Lesson 3 Flashcards by Jhann Olvis

It is one sector of an economy, having
foremost participants being institutions, markets, and
investment banking

Financial Environment.

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An institution that is doing the vital
purpose of guiding finances to individuals or businesses with excess resources or shortages of funds

Financial Institution

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It is a trading floor wherein trading of
Financial securities, including stocks and bonds, and precious metals and derivatives occur at low transaction costs.

Financial Market.

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It is a special division of banks related to
capital creation for other companies, governments, and other businesses.

Investment Banking

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It is a chance which the result of actual gains of
investments will be different from an expected outcome or return.

Financial Risk

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is one sector of an economy, having foremost participants being financial institutions, financial markets, investors, and stock exchange.

financial environment

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represents a more significant portion of a well-developed economy.

sector (financial corp.)

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are any business entity that offers goods or services to users.

Institutions

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are persons or businesses that invest money into companies for financial gains.

investors

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are the financial environment making all this possible.

markets

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These are institutions doing the vital purpose of
guiding finances to individuals or businesses with
excess resources or with shortages of resources

Financial Institutions

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Among these are banks, thrifts, insurance companies,
finance companies, securities firms, and investment
banks, pension funds, and mutual funds.

Financial Institutions

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Risks Financial Institutions Face

Interest Rate Risk
Credit Risk
Operational Risk
Market Risk
Liquidity Risk
Systemic Risk
Sovereign Credit Risk
Insolvency Risk
Foreign Currency Risk

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It is also known that interest risk negatively affects
the bank’s cash flow from changing interest
rates.

Interest Rate Risk

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The risk a borrower will fail to meet its
obligations under agreed terms

Credit Risk

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The risk of loss ensuing from not adequate or
unsuccessful internal processes, labor force, and
systems or from other external activities such as
errors by employees, systems breakdowns,
fraud or other criminal act or any event that
disrupts business processes

Operational Risk

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The risk that the value of an investment will
decrease due to changes in the financial market /
in market factors

Market Risk

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The risk that over a specific horizon, the bank will
be unable to settle obligations when due

Liquidity Risk

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The risk that an occurrence will trigger a loss of
economic value or confidence in a substantial
portion of the financial system

Systemic Risk

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This is known as country risk, is the risk of a
government or a country fittingly unable to meet
its credit obligations

Sovereign Credit Risk

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Also known as bankruptcy risk, it is the risk that
an individual or especially an entity will not satisfy
its debts

Insolvency Risk

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Also known as currency risk, is the risk on the
losses an international financial transaction can
suffer because of currency fluctuations.

Foreign Currency Risk

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This refers to a marketplace, where creation and trading of financial assets, such as stocks, bonds, derivatives, currencies etc. take place.

Financial Markets

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Types of Financial Markets

Money market
Capital market
Derivatives market
Foreign Exchange market

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involves the trading of short-term debt financing and investment. (CDs, repo, commercial paper)

Money market

involves the trading of long-term debt securities. (stocks, bonds, treasury bills).

Capital market

Capital markets consist of:

➢ Stock market ➢ Bond market

provides financing by issuing shares of common stock and allowing the succeeding trading from there.

Stock market

provides financing by the issuance of bonds and permit the subsequent trading.

➢ Bond market

provides instruments for the management of financial risk. (futures contracts, forwards contracts, swaps, options)

Derivatives market

facilitates the trading of foreign exchange.

Foreign Exchange market

facilitate the trading of commodities

Commodity markets

provide standardized forward contracts for trading products at a specific date in the future

Futures markets

enables the trading of digital assets and financial technologies

Cryptocurrency market

is where financial instruments like securities, currencies, and commodities are traded for fast delivery to exchange cash

Spot market

which banks lend funds to one another for a specified term.

Interbank lending market

Newly issued securities are bought or sold in primary markets through initial public offerings (IPO)

Primary markets

The transactions in the primary markets exist between issuers and investors.

