Study sets matching "financial markets and institutions"

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Study sets matching "financial markets and institutions"

379 terms
Financial Markets and Institutions
Financial Markets are
Financial markets can be distinguished…
Primary Markets
What is an example of primary markets?
a type of structure through which funds flow
-Primary markets vs secondary markets... -Money versus capital m…
Where users of funds get the money by issuing financial instr…
-Shark Tank... -IPO
Financial Markets are
a type of structure through which funds flow
Financial markets can be distinguished…
-Primary markets vs secondary markets... -Money versus capital m…
151 terms
Financial markets and institutions
What is a financial intermediary?
What four things do financial intermed…
What are the four main financial inter…
What are capital markets for?
Financial intermediaries bring together providers and users o…
1. Source of funds for borrowers ... 2. Aggregation of deposits…
1. Banks... 2. Building societies... 3. Insurance companies, pensio…
Raising and investing largely long-term capital eg stock exch…
What is a financial intermediary?
Financial intermediaries bring together providers and users o…
What four things do financial intermed…
1. Source of funds for borrowers ... 2. Aggregation of deposits…
Financial Institutions and Markets
Financial intermediary (or financial i…
Surplus spending unit (SSU)
Deficit spending unit (DSU)
Financial claim
An institution, such as a bank, building society, or unit-tru…
An economic unit with income that is greater than or equal to…
A economic term used to describe how an economy or economic u…
Entitles a creditor to receive a payment, or payments, from a…
Financial intermediary (or financial i…
An institution, such as a bank, building society, or unit-tru…
Surplus spending unit (SSU)
An economic unit with income that is greater than or equal to…
15 terms
Financial Markets and Institutions - Acts
The McFadden Act 1927
Banking Act of 1933
The bank holding company act of 1956
Community Reinvestment Act of 1977 and…
-Made branching nationally chartered banks subject to the sam…
-The main idea is that it separated commercial banks from inv…
-prevented holding companies from merging with banking compan…
-prevent discrimination by lending inmstitutions... -also cannot…
The McFadden Act 1927
-Made branching nationally chartered banks subject to the sam…
Banking Act of 1933
-The main idea is that it separated commercial banks from inv…
Financial Markets and Institutions - Duration
Duration and coupon interest
Duration and rate of return
Duration and maturity
Alternative duration formula (semi ann…
higher the coupon, the shorter the duration... lower the coupon,…
higher the rate of return, the shorter the duration... lower the…
duration increases at a decreasing rate... *maturity is linear w…
(change in P/P) / (change in interest rate)/(1+rate/2) = -D
Duration and coupon interest
higher the coupon, the shorter the duration... lower the coupon,…
Duration and rate of return
higher the rate of return, the shorter the duration... lower the…
Financial Markets and Institutions 1
Financial System
security
Stock
Bond
system that allows the transfer of money between savers and i…
(financial instrument) claim on issuer's future income/assets
security that is a claim on the earnings and assets of a corp…
a debt security with or without periodic payments through time
Financial System
system that allows the transfer of money between savers and i…
security
(financial instrument) claim on issuer's future income/assets
9 terms
Role of Financial Markets & Institutions
Financial markets
Financial institutions
Financial institutions provide
examples of financial institutions
bring together people who have money to lend and are willing…
A financial institution is an organization that provides fina…
products like checking and other accounts that help consumer…
Banks, credit unions, and insurance companies
Financial markets
bring together people who have money to lend and are willing…
Financial institutions
A financial institution is an organization that provides fina…
16 terms
