Module 4 Flashcards
(39 cards)
financial systems
mechanisms that allow anything of value to be exchanged btwn parties
financial market
forums in which suppliers and demanders of funds can transact business directly
can affect operation of financial systems
money markets and capital markets
money market
short term funds
typically consists of banks and gov’t securities
federal funds
loans btwn fed reserve and banks
eurocurrency market
loans btwn gov’t or something and banks
interest
price of borrowing money
primarily depends on default risk
default
not paying loan back in timely manner based on predetermined schedule
borrowing $
banks get $ from fed
fed charges interest rate
banks lend to borrowers are higher interest rates
interest rates increase
when $ supply is low
fewer ppl want loans
interest rates decrease
when $ supply is high
fed determines
how much $ goes into economy and interest rate
marketable securities
instruments so widely accepted and purchased by others that they essentially have same qualities as cash
very liquid
liquid asset
any asset that can easily be converted to cash
stocks
hard asset
assets that company cannot convert into cash quickly, but still has significant value
ex buildings or specialized machinery
asset liquidity
short maturity period
ability to be sold on daily basis
low relative risk
short maturity period
$ wont be tied up
ability to be sold on daily basis
stocks
low relative risk
lending to stable borrower reduces risk that it will not be repaid
on its own low risk does not necessarily mean high liquidity
capital market
for long terms funds (few years or longer, strategic investment)
stock market
units of ownership (equity) in corp
bond market
long term debt instruments
usually refers to govt bonds
bonds
u r being loaned $ in form of issuing bond
u agree to pay back plus interest on predetermined schedule
bebtor
company/municipality issuing bond
financial strength improves ability to issue bond
creditor
purchaser of bond
want to invest money in low risk w/ solid yield rate