Primary markets

These markets allow investors to buy and sell existing securities.

Secondary markets

is a market where investors purchase securities or assets from other investors, rather than from issuing companies themselves.

Secondary markets

is a special division of banks related to capital creation for other companies, governments, and other businesses.

Investment banking

include underwriting new debt and equity securities for all corporations, assisting in the sale of securities, and facilitating mergers and acquisitions, reorganizations, and broker trades for both institutions and private investors

Investment banking activities

means that a lender verifies the income, assets, debt and property details, in order to issue final approval for the loan.

Underwriting

Is a financial expert who takes a look at your finances and assesses how much risk a lender will take on if they decide to give you a loan.

underwriter

There are two types of Investment Banking services

1. Sell-side 2. Buy-Side

* Services include trading of equity, derivatives, promotion of securities and the like are offered;

1. Sell-side

* These are advisory services to companies interested in buying investment like insurance firms, pension funds, and the like.

2. Buy-Side

The global marketplaces were buyers, and Sellers trade financial assets, such as stocks, bonds, foreign currencies, commodities, and derivatives worldwide

International Financial Market.

Also referred to as FOREX or F.X. is the trading of one currency of a country for another country's currency.

Foreign Exchange

It is an agreement of financial services globally and provided to clients by a bank of one country to the clients of a bank of another country.

International Banking

It represents the maximum price that a buyer is willing to pay for a stock share or other security

Bid Price

It represents the minimum price that a seller is willing to take for the same stock share or other security.

Ask Price

Usually refers to financial transactions involving the exports and imports.

Trade Financing

It is a strategy intended to lower investment risk by using call options, put options, short-selling, or futures contracts. It can help lock in return on investment to reduce the volatility of an investment portfolio, thus reducing the risk of losing on the portfolio.

Hedging

These contracts give a buyer the right to buy or sell the underlying asset, or the security wherein a derivative contract is based, with an expiration date at a specified price

Options

It is a financial contract that gives the option buyer the right, but not the obligation, to buy a stock, bond, commodity, or other asset or instrument at a specified price within a particular time

Call Option

It is a contract giving the owner the right, but not the obligation to sell–or sell short–a specified amount of an underlying security at a pre-determined price within a specified time frame.

Put Option

It is a legal contract to buy or sell a particular commodity asset or security at a pre-determined price at a specified time in the future.

Futures Contract

An institution that describes membership from countries worldwide has activities helping one another and whose members execute a formal agreement. (World Bank, WTO, IMF, GATT, etc.)

International Financial Organization.

It consist mainly of international banking services and the global money market, accessed by multinational corporations, traders, or businesses with import and export transactions

The International Financial Markets

It is an agreement of financial services globally, and provided to clients by a bank of one country to the clients of a bank of another country

International Banking

usually refers to financial transactions involving the exports and imports

Trade Financing

one country to the clients of a bank of another country, such as:

a. Trade Financing b. Foreign Exchange c. Foreign Investments d. Hedging

is the trading of one currency of a country for another country's currency.

Foreign Exchange

are better positioned to offer consulting services to their clients for their investing requirements.

Foreign Investments

i.e. Exchange Rate Risk) - It is a strategy intended to lower investment risk by using call options, put options, swaps or short-selling, and futures contracts. It can help lock in return on investment to reduce the volatility of an investment portfolio, thus reducing the risk of losing on the portfolio.

Hedging

usually short- term such as (foreign currency) deposits, commercial papers, etc

International Money Market

- it is a large-scale -money market that allows many central banks to conduct transactions from different countries. This includes both lending and borrowing funds. It handles funds in trillions, with the main actors being central banks and major foreign banks.

International Money Market

MANILA, Sept 19, 2008 (Reuters) - Seven Philippine banks have a total exposure of $386 million to bankrupt U.S. investment bank____________, according to a newspaper report.

Lehman Brothers