Money and Banking Lecture 1

Term
1 / 22
Definition of a Bond
Click the card to flip 👆
Terms in this set (22)
Definition of a Bond
a debt security that promises to make periodic payments to the holder for a specified period of time
Definition of a Stock
a security that is a claim on the earnings and assets of a company
Examples of Money Market Instruments
Treasury Bills, Negotiable CD, Commercial Paper, Banker's Acceptances, Repurchase Agreements, Money Market Mutual Fund
Commercial Paper
a short term debt instrument issued by large banks and well known corporations
Banker's Acceptance
a promised future payment, or time draft, which is accepted and guaranteed by a bank and drawn on a deposit at the bank
Negotiable Certificate of Deposit
a debt instrument sold by a bank to depositors that pays annual interest of a given amount and at maturity pays back the original purchase price
Examples of Derivatives
Forwards, Futures, Options, Swaps
Types of Financial Market Instruments
Bonds, Stock, Money Market Instruments, Derivatives
Definition of Financial Instruments
legal contracts specifying the payment of cash flows between issuers and users
Financial Market
a place where individuals and organizations wanting to borrow funds are brought together with those having a surplus of funds
Financial IntermediariesLink investors (savers) to borrowers by transforming assetsMarket FacilitatorsInvestment Banks, Brokers, DealersInvestment Banksissue securities for corporationsBrokerslink sellers to buyers of securities in exchange for a feeDealersmake a market by buying and selling securitiesTypes of Financial intermediariesDepository Institutions, Contractual Savings Institution, Investment IntermediariesForeign Bondssold in a foreign country and denominated in that country's currencyEuro Bondsa bond denominated in a currency other than that of the country in which it is soldEuro DollarsU.S. dollars deposited in foreign banks outside of the U.S. or in foreign branches of U.S. banksAsymmetric Informationthe unequal knowledge that each party to a transaction has about the other partyAdverse Selectionthe problem created by asymmetric information prior to a financial transaction: The party that is the most undesirable from the other party's point of view is the one who is most likely to want to engage in the financial transactionMoral Hazardthe risk that one party to a transaction will engage in behavior that is undesirable from the other party's point of view