Financial Markets and Institutions : 19
credit risk
firm-specific credit risk
systematic credit risk
liquidity risk
The risk that the promised cash flows from loans and securiti…
The risk of default for the borrowing firm associated with th…
The risk of default associated with general economy wide or m…
The risk that a sudden and unexpected increase in liability w…
credit risk
The risk that the promised cash flows from loans and securiti…
firm-specific credit risk
The risk of default for the borrowing firm associated with th…
16 terms
Financial Markets and Institutions
The risk that a borrower will not pay…
Markets for short-term debt securities…
Firms raise capital by selling newly i…
An institution that issues its own sec…
default
money, capital
primary, secondary
intermediary
The risk that a borrower will not pay…
default
Markets for short-term debt securities…
money, capital
43 terms
FINANCIAL MARKETS AND INSTITUTIONS
If there is a decline in interest rate…
A financial advisor has just given you…
Consider a coupon bond that has a $1,0…
A 10-year, 7% coupon bond with a face…
You would rather be holding long-term bonds because their pri…
No. If interest rates rise sharply in the future, long-term b…
N=8... I=?=7.44... PV = 1150... PMT = 1000*.1=-100... FV=1000
1000*.07 = 70... 70+880.10-871.65/871.65 = 9%
If there is a decline in interest rate…
You would rather be holding long-term bonds because their pri…
A financial advisor has just given you…
No. If interest rates rise sharply in the future, long-term b…
46 terms
FINANCIAL MARKETS AND INSTITUTIONS
If there is a decline in interest rate…
A financial advisor has just given you…
If mortgage rates rise from 5% to 10%,…
Consider a coupon bond that has a $1,0…
You would rather be holding long-term bonds because their pri…
No. If interest rates rise sharply in the future, long-term b…
People are more likely to buy houses because the real interes…
N=8... I=?=7.44... PV = 1150... PMT = 1000*.1=-100... FV=1000
If there is a decline in interest rate…
You would rather be holding long-term bonds because their pri…
A financial advisor has just given you…
No. If interest rates rise sharply in the future, long-term b…
21 terms
Chapter 2 Financial Markets and Institutions
capital markets
closely held corporation
commercial bank
dealer market
financial markets for stocks and for intermediate or long ter…
corporation that is owned by a few individuals who are typica…
the traditional department store of finance serving a variety…
includes all facilities that are needed to conduct security t…
capital markets
financial markets for stocks and for intermediate or long ter…
closely held corporation
corporation that is owned by a few individuals who are typica…
Financial Markets & Institutions Presentations
Hedge fund fees: management fee and in…
Comparison of mutual funds and hedge f…
Causes of the great recession
Consequences of the great recession -…
There are two types of fees: a management fee and an incentiv…
Mutual funds: Low risk investment. Lower investment minimum.…
The "Consumer Age": Largest component of U.S. demand is house…
People thought the value of their house meant retirement was…
Hedge fund fees: management fee and in…
There are two types of fees: a management fee and an incentiv…
Comparison of mutual funds and hedge f…
Mutual funds: Low risk investment. Lower investment minimum.…
29 terms
Financial Markets & Institutions Chapter 1
Financial Market
Financial Asset
Debt Instrument
Equity Instrument
a factor (labor & capital) market for financial assets
a capital good that provides a monetary flow
The claim that the holder of a financial asset, a contractual…
aka. residual claim, which obligates the issuer of the financ…
Financial Market
a factor (labor & capital) market for financial assets
Financial Asset
a capital good that provides a monetary flow
34 terms
financial markets and institutions
capital
market
stock
bond
Basically another word for money.
A place where buyers and sellers come together to exchange ca…
Represents partial ownership in a company... and entitles holder…
Represents a loan made by an investor to a company, instituti…
capital
Basically another word for money.
