3677540
Description
Flashcards by Alexander Calawa, updated more than 1 year ago
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Created by Alexander Calawa
about 9 years ago
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| Question | Answer |
| Assets | What you own or what people owe to you. Claims to cash. |
| Liabilities | Financial obligation. What you owe. |
| Balance Sheet | A summary of an entity's financial position at a point in time. |
| Capital Markets | The market for long term debt or security. |
| Debt Securities | IOUs created through loan-type transactions—commercial paper, bank CDs, bills, bonds, and other instruments |
| Broker | Bring together buyers and sellers for a commission. (money markets) |
| Dealers | They have an inventory. They quote prices at which they are willing to buy and sell securities. |
| Bid Price | The highest price that a dealer is willing to pay for a security. (sell price) |
| Ask Price | The lowest price that a dealer will accept for a security. (pay price) |
| Default Risk | Risk of timely payment of interest or principal on a debt security. You may not get paid. |
| Interest Rate Risk | Rates rise, prices fall. Also known as interest rate exposure. |
| Yield to Maturity | Rate of return yielded by a debt security held to maturity. when both interest payments and the institutions capital gain or loss are taken into account. |
| Basis Point (bp) | 1/100 of 1%. One of the more commonly referenced terms in the bond market. 5% to 5.25% increase in 25 bp. |
| Shadow Banking | Money Market funding of capital market lending. |
| Money Markets | The market for short term, highly liquid/safe financial instruments. |
| Currency Principle | Theory of money. Scarcity of money > monetarism or metal-ism > The value of the metal or commodity upon which it is based. |
| Banking Principle | Theory of money. Elasticity of credit > Kenesianinsism or charlisism > defined by the power of the state. |
| Monetary Base | MB = Total Currency ( Curr in Circ. + Vault Cash) + Reserve Deposits |
| Reserve Requirements (rr) | The percentages of different types of deposits that member banks are required to hold on deposit at the Fed. |
| Discount Rate | The rate of interest charged by the Fed to member banks that borrow at the discount window. The discount rate is set above the fed funds rate. The rules governing the discount rate were changed in 2003. |
| Fed Funds | (1) Non-interest-bearing deposits held by member banks at the Federal Reserve. (2) Used to denote “immediately available” funds in the clearing sense |
| Federal Funds Rate (ffr) | The rate of interest at which fed funds are traded. This rate is currently pegged by the Federal Reserve. The rate banks charge other banks for overnight loans and securities. The Fed changes its monetary policy through fed funds rate. |
| Open Market Operations | Traditional: The fed controls the money supply. Buying and selling T-Bills. Real life: The fed targets the federal funds rate (ffr) to control MB. |
| Payment System | A system that allows for the transfer of monetary value between parties. |
| Clearing | A trade carried out by the seller delivering securities and the buyer delivering funds in proper form. A trade that does not clear is said to fail. |
| Settlement | A trade is cleared by delivery of securities against funds. |
| Bilateral intra-day netting | Example: Suppose Bank A holds a deposit account at Bank B and uses this account (by drawing on its balance) to make a payment to Bank B. |
| Correspondent Banking | ? |
| CHIPS | Private clearing network for 47 New York Banks. Elite. Cheaper fees and requires less capital because uses netting system. |
| Fedwire | Public clearing network. Many participants. Ran by the Fed. Real time exchange. |
| Minsky's Survival Constraint | Assets > Liabilities |
| Funding vs. Payments | Funding increase reserves, payments decrease reserves. |
| Repurchase Agreement (repo) | A holder of securities sells securities to an investor w/ the agreement to repurchase the securities at a fixed price on a fixed date (usually the next day). |
| Reverse Rep | Most typically, a repurchase agreement initiated by the lender of funds. Reverses are used by dealers to borrow securities they have shorted. Exception: when the Fed is said to be doing reverses, it is borrowing money; that is, it is absorbing reserves |
| Exogenous Money | Quantity of money derived outside economic systems. The fed is on the outside. |
| Endogenious | Quantity of money derived inside the economic system (private institutions). |
| Matched Book | Matched Maturity of securities. |
| EuroDollar | U.S. dollar deposit held in a bank or foreign bank located outside of the U.S. |
| U.S. Dollar LIBOR | The rate on Eurodollar deposits traded between banks |
| Forward Rate Agreement (FRA) | A contract in which the two parties agree to exchange the difference between a specified contract rate and a market rate on a specified "notional" sum at some future date. (Futures for inter bank lending). |
| IOER | Interest on reserves. Floor for federal funds rate (banks wont lend to other banks at a rate lower than they can get by "lending to the fed." |
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