Financial Institutions and Markets - Chapters 7-16

Comprehensive practice flashcards in vocabulary style covering financial institutions, markets, and payment systems based on the provided script.

Deposit Savings Institutions

A heterogeneous group of smaller credit institutions, including savings banks, building societies, and credit unions, that collect savings and provide loans, typically operating locally or regionally.

Sparkassen-Finanzgruppe

A highly developed network of regional savings banks in Germany, which included 349 active institutions in 2024.

Specialized Housing Savings Banks (Stambene štedionice)

Institutions that collect personal savings to provide long-term housing loans; in Croatia, their initial founding capital must be at least $2.500.000$ euros.

Credit Union

A financial cooperative owned by its members with participation based on a common interest; deposits are called share accounts and earn dividends rather than interest.

Pension System Pillars

A three-part structure consisting of the I. Pillar (state-run, PAYG), II. Pillar (mandatory employee capitalized savings), and III. Pillar (voluntary individual savings).

PAYG (Pay-As-You-Go)

A state pension system financed through current distribution, where contributions from current employees directly fund the pensions of current retirees.

Replacement Rate (Stopa zamjene)

A key pension system indicator representing the ratio between an individual's pension amount and their previous salary.

Longevity Risk (Rizik dugovječnosti)

The risk that an individual or a pension fund will outlive the financial resources intended for pension payments.

HANFA

The Croatian Financial Services Supervisory Agency responsible for the supervision of pension funds, insurance companies, and the capital market.

Pure Risks (Čisti rizici)

Risks that only involve the possibility of loss or no loss, with no possibility of gain; these are the only risks typically covered by insurance.

Negative Selection

A problem in insurance where individuals with a higher-than-average risk of loss are the ones most likely to seek insurance coverage.

Moral Hazard

The tendency of an insured person to change their behavior and act less carefully after a contract is signed because the risk is transferred to the insurer.

Reinsurance

The practice of an insurance company transferring a portion of its accepted risks to another company; the transferring company is the cedent and the accepting company is the cesionar.

Solvency II

The EU regulatory framework for insurance companies applied since January 1, 2016, based on three pillars: quantitative measures, risk management, and market transparency.

NAV (Net Asset Value)

The value of an investment fund calculated as: $\text{NAV} = \text{total value of securities} + \text{other assets} - \text{liabilities}$.

ETF (Exchange-Traded Fund)

Investment funds that are traded on stock exchanges, with the first one established in the USA in 1993.

Originate-to-Distribute

A mortgage business model where specialized institutions approve loans and then sell or securitize them, moving them out of their balance sheets.

FinTech

Technology-enabled innovation in financial services, encompassing areas like DeFi, blockchain, crowdfunding, and robo-advisors.

Money Market

A market for short-term financial instruments with a maturity of up to one year, characterized by high liquidity and low risk.

Treasury Bills (Trezorski zapisi)

Short-term debt securities issued by the state, sold at a discount (below nominal value), and considered virtually risk-free.

Repo Agreement

A transaction involving the sale of a security with a simultaneous agreement to repurchase it at a later date at a specified price.

IPO (Initial Public Offering)

The first public sale of a company's shares on the primary capital market.

CROBEX

The equity price index of the Zagrebačka burza (Zagreb Stock Exchange).

Duration

A measure of the sensitivity of a bond's price to changes in interest rates.

FOREX

The foreign exchange market where currencies are traded, with a daily turnover of approximately $7.5 \times 10^{12}$ USD in 2022.

FX Swap

The simultaneous spot purchase and forward sale (or vice versa) of the same amount of a specific currency.

Derivatives

Financial instruments whose value is derived from an underlying asset, such as securities, commodities, or interest rates.

Hedgers

Market participants who use derivatives to reduce or eliminate the risk and volatility of price changes in their underlying assets.

Black-Scholes Model

A mathematical model from 1973 used to calculate option prices based on underlying asset price, strike price, time to expiration, volatility, and the risk-free interest rate.

CDS (Credit Default Swap)

A credit derivative used as protection against the risk of default by a third party.

SEPA (Single European Payment Area)

An EU initiative launched in 2008 to create an integrated market for small euro payments, treating all euro payments as domestic.

RTGS (Real Time Gross Settlement)

A payment system that processes and settles transactions individually and immediately in real time, eliminating settlement risk.

IBAN (International Bank Account Number)

An ISO 13616 standard for account identification; in Croatia, it consists of 21 alphanumeric characters starting with $HR$.

Bill of Exchange (Mjenica)

A formal credit and payment security instrument that is transferable by endorsement (indosament).

Zadužnica

A specific Croatian legal instrument of payment security that has the status of an enforceable court document (ovršna isprava).

Letter of Credit (Documentary Akreditiv)

A bank-guaranteed payment instrument where the buyer's bank undertakes to pay the seller upon the presentation of specified documents.