market
A place where buyers and sellers come together to exchange ca…
26 terms
Financial Markets and Institutions
OTC markets
Indirect Finance
Direct Finance
Financial Markets
an informal market where trading is facilitated by dealer(s)…
A flow of funds from savers to borrowers through financial in…
___________ involves a transaction between a borrower and a l…
markets where financial securities, such as stocks and bonds…
OTC markets
an informal market where trading is facilitated by dealer(s)…
Indirect Finance
A flow of funds from savers to borrowers through financial in…
78 terms
Financial Markets and Institutions
Asymmetric info
Moral Hazard
Adverse Selection
Principal-Agent Problem
one party doesn't know enough about other party
asymmetric info AFTER transaction
asymmetric info BEFORE transaction
When the agent is able to make decisions on behalf of the pri…
Asymmetric info
one party doesn't know enough about other party
Moral Hazard
asymmetric info AFTER transaction
Financial Markets and Institutions
Yield Curve
Term Structure
Term Structure Theory Cirteria
Short-Term Interest Rates = Low
a collection YTM on bonds with different maturities but the s…
the relationship between the different YTM for a given yield…
explain why interest rates on bonds of different maturities m…
yield curve with upwards slope (typical)... • generally expected…
Yield Curve
a collection YTM on bonds with different maturities but the s…
Term Structure
the relationship between the different YTM for a given yield…
Financial Markets and Institutions-Bond markets
Bond Market 1.........
Issuers (borrowers) & what they seek
Buyers (lenders) & what they seek
Primary vs. secondary markets
...
Capital markets vs. money markets — Why pay more for long-ter…
...
-IPOs... -Organized exchanges & OTC
Bond Market 1.........
...
Issuers (borrowers) & what they seek
Capital markets vs. money markets — Why pay more for long-ter…
30 terms
Financial Markets and Institutions
Adverse Selection
Moral Hazard
Financial Intermediaries
Simple Loans
lower quality applicants want to obtain a loan; lender doesn'…
borrower changes behavior after obtaining the loan; lender do…
gather savings from savers and distribute loans to borrowers
borrower receives a fixed sum loan today; pay back one lump s…
Adverse Selection
lower quality applicants want to obtain a loan; lender doesn'…
Moral Hazard
borrower changes behavior after obtaining the loan; lender do…
Finance- Financial Markets and Institutions
Capital Allocation Process
Flow of funds 1 -three processes
Flow of funds 2-three phases of indivi…
Financial Markets
System that brings together the borrowers and savers. Include…
direct transfers (borrower-> saver) Investment bankers (borro…
1. young adult borrow ... 2. older working adult save... 3. Retired…
physical vs. financial... money(short)/capital (long... debt (loans…
Capital Allocation Process
System that brings together the borrowers and savers. Include…
Flow of funds 1 -three processes
direct transfers (borrower-> saver) Investment bankers (borro…
34 terms
Financial Markets and Institutions
Treasury Bills
Household and Businesses
18 Trillion
Primary Market
The secondary market for ________ is the largest of all money…
The main providers of funds to the US Treasury are___.
The total US Govt. debt is _____
Funds are provided to the initial issuer of securities in the…
Treasury Bills
The secondary market for ________ is the largest of all money…
Household and Businesses
The main providers of funds to the US Treasury are___.
60 terms
Financial Markets and Institutions
1. Who is Janet Yellen?
2. What is the relationship between em…
3. Would you purchase JPM stock now? W…
4. How would you be impacted personall…
The Chair of the Federal Reserve.
Generally, there is a direct relationship lead by GDP change.…
no wrong answer
no wrong answer
1. Who is Janet Yellen?
The Chair of the Federal Reserve.
2. What is the relationship between em…
Generally, there is a direct relationship lead by GDP change.…
Financial Markets and Institutions Midterm
Financial Markets
Security
Bond
Interest Rate
markets in which funds are transferred from people who have a…
claim on the issuers future income or assets
debt security that promises to make payments periodically for…
cost of borrowing or the paid price for the rental funds
Financial Markets
markets in which funds are transferred from people who have a…
Security
claim on the issuers future income or assets
17 terms
Financial Markets and Institutions
What is a stock?
What is a bond?
Primary Markets
Secondary Markets
Represents partial ownership in a company... and entitles holder…
Represents a loan made by an investor to a company, instituti…
Businesses, agencies, or governments issue new securities (st…
Securities trade between investors after they've been issued…
What is a stock?
