ECON1003 Financial Institutions and Markets - Key Vocabulary

Flashcards covering key vocabulary and concepts from the ECON1003 Financial Institutions and Markets lecture notes.

Financial System

The financial institutions, instruments, and markets that facilitate transactions for goods, services, and assets.

Markets (in finance)

A structure allowing economic agents to exchange one thing for another, facilitating the exchange of assets, goods, and services.

Assets

Items that have value by providing their owners with future benefits; can be real or financial, monetary or non-monetary.

Surplus Units

Savers of funds at hand for lending.

Deficit Units

Borrowers of funds for capital investment and consumption.

Depository Financial Institutions

Financial institutions that attract savings through deposit accounts and supply loans to businesses and households.

Investment Banks and Merchant Banks

Financial institutions that supply off-balance-sheet advisory services and assist with raising funds in capital markets.

Contractual Savings Institutions

Financial institutions whose liabilities are contracts requiring regular payments in return for payouts if a particular event occurs.

Finance Companies

Financial institutions that raise funds by providing financial securities in capital and money markets to create loans and supply leased finance.

Unit Trusts

Entities created under a trust legal agreement, directed by a trustee, that raise funds by selling units to the public and investing in various asset classes.

Financial Instrument

A document indicating an agreement that recognizes a financial obligation and authorizes the holder to particular cash flows.

Equity

Ownership interest in an asset, representing a claim on assets and earnings through dividends and liquidation.

Debt

A loan that is required to be repaid, representing a legalized claim to repayment of principal and periodic interest payments.

Derivatives

A processed security supplying particular future rights that derives its value from a physical commodity or financial security.

Future Contract

An agreement to buy or sell a specified amount of goods or financial instrument at a price determined today for future delivery or payment.

Forward Contract

A more flexible contract, typically arranged over the counter, for buying or selling an asset at a specified future date.

Option Contract

A contract granting the buyer the right, but not the obligation, to buy or sell an asset at a specified price during a specified period.

Swap Contract

An arrangement to exchange specified future cash flows.

The Matching Principle

Refers to economic agents' efforts to align their investment and funding requirements to manage financial risk.

Primary Market

The market for new financial instruments issued to raise funds.

Secondary Market

The market for buying and selling existing financial securities.

Direct Finance

Users of funds interact directly with providers (savers) in the primary market.

Intermediate Finance

Savers supply funds to an intermediary, which then supplies funding to the ultimate user of the funds.

Wholesale Markets

Markets with quick financial flow transactions among borrowers and institutional investors, involving larger transactions.

Retail Markets

Markets where transactions occur primarily with financial intermediaries by households and small-to-medium-sized businesses, involving smaller transactions.

Money Markets

Markets for short-term securities with a term to maturity of one year or less.

Capital Markets

Markets for longer-term securities with an original term to maturity exceeding one year.