MI Flashcards
MEMORY (31 cards)
What are assets?
Assets include a broad range of both tangible and intangible items that provide their owners with expected future benefits.
What are real assets?
Real assets are those expected to provide benefits based on their fundamental qualities.
What are financial assets?
Financial assets are expected to provide benefits based solely on another party’s performance.
What is the relationship between financial assets and financial liabilities?
One party’s financial asset is another party’s financial liability, creating an obligation to provide future benefits.
What is the main purpose of business firms?
Most business firms exist to acquire and use real assets in a way that makes the value of future benefits received greater than the cost of obtaining them.
What do financial institutions primarily hold?
Majority of financial institutions hold financial assets while other firms hold real assets.
What are primary securities?
Primary securities are direct financial claims against individuals, governments, and nonfinancial firms.
What are secondary securities?
Secondary securities are the financial liabilities of financial institutions.
What is direct investment?
Direct investment involves the transfer of funds directly between parties.
What is indirect investment?
Indirect investment occurs when the transfer of funds is through a financial institution.
What are depository institutions?
Depository institutions are further categorized into commercial banks and thrift institutions.
What are commercial banks?
Commercial banks are depository institutions whose major assets are loans and advances and whose major liabilities are customer deposits.
What are thrift institutions?
Thrift institutions are depository institutions in the form of savings and loans, savings banks, and credit unions.
What do insurance companies do?
Insurance companies protect individuals and corporations from adverse events.
What are finance companies?
Finance companies are financial intermediaries that make loans to both individuals and businesses.
What are pension funds?
Pension funds offer savings plans through which fund participants accumulate savings during their working years before withdrawing them during retirement.
What do securities firms and investment banks do?
Securities firms and investment banks underwrite securities and engage in related activities such as brokerage.
What are investment companies?
Investment companies provide a means through which small savers can pool funds to invest in a variety of financial instruments.
What is the role of financial intermediaries?
Financial intermediaries exist to contribute towards economic performance by satisfying the needs of investors.
How do financial intermediaries lower transaction costs?
Financial intermediaries can reduce transaction costs through brokerage and the creation of their own financial liabilities.
What is the information processing rationale for financial intermediaries?
It involves reducing agency costs arising from information asymmetry between market participants.
What are some other benefits of financial intermediaries?
Other benefits include operating the payment system, completing markets, and reducing search costs.
What is the term structure of interest rates?
The term structure of interest rates is the relationship between security yields and maturities, all else equal.
What does the Unbiased (Pure) Expectations Theory state?
This theory holds that observable long-term yields are the average of expected, but directly unobservable, short-term yields, where short-term is defined as a year.