Represents partial ownership in a company... and entitles holder…
What is a bond?
Represents a loan made by an investor to a company, instituti…
46 terms
FINANCIAL MARKETS AND INSTITUTIONS
If there is a decline in interest rate…
A financial advisor has just given you…
If mortgage rates rise from 5% to 10%,…
Consider a coupon bond that has a $1,0…
You would rather be holding long-term bonds because their pri…
No. If interest rates rise sharply in the future, long-term b…
People are more likely to buy houses because the real interes…
N=8... I=?=7.44... PV = 1150... PMT = 1000*.1=-100... FV=1000
If there is a decline in interest rate…
You would rather be holding long-term bonds because their pri…
A financial advisor has just given you…
No. If interest rates rise sharply in the future, long-term b…
50 terms
Exam - Financial Markets and Institutions
an investor requires a 3% increase in…
the main providers of funds to the U.S…
The total US government debt is curren…
funds are provided to the initial issu…
5%
households and businesses
(19.5)
primary market
an investor requires a 3% increase in…
5%
the main providers of funds to the U.S…
households and businesses
34 terms
Financial Markets and Institutions
What is the approximate value of US no…
What is the current interest rate on s…
What is the 10-year yield?
When was the 10-year yield at its peak?
Around $18 trillion
About zero
between 1.5% and 2%
Around 1980
What is the approximate value of US no…
Around $18 trillion
What is the current interest rate on s…
About zero
13 terms
Financial Markets and Institutions - Types of Risks
Credit (Default) Risk
Liquidity Risk
Interest Rate Risk
Market Risk
the risk that promised cash flows from loans and securities h…
the risk that a sudden and unexpected increase in liability w…
the risk incurred by an FI when the maturities of its assets…
the risk incurred in trading assets and liabilities due to ch…
Credit (Default) Risk
the risk that promised cash flows from loans and securities h…
Liquidity Risk
the risk that a sudden and unexpected increase in liability w…
16 terms
Financial Markets and Institutions
financial market
financial assets
primary market
secondary market
the physical and institutional mechanism through which financ…
claims against future financial payments such as stocks and b…
the market where financial assets are initially issued (or so…
the market where previously issued financial assets are trade…
financial market
the physical and institutional mechanism through which financ…
financial assets
claims against future financial payments such as stocks and b…
Financial Markets and Institutions
Money Markets
Capital Markets
Primary Markets
Secondary Markets
Markets for Short-Term Debt Securities
Markets for Long-Term Debt and Equity
Firms raise capital by selling newly issues securities
Existing, already outstanding securities are traded
Money Markets
Markets for Short-Term Debt Securities
Capital Markets
Markets for Long-Term Debt and Equity
2- financial markets and institutions
transfer of money
spot v future markets
money markets v. capital markets
derivatives
direct transfer... -investment banks... -financial intermediary
on the spot/ days vs. future
money- st debt ... capital- lt debt and stock
increased use in recent years... -any security whose price is de…
transfer of money
direct transfer... -investment banks... -financial intermediary
spot v future markets
on the spot/ days vs. future
Financial Markets and Institutions
True or False: securities trading and…
Firms that assist in the trading of ex…
Assisting in the issue of new securiti…
A stockbroker that conducts trades for…
False, securities trading and underwriting is a financial ser…
Broker-Dealers
Underwriting
Discount Broker
True or False: securities trading and…
False, securities trading and underwriting is a financial ser…
Firms that assist in the trading of ex…
Broker-Dealers
28 terms
Financial Markets and Institutions
Bearer Bonds
Registered Bonds
Financial Futures Contract
Interest Rate Futures
owner must clip coupons and send to issuer to receive payments
issuer must keep records of who owns bonds and automatically…
agreement to deliver or receive a specified amount of a speci…
many of the popular financial futures contracts are on debt s…
Bearer Bonds
owner must clip coupons and send to issuer to receive payments
