The process of indirect finance using financial intermediaries is called
financial intermediation
3 of 25
The price paid for the rental of borrowed funds (usually expressed as a percentage of the rental of $100 per year) is commonly referred to as the
interest rate
4 of 25
Assume that you borrow $2000 at 10% annual interest to finance a new business project. For this loan to be profitable, the minimum amount this project must generate in annual earnings is
$201
5 of 25
Securities are---for the person who buys them, but are --- for the individual or firm that issues them
assets;liabilities
6 of 25
When an investment bank---securities, it guarantees a price for a corporation's securities and then sells them to the public
underwrites
7 of 25
Secondary markets make financial instruments more
liquid
8 of 25
A debt instrument sold by a bank to its depositors that pays annual interest of a given amount and at maturity pays back the original purchase price is called
a certificate of deposit
9 of 25
A liquid asset is
an asset that can easily and quickly be sold to raise cash
10 of 25
A financial market in which only short-term debt instruments are traded is called the --- market
money
11 of 25
A debt instrument sold by a bank to its depositors that pays annual interest of a given amount and at maturity pays back the original purchase is called
a certificate of deposit
12 of 25
A short-term debt instrument issued by well-knows corporations is called
commercial paper
13 of 25
The primary liabilities of depository institutions are
deposits
14 of 25
---- institutions are financial intermediaries that acquire funds at periodic intervals on a contractual basis
contractual savings
15 of 25
Banks, savings and loan associations, mutual savings banks and credit unions
have been adept at innovating in response to changes in the regulatory environment
16 of 25
The time and money spent in carrying out financial transactions are called
transaction costs
17 of 25
Reducing risk through the purchase of assets whose returns do not always move together
diversification
18 of 25
Banks can lower the cost of information production by applying one information resource to many different services. This process is called
economies of scope
19 of 25
A Financial crisis is
a major disruption in the financial markets
20 of 25
The primary purpose of deposit insurance is
prevent banking panics
21 of 25
When DGAP > 0 what are the possible solutions to reduce interest risk?
Shortening asset duration e.g. buy short term securities and sell long-term securities
22 of 25
Another possible solution for when DGAP>0?
Lengthening liability durations e.g. issue longer term CD's, obtain more core transactions accounts from stable sources
23 of 25
When DGAP <0, what are the possible solution to reduce interest rates?
shortening liability durations (e.g. issue shorter-term CDs, use short-term purchased liability funding from federal funds and repurchase agreements…)
25 of 25
Other cards in this set
Card 2
Front
Well-functioning financial markets promote
Back
growth
Card 3
Front
The process of indirect finance using financial intermediaries is called
Back
Card 4
Front
The price paid for the rental of borrowed funds (usually expressed as a percentage of the rental of $100 per year) is commonly referred to as the
Back
Card 5
Front
Assume that you borrow $2000 at 10% annual interest to finance a new business project. For this loan to be profitable, the minimum amount this project must generate in annual earnings is
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