Introduction to Financial Markets and Institutions

These flashcards cover key concepts and terminology related to financial markets and institutions as discussed in the lecture notes.

Financial Markets

Structures through which funds flow; distinguished by primary vs. secondary markets and money vs. capital markets.

Primary Markets

Markets where users of funds raise capital by issuing new financial instruments like stocks and bonds.

Secondary Markets

Markets where existing financial instruments are traded among investors, providing liquidity and cost savings.

Liquidity

The ability to turn an asset into cash quickly at its fair market value.

Money Markets

Markets that trade debt securities with maturities of one year or less, such as CDs and U.S. Treasury bills.

Capital Markets

Markets that trade debt (bonds) and equity (stocks) instruments with maturities of more than one year.

Foreign Exchange (FX) Markets

Markets for trading one currency for another; subject to currency fluctuations.

Spot Fx

the immediate exchange of currencies at current exchange rates.

Forward FX.

the exchange of currencies in the future on a specific date and at a pre-specified exchange rate.

Derivative Security

A financial security whose payoff is linked to another security, such as futures or options, previously issued security such as a security traded in capital or foreign exchange markets.

Liquidity Risk

The risk that a financial institution will not be able to meet its short-term financial obligations.

Securities Exchange Act of 1934

Legislation that established the SEC to regulate and oversee securities markets.

The Securities Act of 1933

Full and fair disclosure and securities registration

FinTech

Financial technology referring to technologies that compete with traditional financial methods. (Cryptocurrencies)

Credit Risk

The risk of default on a debt that may arise from a borrower failing to make required payments.

Operational Risk

The risk of loss resulting from inadequate or failed internal processes, people, and systems.

Pension Funds

Financial institutions that provide savings plans for individuals to accumulate savings to withdraw during retirement.

Investment Banks

Financial institutions that assist companies in raising funds through the issuance of securities.

Shadow Banking System

Financial intermediaries that provide services similar to traditional commercial banks but outside regular banking regulations.

Investment funds

financial institutions that pool financial resources of individuals and companies and invest those resources in diversified portfolios of assets.

Finance companies

Financial intermediaries that make loans to both individuals and businesses. Unlike depository institutions, they do not accept deposits but instead rely on short- and long-term debt for funding.

Thrifts

depository institutions in the form of savings associations, savings banks, and credit unions. They generally perform services similar to commercial banks, but they tend to concentrate their loans in one segment, such as real estate loans or consumer loans

Commercial banks

depository institutions whose major assets are loans and whose major liabilities are deposits.