Registered Bonds
issuer must keep records of who owns bonds and automatically…
53 terms
Financial Markets and Institutions
direct transfers
indirect transfers through investment…
indirect transfers through intermediar…
physical asset market
the business sells its stocks or bonds directly to the savers…
-type of transfer... -they underwrite and facilitate the issuanc…
-bank, mutual fund company, pension fund, insurance company... -…
are for products such as wheat, autos, real estate, computers…
direct transfers
the business sells its stocks or bonds directly to the savers…
indirect transfers through investment…
-type of transfer... -they underwrite and facilitate the issuanc…
Financial markets and institutions
Coupon and coupon rate
Par value
Term to maturity
Yeild to maturity
Annual coupon payment paid by the issuer relative to the par…
The amount of money the investor will get back once the bond…
The remaining life of the debt instrument. During this period…
The total return anticipated if the bond is held until maturi…
Coupon and coupon rate
Annual coupon payment paid by the issuer relative to the par…
Par value
The amount of money the investor will get back once the bond…
16 terms
financial markets and institutions
libor
financial intermediaries
financial intermediaries example
moral hazard
this is the rate of interest at which a bank was prepared to…
brokers are agents of investors who match buyers with sellers…
banks - creates money by lending money to a borrower, thereby…
problem created by asymmetric information after the transacti…
libor
this is the rate of interest at which a bank was prepared to…
financial intermediaries
brokers are agents of investors who match buyers with sellers…
65 terms
Financial institutions and markets - revision
What is the Bretton woods system?
What was a core agreement in Bretton W…
What are reasons banks engage in inter…
Explain what are shell bank branches?
An international monetary order, signed by 44 nations at the…
An obligation for member nations to adopt a monetary policy t…
Increasing globalisation, large scale cross border mergers be…
A booking office for bank transactions located abroad, with n…
What is the Bretton woods system?
An international monetary order, signed by 44 nations at the…
What was a core agreement in Bretton W…
An obligation for member nations to adopt a monetary policy t…
Financial Markets and Institutions
Brokers
Bid price
Ask price
Best efforts plan
serve as agents by bringing the buyer and seller together and…
The price at which dealers are willing to buy
The price at which dealers are willing to sell
Investment company does not take full ownership of the bond b…
Brokers
serve as agents by bringing the buyer and seller together and…
Bid price
The price at which dealers are willing to buy
Financial markets and institutions
Finance Companies
Mutual Funds
Securities firms
Insurance companies
Non depository Institutions, they obtain funds by issuing sec…
Sell shares to surplus units and use the funds received to pu…
Provide a wide variety of functions in financial markets
provide insurance policies that reduce the financial burden a…
Finance Companies
Non depository Institutions, they obtain funds by issuing sec…
Mutual Funds
Sell shares to surplus units and use the funds received to pu…
8 terms
Financial Institutions and Markets
4. What is a straw party and how did W…
5. What was Ed Ball's problem?
6. Relative to the review material for…
7. Who won the Battle of Trafalgar? Ho…
Straw parties are when you buy small parts of land through sm…
Ed Ball's problem was that he didn't know what business he wa…
...
England won. Napoleon financed his fleet through the Louisian…
4. What is a straw party and how did W…
Straw parties are when you buy small parts of land through sm…
5. What was Ed Ball's problem?
Ed Ball's problem was that he didn't know what business he wa…
20 terms
Financial institutions and markets
What is the Bretton woods system (1944)?
Why do banks engage in international b…
Explain what a shell bank branch is?
Why do large banks operate shell bank…
After WW2 the need for international economic order and coope…
Increasing globalisation.... large scale across border mergers b…
It's the eases and cheapest way to enter international bankin…
Escape taxes and government regulations.
What is the Bretton woods system (1944)?
