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WCOB2043 Exam #2

Terms in this set (57)

Financial institution
Facilitate the flow of funds from savers to users and, in the process creates a wide range of financial products.
Flexible denominations, flexible maturities, diversifying credit risk, liquidity
What are four advantages that financial institutions offer savers and users?
Commercial banks, saving banks, credit unions
What are three examples of depository institutions?
Insurance companies, investment companies, pension funds
What are three examples of non-depository institutions?
Commercial banks, investment companies
What two financial institutions hold the most assets?
Commercial banks
The largest and most diverse financial institutions offering the widest range of financial products.
Interest income
What's the greatest source of revenue for banks?
Highly levered
ROE is much higher than ROA since banks are _____ ______.
Banks
Financial institutions that is among the most heavily regulated businesses in the country.
State banking regulators, FDIC, FED (if member)
Who regulates state banks?
FDIC, Comptroller of the Currency, FED
Who regulates federal banks?
Federal Deposit Insurance (FDIC)
A cornerstone of bank regulation that was created in 1933. It insured bank deposits up to $250,000 and the risk of bank failure has shifted from depositors to the _____ insurance fund.
Savings banks
Financial institution that was once called "thrifts" and were created mainly to provide home mortgage loans.
Credit Unions
Financial cooperatives owned by their members. They focus on financial products aimed at consumers, not businesses. Their deposits are insured by an FDIC like agency and subject to its regulations.
Common bond
What's a pivotal requirement for members of credit unions?
Insurance company
Financial institution that is a major investor in stocks, bonds, and real estate.
Collect policyholder's premium
What is the main source of capital for insurance companies?
Claims, operating expenses, reserves
What does the premiums go to in insurance companies?
12
How many Federal districts are divided across the U.S.?
Federal Reserve
U.S. central bank that was created in 1913.
Monetary policy, fiscal agent, regulate banks, serve banks
What are the four primary functions of the Federal Reserve?
M1
The narrowest measure of money supply which includes currency, demand deposits, and other "checkable" deposits.
M2
Generally the most widely followed measure of money supply that adds savings deposits and money market mutual funds.
Open market operations
Most commonly used policy lever that invloves the buying and selling of government securities by the Fed.
increases, drains
When the Fed buys (sells) government securities, it _______ (______) bank reserves, increasing (decreasing) the growth rate in the money supply.
Federal funds rate
The average rate banks charge to lend reserves to other banks overnight.
Mutual funds
What is the largest type of investment company?
Mutual Fund
Financial institution that pools funds from investors by selling shares of itself and then invests those funds in securities consistent with the fund's objectives.
Pension Funds
Financial institutions that provide retirement benefits to millions of workers. They are financed trough employee and employer contributions.
Defined benefit plan
What is another name for pension funds?
Financial system
Describes the process by which funds are transferred between savers and users.
Households, businesses, governments
What makes up the savers and users in the financial market?
Households
In the U.S., which financial market user is generally a net saver?
Government, municipal, corporate, foreign
What are four types of bonds?
Earnings
Stock prices have increased parallel to _________ since 1947.
Stock Market Indexes
Used to assess the overall level of stock prices. The two most widely followed in the U.S. are the Dow 30 & S&P 500.
value, price
Most stock market indexes are ______ weighted. The exception is the Dow which is ________ weighted.
S&P 500
Stock market index made of the 500 U.S. stocks with the highest market values.
Derivative
An instrument which derives its value from another instrument.
Exchange traded stock options, Corporate created derivatives, futures contracts
What are the three major types of derivatives?
Exchange traded stock option
Financial instrument that gives its holder the right to buy or sell stock at a fixed price for a fixed period of time.
Speculators, hedgers
Who are two types of participants in the options market?
Sell
A put option is an option to _____.
Buy
A call option is an option to _____.
Long
The holder of a stock option has the _____ position.
Short
The seller of a stock option takes the ______ position.
Warrants, convertible securities
What are two examples of corporate created derivatives?
Interest rate
The cost of "renting" money for a specific purpose, often for a specific period of time.
Loanable funds theory
Simple theory which helps explain levels of interest rates and why rates move up and down.
Demand, supply
Interest rates are determined by the interaction of the ______ for loanable funds and the _______ of loanable funds.
Households, businesses, governments
Where does the demand for loanable funds come from?
Money supply, savings rate
The supply of loanable funds is a function of the _______ ______ and the ________ _______.
Real rate
The cost of renting money absence any inflationary expectations.
Term structure of interest rates (Yield curve)
Shows the relationship between interest rates and maturity.
Exchange rate
The rate at which one currency can be converted into another currency.
Supply, demand
Fundamentally, FX rates are determined by the interaction of _______ and ________.
Purchasing Power Parity (PPP)
___________ states that exchange rates will make the price of goods and services the same in all countries.
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