Exam 2 | FIN 310 - Financial Markets and Institutions, Quizzes of Financial Market

Download Exam 2 | FIN 310 - Financial Markets and Institutions and more Quizzes Financial Market in PDF only on Docsity! TERM 1 Money Market Securities DEFINITION 1 Debt securities with maturities of one year or less; issued in the primary market but can be sold in the secondary market TERM 2 Who typically purchases money market securities? DEFINITION 2 Households, corporations, and governments that have funds available for a short time period TERM 3 How do yields and discounts compare? DEFINITION 3 Discounts are the percentage reduction in purchase price from par value for newly issued T-bills and yields are influenced by the different between selling price and purchase price.Newly issued T-bills held to maturity will always have a yield that are higher than the discount because yield is influenced by purchase price rather than par. TERM 4 What are the different types of money market securities? DEFINITION 4 - T-bills- Commercial paper- Certificates of deposit- Repurchase agreements- Federal Funds TERM 5 Par Value DEFINITION 5 amount received by investors at maturity TERM 6 T-bill Auctions DEFINITION 6 weekly sale of T-bills by the Treasury TERM 7 Commercial Paper DEFINITION 7 short-term debt instrument issued only by well-known, creditworthy firms that is usually unsecured; used to provide liquidity or to finance a firm's investment in inventory and accounts receivable. TERM 8 Negotiable Certificates of Deposit (NCDs) DEFINITION 8 certificates issued by large commercial banks and depository institutions as a short term source of funds. TERM 9 What is the difference between competitive and non-competitive bids in T-bill auctions? DEFINITION 9 Non-competitive: Specific quantityCompetitive: Specific quantity AND price TERM 10 T-bill Value Formula: DEFINITION 10 Par value / % annualized return TERM 21 Zero-Coupon Bonds DEFINITION 21 Bonds issued at a deep discount from par value TERM 22 Zero-Coupon Bond Value = DEFINITION 22 face value / (1 + rate or yield)^n TERM 23 What happened in Detroit? DEFINITION 23 Detroit borrowed lots of money from investors in the form of municipal bonds in order to pay for city projects and ultimately can't afford to pay them all back (as well as city pensions). This is due to decreases in population and plunging property values TERM 24 Why are municipal bonds popular? DEFINITION 24 they're generally tax free income (as far as payments on them go) TERM 25 Calling Bonds DEFINITION 25 firm pays a price above par value TERM 26 Call Premium DEFINITION 26 difference between call bond price and par value TERM 27 Why would you call bonds? DEFINITION 27 Interest rates can change and company's can make a profit by doing so TERM 28 Issue with Risk-Credit Rating DEFINITION 28 credit ratings not always an accurate reflection of risk; used to categorize structured notes for investing TERM 29 The ____ the investor's required rate of return, the ___ the discount of a bond with a certain par value. DEFINITION 29 larger, larger TERM 30 Coupon rate DEFINITION 30 original interest rate as % of par on face bond value TERM 31 Bond Price Elasticity DEFINITION 31 sensitivity of bond prices to changes in required rate of return TERM 32 Price of bond that pays all of its yield in the form of coupon payments is ___ sensitive. DEFINITION 32 Less TERM 33 As interest rates ___, long-term bond prices ____ by a greater degree than short-term bond prices. DEFINITION 33 decreaseincrease TERM 34 Bond prices are affected by ____ and _____. DEFINITION 34 Risk premiumRisk-free rates TERM 35 Duration DEFINITION 35 measurement of the life of the bond on a present value basis