Financial Markets and Securities: Terms and Definitions, Quizzes of Banking and Finance

Download Financial Markets and Securities: Terms and Definitions and more Quizzes Banking and Finance in PDF only on Docsity! TERM 1 Securities Firm DEFINITION 1 Company whose primary purpose is to hold securities, trade them, or help others trade them; includes mutual funds, brokers and dealers, and investment banks TERM 2 hedge Fund DEFINITION 2 Variant of a mutual fund that raises money from wealthy people and institutions and is largely unregulated, allowing it to make risky bets on asset prices TERM 3 Leverage DEFINITION 3 Borrowing money to purchase assets TERM 4 Broker DEFINITION 4 Firm that buys and sells securites for others TERM 5 Dealer DEFINITION 5 Firm that buys and sells certain securites for itself, making a market in the securities TERM 6 Investment Bank DEFINITION 6 Financial institution that serves as an underwriter and advises companies on mergers and acquisitions TERM 7 Underwriter DEFINITION 7 Financial institution that helps companies issue new securities TERM 8 Primary Markerts DEFINITION 8 Financial markets in which firms and governments issue new securities TERM 9 Secondary Markets DEFINITION 9 Financial markets in which existing securities are traded TERM 10 Public Company DEFINITION 10 Firm That issues securities that are traded in financial markets TERM 21 Random Walk DEFINITION 21 The movements of a variable whose changes are unpredictable TERM 22 Actively Managed Fund DEFINITION 22 Mutual fund that picks stocks based on analysts research TERM 23 Index Fund DEFINITION 23 Mutual fund that buys all the stocks in a broad market index TERM 24 Behavioral Finance DEFINITION 24 Field that uses ideas from psychology to study how deviations from rational behavior affect asset prices TERM 25 Derivatives DEFINITION 25 Securities with payoffs tied to the prices of other assets TERM 26 Futures Contract DEFINITION 26 Agreement to trade an asset for a certain price at a future point in time TERM 27 Option DEFINITION 27 The right to trade a security at a certain price any time before an expiration date TERM 28 Call Option DEFINITION 28 An option to buy a security TERM 29 Put Option DEFINITION 29 An option to sell a security TERM 30 Hedging DEFINITION 30 Reducing risk by a purchasing an asset that is likely to produce a high return if another of ones assets produces low or negative return TERM 31 Speculation DEFINITION 31 Using financial markets to make bets on asset prices TERM 32 Nominal Exchange Rate (e) DEFINITION 32 Price of one unit of a currency in terms of another currency TERM 33 Appreciation DEFINITION 33 Rise in a currencys price in terms of foreign currency TERM 34 Depreciation DEFINITION 34 Fall in a currency's price in terms of foreign currency TERM 35 Real Exchange Rate (e) DEFINITION 35 Measure of the relative prices of domestic and foreign goods (e=eP/P*) TERM 46 Federal Funds DEFINITION 46 Loans from one bank to another, usually for one day TERM 47 Repurchases Agreement (Repo) DEFINITION 47 Sale of a security with a promise to buy it back at a higher price on a future date TERM 48 Vault Cash DEFINITION 48 Currency in banks, branches, and ATMs TERM 49 Reserves DEFINITION 49 Vault cash plus banks deposits at the Federal reserve TERM 50 Off-balance-sheet (OBS) activities DEFINITION 50 Bank activities that produce income but are not reflected in the assets an liabilities reported on the balance sheet TERM 51 Letter of Credit DEFINITION 51 A banks guarantee, in return for a fee, of a payment promised by a firm TERM 52 Income Statement DEFINITION 52 Financial statement summarzing income, expenses, and profits over some time period TERM 53 Return on Assets (ROA) DEFINITION 53 Ratio of a banks profits to its assets, ROA = profits/assets TERM 54 Return on Equity (ROE) DEFINITION 54 Ratio of banks profits to its capital, ROE = profits/capital TERM 55 Core Deposits DEFINITION 55 Banks inexpensive sources of funds (checking deposits, savings deposits, and small time deposits TERM 56 Purchased Funds DEFINITION 56 Banks expensive sources of funds (borrowings and large time deposits) TERM 57 Liquidity DEFINITION 57 The risk that withdrawals from a bank will exceed its liquid assets TERM 58 Credit Risk (default risk) DEFINITION 58 The risk that loans will not be repaid TERM 59 Rate-sensitivity Gap DEFINITION 59 Difference between rate-sensitive assets and rate-sensitive liabilities TERM 60 Floating Interest Rate DEFINITION 60 Interest rate on a long-term loan that is tied to a short-term rate