A financial asset is referred to as a ___ if the claim is a fixed dollar.
debt instrument
The term hedge fund is associated with common characteristics. Which of the below is NOT one of these common characteristics?
pay performance fees to their manager; and have an investor base comprising modest-income individuals
A ___ such as plant or equipment purchased by a business entity shares at least one characteristics with a financial asset: both are expected to generate future cash flow for their owner
tangible asset
Financial markets can be categorized as those dealing with newly issued financial claims that are called the __, and those for exchanging financial claims previously issued that are called the ___.
primary market; secondary market
Depository institutions include
commercial banks, savings and loan associations, savings banks and credit unions
Financial markets help transfer funds from __ units to __ units
surplus; deficit
The objective of a ___ is to earn positive spread between the assets it invests in
depository institution
Which is a money market security?
three month bond and nine month CD
Who offers share drafts?
Credit unions
What does NOW account stand for?
a negotiable order of withdrawal account.
derivative instrument
contract whose value depends on the value of the underlying financial asset. economic function is to provide ways to control risk
money market
a market in which money is lent for periods of one year or less
capital market
market in which money is lent for periods longer than a year
primary market
the market in which new securities are originally sold to investors
secondary market
market for reselling financial assets
domestic market
The supply and demand of goods, services, and securities within a single country.
foreign market
markets outside the domestic market; for example, to businesses in the United States, France is a foreign market
national market
A market where buyers and sellers can be in different parts of a country
Euromarket
international financial market that provides borrowing and lending currencies outside their country of origin
financial asset
a claim on a borrower's property
tangible asset
Assets have physical substance.
pension plans
company plans that provide retirement income for their workers
defined benefit plan
plan sponsor agrees to make specified dollar payments annually to qualifying beginning employees at retirement. these payments typically occur monthly. this payment is based on a formula.
direct investment
Investments made by financial intermediaries against themselves to market participants
indirect investment
Market participants who hold the financial claims issued by financial intermediaries
defined contribution plan
Employees and employer pay a specific amount into the plan for each participant. Employer contribution often are based upon a percentage of salary or a percentage of profits.
leverage ratio
liabilities/assets
It is dangerous to have a high leverage ratio. (T/F)
True
spread
Should allow the institution to meet operating expenses and earn a fair profit on its capital
regulatory risk
risks associated with unfavorable government regulation
default risk
the risk that the bond will not pay interest or principal when due
credit risk
the risk that borrowers might default on their loans
interest rate risk
the risk that a change in market interest rates will affect the value of the bond
how to accommodate liquidity concerns
attract additional deposits by raising interest rates
Use existing securities as collateral for borrowing from a federal agency or other financial institution such as an investment bank
Raise short-term funds in the money market
Who insures commercial banks?
FDIC
National Bank Act
Authorized the federal chartering of national banks
Federal Reserve Act
Established the federal reserve system as the central banking system
fiduciary standards
Administrators must protect the interest of employees
funding standards
An employer must deposit enough money to cover the pension plans and administrative costs
Glass-Steagall Act
4 sections of banking act of 1933 that barred commercial banks from certain investment banking activities
Gramm-Leach Bliley Act
repealed Glass-Steagall Act
minimum vesting standards
Minimum amount of time you're expected to have worked for the company for the money to be yours, typically 5 years
demand deposits
Pay no interest and can be withdrawn upon demand
savings deposits
Pay interest, typically below market interest rates
Do not have a specific maturity
Usually can be withdrawn upon demand
time deposits
Also called certificates of deposit (CD)
Have a fixed maturity date and pay either a fixed or floating interest rate
Some can be sold in the open market prior to their maturity if the depositor needs funds
federal funds market
Market where banks can borrow or lend reserves
Basel Committee on Banking Supervision
Plays the primary role in establishing risk and management guidelines for banks throughout the world
Basel I Framework
Establish minimum capital standards designed to protect against credit risk
More amendments that would incorporate a diversity of risks faced by banks in formulating risk-based capital requirements
hybrid pension plan
Pension plans that combine features of the defined benefit pension plan and the defined contribution pension plan.
cash balance
Retirement plan in which the employer sets up an individual account for each employee and contributes a percentage of the employee's salary; the account earns interest at a predefined rate
cash market
market in which a financial asset trades for immediate delivery