreign currencies deposited in banks outside home country

25
Q

Adverse Selection

A

problem created by asymmetric information before the transaction occurs
> potential borrowers most likely to produce undesirable outcome are most likely to seek loans, be selected

26
Q

Moral Hazard

A

risk/hazard that the borrowers might in engage in activities undesirable from lenders P.O.V

27
Q

Economies of Scope

A

lower the cost of information production for each service by applying one information resource to many different services

28
Q

Thrift Institutions

A

savings and loan associations, mutual savings banks, credit unions

29
Q

Inflation Hedges

A

real returns are less affected than that of $ when inflation varies

30
Q

Cash Flows

A

streams of cash payments made to holders of debt instruments

31
Q

Yield to Maturity

A

the interest rate that equates the present value of cash flow payments received from a debt instrument with its value today

32
Q

Consol/ Perpetuity

A

perpetual bond with no maturity date and no repayment of principal

33
Q

Current Yield

A

yearly coupon payment divided by yield to maturity for any long term bond

34
Q

Rate of Return

A

how well a person does by holding a bond/ any other security over a particular time period

  • current yield + rate of capital gain
35
Q

Indexed Bond

A

interest and principal payment are adjusted for changes in price level

36
Q

Risk Structure of IR

A

relationship among bonds with SAME term to maturity but different IR

37
Q

Term Structure of IR

A

relationship among IR or bonds with DIFFERENT terms to maturity

38
Q

Investment Grade Securities

A

bonds with low risk of default

39
Q

Speculative grade/ Junk Bonds

A

bonds with high risk of default

40
Q

Asset Market Approach

A

emphasizes stocks of assets and not flows in determining asset prices

Financial Economics (6 decks)

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