chapter 2 Flashcards
(34 cards)
Financial Market
Financial market is a general term that includes a number of different types of markets for the creation and exchange of financial assets, such as stocks and bonds.
Financial institutions
Financial institutions are firms such as commercial banks, credit unions, insurance companies, pension funds, and finance companies that provide financial services to the economy
Financial assets
Financial institutions are firms such as commercial banks, credit unions, insurance companies, pension funds, and finance companies that provide financial services to the economy
real assets
nonfinancial assets such as plant and equipment; productive assets are real assets; many financial assets are claims on cash flows from real assets
How Funds Flow through the Financial System
The system moves money from lender-savers (whose income exceeds their spending) to borrower-spenders (whose spending exceeds their income)
Financial system
The financial system consists of financial markets and financial institutions.
direct financing
In direct transactions, the lender-savers and the borrower-spenders deal directly with one another; borrower-spenders sell securities, such as stocks and bonds, to lender-savers in exchange for money.
investment banks
firms that specialize in helping companies sell new security issues
money center banks
large commercial banks that provide both traditional and investment banking services throughout the world
origination
Origination is the process of preparing a security issue for sale
Underwriting
Underwriting is the process by which the investment banker helps the company sell its new security issue
Distribution
Distribution is the process of marketing and reselling the securities to investors
primary market
a financial market in which new security issues are sold by companies directly to investors
secondary market
a financial market in which the owners of outstanding securities can sell them to other investors
marketability
the ease with which a security can be sold and converted into cash
liquidity
the ability to convert an asset into cash quickly without loss of value
brokers
market specialists who bring buyers and sellers together, usually for a commission
dealers
They make a market for a security by buying and selling from an inventory of securities they own. Dealers make their profit,
money markets
are global markets where short-term debt instruments, which have maturities of less than one year, are traded
Money markets are wholesale markets in which the minimum transaction is $1 million and transactions of $10 million or $100 million are not uncommon
private placement
the sale of an unregistered security directly to an investor, such as an insurance company or a wealthy individual
true (intrinsic) value
for a security, the present value of the cash flows an investor who owns that security can expect to receive in the future
efficient market
market where prices reflect the knowledge and expectations of all investors
market operational efficience
the degree to which the transaction costs of bringing buyers and sellers together are minimized
markt information efficiency
is exhibited if market prices reflect all relevant information about securities at a particular point in time.
