Financial Markets Flashcards

Flashcards based on lecture notes about Mortgage Markets, Derivative Markets, Internationalization of Financial Markets and Cryptocurrency

Mortgage

A type of loan used to purchase or maintain real estate, paid over time with principal and interest payments.

Mortgages

Long-term loan secured by real estate.

Mortgages

Obligations granted by banks using real estate or movable assets as collateral.

Amortized

Paying off a loan over time with principal and interest payments.

Liens

Legal claims on property, allowing lenders to foreclose upon non-payment.

Foreclosure

Process where the lender takes possession of a property due to non-payment of the mortgage.

Pre-approval

Initial evaluation of a borrower's ability to repay a loan.

Closing

Meeting where the borrower makes a down payment and signs mortgage documents.

Discount Points

Fees charged by the lender for originating the loan.

Points

Interest payments made at the beginning of a loan.

One discount point

The borrower pays 1% of the loan amount at closing, the moment when the borrower signs the loan paper and receives the proceeds of the loan.

loan terms

The shorter the term, the lower the rates of this characteristic of residential mortgages.

Down Payment

Portion of the purchase price paid by the borrower upfront.

Private Mortgage Insurance (PMI)

Insurance that covers the difference between the property value and the loan amount in case of default.

Fully amortized

Payments that will pay off the outstanding indebtedness by the time the loan matures.

Amortization

Gradual extinction of a debt, principal and interest by sequence of equal periodic payments or installment payments due at the ends of equal intervals of time.

Amortization schedule

A table that shows how much is applied to reduce the principal and how much is paid for interest to show the outstanding balance after each payment period

Outstanding balance

The amount left to be paid at a certain payment interval.

Periodic Payment

The amount paid or deposited at every payment or deposit interval.

Conventional Mortgages

Originated by banks but not government guaranteed.

Insured Mortgages

Mortgages guaranteed by the government or government-controlled entities.

Fixed-Rate Mortgages

Interest rate and monthly payment remain constant.

Adjustable-Rate Mortgage (ARM)

Interest rate adjusts based on a market rate.

Graduated-Payment Mortgages (GPMs)

Mortgage with lower payments initially, rising over time.

Growing Equity Mortgage (GEM)

Mortgage where payments increase over time, reducing the principal quickly.

Shared Appreciation Mortgages (SAMs)

Lender lowers the interest rate in exchange for a share of appreciation in the real estate.

Equity Participating Mortgage (EPM)

An outside investor shares in the appreciation of the property.

Second Mortgages

Loans secured by the same real estate as the first mortgage.

Reverse Annuity Mortgages (RAMs)

Bank advances funds to the owner monthly, increasing the loan balance.

Derivatives

Financial instrument that derives its value from another asset or index.

Hedgers

Brokers and traders who avoid investing in tricky stocks which may give them either a huge profit or a huge loss, invest their money in derivative markets, in a bid to protect their portfolio.

Speculators

Risk-takers who seek large profits in the derivative market.

Margin

Minimum amount an investor pays the broker to trade derivatives.

Arbitrageurs

Traders who exploit market imperfections to profit from price differences.

Options

Contracts to buy or sell an asset at a specified price before a specified date, giving the right, but not the obligation.

Swaps

Agreements to exchange cash flows or other financial instruments over a set period.

Futures

Standardized contracts to buy or sell an asset at a future date and price.

Forward Contracts

Custom agreements to buy or sell an asset at a specified future date and price.

Hedging Risk

Using derivatives to reduce risk exposure.

Underlying Asset Price Determination

Using derivatives to determine the price of the underlying asset.

Counterparty Risk

The risk that the counterparty will default.

Foreign Bonds

Bonds sold in a foreign country and denominated in that country’s currency.

Eurocredits

Market for floating-rate bank loans tied to LIBOR.

LIBOR

Interest rate offered by the largest and strongest banks on large deposits

Eurobond Market

International bond sold in countries other than the one in whose money unit the bond is denominated.

International Capital Markets Association (ICMA)

Organization creating international standards for financial markets.

World Bank Group

Global partnership working for sustainable solutions that reduce poverty and build shared prosperity in developing countries.

Cryptocurrency

Digital asset based on a distributed network, existing outside government control.

Blockchains

Organizational methods for ensuring the integrity of transactional data.

Ethereum Classic

A version of the Ethereum blockchain. It runs smart contracts on a similar decentralized platform.