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Finance Ch 1&2 Terms
Terms in this set (54)
What types of assets determine the productive capacity and net income of the economy?
Land, buildings, machines, and knowledge are what type of asset?
Claims on real assets are what type of asset?
What type of asset define the allocation of income or wealth among investors?
What type of asset cancels out when all balance sheets are combined?
What kind of asset promises either a fixed stream of income or a stream of income determined by a specific formula?
Three types of financial assets:
Fixed income or debt, common stock or equity, derivitives
Fixed income/debt and/or common stock/equity repackaged = what?
Are derivatives easier or harder to trade compared to other financial assets?
What type of financial assets charge the highest fees?
____________ of risk: investors can select securities consistent with their tastes for rik
Separation of ownership and management brings stability, but also
When someone acts in a manner inconsistent with how they should act on behalf of someone else is
stock options, board of directors, and threat of takeover are attempted mitigation of what problem?
choice between broad asset classes (stocks or bonds?) is what?
choice of which particular security to hold within an asset class (IBM or Apple?) is what?
firms are net _______ of capital
households are net ________ of capital
3 main players of investing
firms, households, governemnt
who connects the three main players of investing
financial intermediaries, investment companies, and investment bankers
Banks, insurers, and credit unions that connect users and providers are examples of what
mutual funds, pensions, etc. that pool and manage money of many investors are what?
people who underwrite new stock and bond issues and sell in the primary market are called what?
_________ banking take deposits and make loans
What is the old way of doing things in housing finance? (3 words)
originate to hold
What is the new way of doing things in housing finance? (3 words)
originate to distribute
What is this process? ex - fannie mae and freddie mac bought martgage loans and bundled them into large pools
tradable claims against the underlying mortgage pool are what?
What caused the difference between effects of housing boom/bust in different cities?
# subprime loans in the area
who began securitizing nonconforming "subprime" loans with higher default risk?
people w/ lower credit scores or people who didn't fit agency criteria were offered what?
taking out a second loan for your downpayment is called what?
Low "introductory" rates that rise rapidly in future is common in what type of loan?
US government laws that encouraged loans to the poor included ________ community reinvestment act
(No job, no income, no assets) loans accompanied subprime and liar loans in the begining of the housing crisis
1/4 of the market ($10.6T)chad no or low documentation loans and subprime loans that have what two names?
Where did all the crappy loans go?
MBS come from a pool of securities divided into ______ to concentrate default risk
What type or tranch has lower risk and the highest rating?
what tranch has high risk and low or junk rating?
a potential breakdown of the financial system in which problems in one market spill over and disrupt others is what type or risk?
one default can set off a chain of other defaults with what type of risk?
waves of selling may occur in a downward spiral as asset prices drop with what type of risk?
potential contagion comes from what type of risk?
Housing Timeline: sharp increases in housing prices
Housing Timeline: home prices peaked
Housing Timeline: people started realizing there may be an issue
Housing Timeline: losses on MBS surged
Housing Timeline: ratings started to decrease
Housing Timeline: troubled firms include Bear Stearns, Fannie Mae, Freddie Mac, Merrill Lynch, Lehman, and AIG - Money market breaks down, credit markets freeze, and there is a federal bailout
Housing Timeline: financial market crashed and economic effects spread w/ 55% drop
basic root economic causes of crisis are conflicting __________ with ratings and loans?
2 main competing academic views on the root causes of crisis
OTD and banking panic
evidence leans towards which competing academic view of financial crisis?
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