capital market
system that allocates financial resources in the form of debt and equity according to their most efficient uses
debt
loan in which the borrower promises to repay the borrowed amount plus a predetermined rate of interest
bond
debt instrument that specifies the timing of principal and interest payments
equity
part ownership of a company in which the equity holder participates with other part owners in the company's financial gains and losses
stock
shares of ownership in a company's assets that give shareholders a claim on the company's future cash flows
liquidity
ease with which bondholders and shareholders may convert their investments into cash
international capital market
network of individuals, companies, financial institutions, and governments that invest and borrow across national boundaries
securitization
unbuilding and repackaging of hard-to-trade financial assets into more liquid, negotiable, and marketable financial instruments
offshore financial center
country or territory whose financial sector features very few regulations and few, if any, taxes
international bond market
market consisting of all bonds sold by issuing companies, governments, or other organizations outside their own countries
euroband
bond issued outside the country in whose currency it is denominated
foreign bond
bond sold outside the borrower's country and denominated in the currency of the country in which it is sold
international equity market
market consisting of all stocks bought and sold outside the issuer's home country
eurocurrency markets
market consisting of all the world's currencies that are banked outside their countries of origin
interbank interest rates
interest rates that the world's largest banks charge one another for loans
foreign echange market
market in which currencies are bought and sold and their prices are determines
exchanged rate
rate at which one currency is exchanged for another
currency hedging
practice of insuring against potential losses that result from adverse changes in exchange rates
currency arbitrage
instantaneous purchase and sale of a currency in different markets for profit
interest arbitrage
profit-motivated purchase and sale of interest-paying securities denominated in different currencies
currency specialization
purchase or sale of a currency with the expectation that its value will change and generate a profit
quoted currency
the numerator in a quoted exchange rate, or the currency with which another currency is to be purchased
base currency
the denominator in a quoted exchange rate, or the currency that is to be purchased with another currency
exchange-rate risk
risk of adverse changes in exchange rates
cross rate
exchange rate calculated using two other exchange rates
spot rate
exchange rate requiring delivery of the traded currency within two business days
spot market
market for currency transaction at spot rate
forward rate
exchange rate at which two parties agree to exchange currencies on a specified future date
forward market
market for currency transactions at forward rates
forward contract
contract that requires the exchange of an agreed-upon amount of a currency on an agreed-upon date at a specific exchange rate
derivative
financial instrument whose value derives from other commodities or financial instruments
currency swap
simultaneous purchase and sale of foreign exchange for two different dates
currency option
right, or option, to exchange a specific amount of a currency on a specific date at a specific rate
currency features contact
contact requiring the exchange of a specific amount of currency on a specific ate a specific exchanges rate, with all conditions fixed and not adjustable
vehicle currency
currency used as an intermediary to convert funds between two other currencies
interbank market
market in which the world's largest banks exchange currencies at spot and forward rates
clearing
process of aggregating the currencies that one bank owes another and then carrying out the transactions
securities exchange
exchange specializing in currency futures and options transactions
over-the-counter market
decentralized exchange encompassing a global computer network of foreign exchange traders and other market participants
convertible currency
currency that trade freely in the foreign exchange market, with its price determined by the forces of supply and demand
countertrade
practice of selling goods or services that are paid for, in whole or in par, with other goods or services