Financial Markets and Institutions
About this set
Created by:
vikingo on February 6, 2012
Subjects:
finance, markets, institutions
Description:
terminology used in Finance class discussing Financial Markets and Institutions. (currently includes chapters 4, 5, 6, 8, 19, 20)
text: (saunders and millon cornett)
Order by
140 terms
Terms | Definitions |
|---|---|
 correspondent banks | banks with reciprocal accounts and agreements |
| repurchase agreement | an agreement involving the sale of securities by one party to another with a promise to repurchase the securities at a specified price |
| reverse repurchase agreement | an agreement involving the purchase of securities by one party from another with the promise to sell them back |
| commercial paper | an unsecured short term promissory note issued by a company to raise short term cash, often to finance working capital requirements |
| negotiable certificate of deposit | a bank issued, fixed maturity, interest bearing time deposit that specifies an interest rate and maturity date and is negotiable |
| bearer instrument | an instrument in which the holder at maturity receives the principal and interest |
| Federal Open Market Committee (FOMC) | the major monetary policy-making body of the Federal Reserve. Seven members of the Fed Board of Governors, the President of the NY FED and 4 Presidents of other FED banks |
| open market operations | purchase and sales of US Gov and federal agency securities by the Federal Reserve |
| discount rate | interest rate on loans made by the Federal Reserve Banks to depository institutions |
| discount window | the facility through which Fed Reserve Banks issue loans to depository institutions |
| reserves | depository institutions' vault cash plus reserves deposited at the Fed Reserve |
| monetary base | Currency in circulation and reserves held by the Fed Reserve |
| required reserves | Reserved the Fed Reserve requires banks to hold |
| excess reserves | additional reserves banks choose to hold |
| federal funds rate | the interest rate on short-term funds transferred between financial institutions, usually one day |
| Federal Reserve Board Trading Desk | unit of the Fed Reserve Bank of NY through which open market operations are conducted |
| policy directive | statement sent to the Fed Reserve Board Trading Desk from the FOMC that specifies the money supply target |
| repurchase agreements | open market transactions in which the Trading Desk purchases government |
| foreign exchange intervention | commitments between countries about institutional aspects of their intervention in the foreign exchange markets |
| banker's acceptance | a time draft payable to a seller of goods, with payment guaranteed by a bank |
| Eurodollar market | the market in which Eurodollars trade |
| Eurodollar deposits (CD's) | dollar denominated deposits held offshore in overseas banks |
| money markets | markets that trade debt securities or instruments with maturities of less than one year |
| opportunity cost | the forgone interest cost from the holding of cash balances when they are received |
| default risk | the risk of late or nonpayment of principal or interest |
| treasury bills | short term obligations of the US government issued to cover government budget deficits and to refinance maturing government debt |
| treasury bill auctions | the formal process by which the US treasury sells new issues of Treasury bills. |
| federal funds | short term funds transferred between financial institutions, usually for a period of one day |
| London Interbank Offered Rate (LIBOR) | the interest rate on short-term funds transferred between financial institutions in London (paid in Eurodollars) |
| eurocommercial paper | eurosecurities issued in Europe by dealers of commercial paper without involving a bank |
| Eurodollar CDs | dollar denominated deposits in non-US banks |
| Treasury notes and bonds | long-term bonds issued by the US treasury to finance the national debt and other federal government expenditures |
| STRIP | a Treasury security in which the periodic interest payment is separated from the final principal payment |
| accrued interest | that portion of the coupon payment accrued between the last coupon payment and the settlement date |
| municipal bonds | securities issued by state and local governments |
| general obligation bonds | bonds backed by the full faith and credit of the issuer |
| revenue bonds | bonds sold to finance a specific revenue generating project backed by cash flows from that project |
| firm commitment underwriting | the issue of securities by an investment bank in which the investment bank guarantees the issuer a price for the newly issued securities by buying the whole issue at a fixed price from the issuer. (it then seeks to resell at a higher price) |
| best efforts offering | issue of securities in which the investment bank does not guarantee a price to the issuer and acts more as a distribution agent on a fee basis |
| private placement | a security issue placed with one of a few large institutional buyers |
| corporate bonds | long term bonds issued by corporations |
| bond indenture | legal contract that specifies the rights and obligations of the bond issuer and the bond holders |
| bearer bonds | bonds with coupons attached to the bond. The holder receives payments of interest when they present the coupons. |
