Flashcards in FInance chapter 3 and 4 note cards Deck (31)
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Financial market
A system that includes individuals, institutions, instruments, and procedures that bring together borrowers and savers. Primary role: facilitate flow of surplus funds to entities that need funds
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Direct transfer
When businesses sells its securities directly to savers
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Investment bank
Indirect transfer through an investment banker who recieves fees .Facilitates issuance of securities by buying and reselling them to investors. Design securities to make them attractive.
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Financial Intermediary
Indirect trasnfer through financial intermediary. Specialized financial firms that facilitate the indirect transfer of funds from savers to borowers by offering savings instruments, such as pension plans, Certificate of deposits etc. Helps reduce costs, risk diversification, funds divisibility/pooling, financial flexibility and other related services. Commercial banks,credit unions, mutual funds, insruance ompanies,.
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Commercial banks
"department stores of finance" that offer a variety of deposits, loans and other products ans services to a variety of customers especially businesses. Is a depository intermediary.
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Credit Union
A depsoitory insitution owned by depositors who have a common association such as an occupation or religion. Not for profit.
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Thrift Institutions ( Savings and loans associations, mutual savings banks)
cater to savers who have small amounts of money to depsoit or need long term loans to purchase houses
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Mutual funds
Investment comoanies that accept funds from saver to invest in financial assets such as stocks and bonds
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Money market mutual fund
A mutual fund that invests in short-term, low risk securities and allows investors to write checks against their accounts --> popular during economic downturn
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Whole life insurance companies
Firms that receive premiums from individuals; a portion of the funds is invested and a portion is used to cover the dependents of the insured
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Pensions
Employe retirement plans funded by corporations or govt. agencies
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economic efficiency 3
Funds are allocated to thgeir optimal use at the lowest costs in financial markets. Invest funds in assets that yeld highest returns and costs of searching for such opportunities is low
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Informational efficiency 3
The stock prices are at equilibrium and reflect existing information and adjust quickly when new information enters the markets. Weak form: past price movements fully reflected in current market prices. Semistrong: current market prices reflect all publically available info. Storng form: market prices reflect all pertinent info, public and private Many participants who
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Efficient market hypothesis 3
Securities are at equilibirum and fairly priced. One cannot consistently beat the market
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Money market vs. capital market 3
Short term (
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Debt markets vs. equity markets 3
Where loans are traded vs. where stocks are traded
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Derivatives market 3
Financial markets where options, future, and similar financial instruments are traded
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Primary markets 3
markets where firms isue new securities
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Secondary markets 3
markets where financial assets that have previously been issuued by various organizations are traded among investors
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Initial Public offering (IPO) 3
selling stock to general public for the first time by a corporation
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Physical security exchanges 3
formal organizations with physical locations that facilitate trading in designated( "listed") securities e.g New Yrok Stock Exchange
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Over the Counter (OTC) market 3
a collection of brokers and dealers, connected electronically by telephones and computers that provides for trading in securities not listed in physical exchanges.
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NASDAQ 3
separate market and Computerized tarding system used by national association of security dealers licenses brokers and oversees trading practices. Included market makers who continuously monitor trading to ensure stocks are available to traders who want to buy them and ensures demand for those who want to sell
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Securities and Exchange Commission 3
The. U.S. govt. agency that regulates the issuance and trading of securities. Firms have to file for registratio statement and prospectus with SEC to issue new stock.
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Dual banking system
a banking system in which bank chartering exists at both national and state level
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Federal reserve system
The central banking system charged with mantaining the monetary policy of the U.S. Governed by Board of Governors. A decntralized network of regional, district banks. Provides services such as loans and deposits to banks and other financial institutions. The Fed is also used by the U.S. govt for its banking needs. The treasury maintains a checking accont at the Fed, which is used to collect taxes/
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Monetary policy
The policy by which the Fed influences economic conditions, especially interest rates, by mnging the nation's money supply.Promote the goals of maximum employment, stable prices and moderate term interest rates
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Open market operations
operations in which Fed buys or sells Treasury securities to expand or contract U.S> money supply. When Fed sells govt securities, contract money supply, and vice versa
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Primary dealer
A dealer that has established a relationship with the Fed to buy and sell govt. securities
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