After WW2 the need for international economic order and coope…
Why do banks engage in international b…
Increasing globalisation.... large scale across border mergers b…
14 terms
Financial Markets and Institutions
If the Treasury uses a relatively larg…
The equilibrium interest rate should
According to the Fisher effect, when t…
A ____ federal government deficit incr…
long-term; long-term
fall when the aggregate supply funds exceeds aggregate demand…
False
higher; outward
If the Treasury uses a relatively larg…
long-term; long-term
The equilibrium interest rate should
fall when the aggregate supply funds exceeds aggregate demand…
Financial Markets and Institutions- introduction
The Financial System — Markets & Insti…
• Purpose of the financial system?
What markets? What institutions?
• Biblical mention?
...
...
...
...
The Financial System — Markets & Insti…
...
• Purpose of the financial system?
...
Financial markets and institutions
What is a financial intermediary?
What four things do financial intermed…
What are the four main financial inter…
What are capital markets for?
Financial intermediaries bring together providers and users o…
1. Source of funds for borrowers ... 2. Aggregation of deposits…
1. Banks... 2. Building societies... 3. Insurance companies, pensio…
Raising and investing largely long-term capital eg stock exch…
What is a financial intermediary?
Financial intermediaries bring together providers and users o…
What four things do financial intermed…
1. Source of funds for borrowers ... 2. Aggregation of deposits…
33 terms
2-Financial Markets and Institutions
Security
Structure of the Financial System
Financial Market:definition and function
Direct Finance
A security (also called a financial instrument) is a claim on…
The financial system is complex, comprising many different ty…
Financial markets perform the essential economic function of…
In direct finance, borrowers borrow funds directly from lende…
Security
A security (also called a financial instrument) is a claim on…
Structure of the Financial System
The financial system is complex, comprising many different ty…
FINANCIAL MARKETS AND INSTITUTIONS
How is capital transferred between sav…
Capital allocation process
What is a Market?
Types of financial markets
• Direct transfers... • Investment banks... • Financial intermediar…
• In a well-functioning economy, capital flows efficiently fr…
• A market is a venue where goods and services are exchanged.…
• Spot vs futures... • Physical Asset vs Financial Asset... • Money…
How is capital transferred between sav…
• Direct transfers... • Investment banks... • Financial intermediar…
Capital allocation process
• In a well-functioning economy, capital flows efficiently fr…
Financial instrumants, markets and institutions.
Indirect finance
Direct finance
Financial instrument
Means of payment, store of value, and…
An institution like a bank stands between the lender and the…
Borrowers sell securities directly to lenders in the financia…
Is the written legal obligation of one party to transfer some…
Uses of financial instruments.
Indirect finance
An institution like a bank stands between the lender and the…
Direct finance
Borrowers sell securities directly to lenders in the financia…
Financial Markets and Institutions Chapter Ten
Common stock
Primary market for equities
The secondary market for equity securi…
Secondary markets
Ownership in a Corporation. One vote per share. A residual (l…
The first time shares are sold in the market is an unseasoned…
Subsequent trading in securities after primary issue (money w…
Four ways to bring buyers/sellers together - a buyer may incu…
Common stock
Ownership in a Corporation. One vote per share. A residual (l…
Primary market for equities
The first time shares are sold in the market is an unseasoned…
61 terms
Financial markets and institutions ch.23
which of the following statements is i…
No-load mutual funds are normally prom…
to cover managerial expenses, mutual f…
mutual funds that do not repurchase th…
ANSWER: B. managers of mutual funds do not analyze economic a…
C. the mutual fund of concern; registered representatives of…
A. management fees of 1 to 2 percent of total assets per year
A. Closed-End mutual funds
which of the following statements is i…
ANSWER: B. managers of mutual funds do not analyze economic a…
No-load mutual funds are normally prom…
C. the mutual fund of concern; registered representatives of…
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