| registered bond | a bond in which the owner is recorded by the issuer and the coupon payments are mailed to the registered owner. |
| term bonds | bonds in which the entire issue matures on a single date |
| serial bonds | bonds that mature on a series of dates, with a portion of the issue paid off on each |
| mortgage bonds | bonds issued to finance specific projects, which are pledged as collateral for the bond issue |
| debentures | bonds backed solely by the general credit of the issuing firm, unsecured by specific assets or collateral |
| subordinated debentures | bonds that are unsecured and are junior in their rights to mortgage bonds and regular debentures |
| convertible bonds | bonds that may be exchanged for another security of the issuing firm at the discretion of the bond holder |
| stock warrants | an option on a bond that allows bond holder to purchase stock at a specified price up to a specified date |
| call provision | provision on a bond issue that allows the issuer to force the bond holder to sell the bond back to the issuer at a price above the par value |
| call premium | the difference between the call price and the face value on the bond |
| sinking fund provision | a requirement that the issuer retire a certain amount of the bond issue each year |
| junk bond | bond rated as speculative or less than investment grade by bond rating agencies |
| Brady bonds | bonds that are swapped for an outstanding loan to a less developed country |
| sovereign bonds | a bond that is swapped for an outstanding loan to a less develo0ped country in which the US Treas backing is removed and the credit of the country is substituted instead |
| common stock | the fundamental ownership claim in a corporation |
| residual claim | in the event of liquidation, common stockholders have the lowestpriority in terms of cash distribution |
| limited liability (stockholders) | the corporation nor its creditors can seek repayment from the firm's common stockholders. Implies that losses are limited to amount of original investment |
| dual-class firms | two classes of common stock are outstanding, with different voting rights assigned to each |
| cumulative voting | all directors up for election are voted on at the same time.# of votes of stockholders = # of shares held * # of directors to be elected |
| proxy | an authorization allowing another party, or the firm itself, to vote on the stockholder's behalf |
| preffered stock | a hybrid security that has characteristics of both bonds and common stock |
| nonparticipating preffered stock | preferred stock in which the dividend is fixed |
| cumulative preferred stock | preferred stock in which missed dividend payments go into arrears and must be made up before common stock dividends are paid |
| participating preferred stock | preferred stock in which actual dividends paid in any year may be greater that the promised dividends |
| noncumulative preferred stock | preferred stock in which dividend payments do not go into arrears and are never paid |
| net proceeds | the guaranteed price at which the investment bank purchases the stock from the issuer |
| gross proceeds | the price at which the investment bank resells the stock to investors |
| underwriter's spread | the difference between the gross proceeds and the net proceeds |
| syndicate | the process of distributing securities through a group of investment banks |
| originating house | the lead bank in the syndicate, which negotiates with the issuing company on behalf of the syndicate |
| initial public offering (IPO) | first public issue of financial instruments by a firm |
| seasoned offering | sale of additional securities by a firm |
| preemptive rights | new shares must be offered to existing stockholders first in such a way that they can maintain their proportional ownership |
| red herring prospectus | a preliminary version of the prospectus describing new security issues |
| shelf registration | allows firms that plan to offer multiple issues of stock over two-year period to submit one registration statement |
| secondary stock markets | markets in which stocks, once issued, are traded, rebought, and resold |
| trading post | specific place on the floor of the exchange where transactions occur |
| specialists | exchange members who have an obligation to keep the market going, maintaining liquidity in their assigned stock at all times |
| market order | order to transact at the best price available |
| limit order | order to transact at a specific price |
| NYSE | New York Stock Exchange |
| AMEX | Amercian Stock Exchange |
| NASDAQ | National Association of Securities Dealers Automated Quotation |
| Dow Jones Industrial Average | stock market index that includes 30 large actively traded companies |
| market efficiency | speed with which security prices adjust to unexpected news pertaining to interest rates or stock characteristic |
| net regulatory durden | the difference between the private costs of regulations and the private benefits for the producers of financial services |
| outside money | that part of the money supply directly produced by the government or central bank |
| inside money | that part of the money supply produced by the private banking system |
| universal FI | an FI that can engage in a broad range of financial service activities |
| commercial banking | banking activity of deposit taking and lending |
| investment banking | banking activity of underwriting, issuing, and distributing securities |
| nonbank bank | a bank divested of its commercial loans and/or its demand deposits |
| de novo office | a newly established office |
| unit bank | a bank with a single office |
| multibank hodling company (MBHC) | parent banking organization that owns a number of individual bank subsidiaries |
| grandfathered subsidiaries | subsidiaries established prior to the passage of a restrictive law |
| one-bank holding company | a parent banking organization that owns one bank subsidiary and non-bank subsidiaries |
| disintermediation | withdrawal of deposits from the depository institutions and their reinvestment elsewhere |
| regulator forbearance | a policy of not closing economically insolvent depository institutions, but allowing the to continue in operation |
| capital to assets ratio | ration of an FI's core capital to its assets |
| prompt corrective action (PCA) | mandatory action that regulatos must take as a bank's capital ratio falls |
| Basel Accord | an agreement that requires the imposition of risk-based capital ratios on banks in major industrialized countries |
| risk adjusted assets | on and off balance sheet assets whose value is adjusted for approximate credit risk |
| total risk based capital ratio | the ratio of a CB's total capital to its risk-adjusted assets |
| tier I (core) capital ratio | the ratio of a CB's core capital to its risk adjusted assets |
| NAFTA | North American Free Trade Agreement |
| national treatment | regulation of foreign banks in the same fashion as domestic banks |
| 5 C's of risk | customer's character, capacity, collateral, conditions and capital - used to analyze applicant's credit risk |
| credit risk | the risk that the promised cash flows from loans and securities held by Fis may not be paid in full |
| firm-specific credit risk | the risk of default for the borrowing firm associated with the specific types of project risk taken by that firm |
| systematic risk | the risk of default associated with general economywide or macroconditions affecting all borrowers |
| liquidity risk | the risk that an unexpected increase in liability withdrawlwls may require an FI to liquidate assets in a very short period of time |
| interest rate risk | the risk incurred by anFI when the maturities of its assets and liabilities are mismatched and interest rates are volatile |
| refinancing risk | the risk tha the cost of rolling over or reborrowing funds will rise above the returns being earned on asset investments |
| reinvestment risk | the risk that the returns on funds to be reinvested will fall below the cost of funds |
| market risk | the risk incurred in trading assets and lisabilities due to changes in interest rates, exchange rates and other asset prices |
| off-balance-sheet risk | the risk incurred by an FI as the result of activities related to contingent assets and liabilities |
| letter of credit | a credit guarrantee issued by an FI for a fee on which payment is contingent on some future event occurring |
| foreign exchange risk | the risk that exchange rates can affect the value of an FI's assets and liabilities denominated in foreign currencies |
| country or soverign risk | the risk that repayments from foreign borrowers may be interrupted because of interference from foreign governments |
| technology risk | the risk incurred by an FI when its technological investments do not produce anticipated cost savings |
| operational risk | the risk that existing technology or support systems may malfunction or break down |
| insolvency risk | the risk that an FI may not have enough capital to offset a sudden decline in the value of its assets relative to its liabilities |
| junk bond | bond rated as speculative or less than investment grade by bond rating agencies |
| gross debt service (GDS) | total accomodation expenses (mortgage, lease, condominuim, mgmt fees, taxes) divided by gross income |
| total debt service (TDS) | total accomodation expenses plus all other debt service payments divided by gross income |
| credit scoring system | a mathematical model that uses observed loan applicant's characteristics to calculate a score that represents the applicant's probability of default |
| perfecting collateral | the process of ensuring that collateral used to secure a loan is free and clear to the lender should the borrower default on the loan |
| foreclosure | the process of taking possession of the mortgaged property in satisfaction of a defaulting borrower's indebtedness and forgoing claim to any deficiency |
| power of sale | the process of taking the proceedings of the forced sale of a mortgaged property |
| EBIT | earnings before interest and taxes |
| EAT | earning after taxes, net income |
| conditions precedent | those conditions specified in the credit agreement that must be fullfilled prior to withdrawing funds on a loan |
| LIBOR | London Interbank Offered Rate, the rate for interbank dollar loans in the foreign or eurodollar market |
| prime lending rate | the base lending rate periodically set by banks |
| DIDMCA | 1980 - Depository Institutions Deregulation and Monetary Control Act - removed interest rate ceiling, reserve requirements, other fin institutions can issue checking accounts |
| IBBEA | Interstate Banking and Branching Efficiency Act - retired interstate banking restrictions. |
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