Lecture Notes: Financial Markets and Institutions

30 Vocabulary flashcards covering key terms and concepts from the lecture notes on financial markets and depository institutions.

Financial Asset

A liquid asset that represents ownership claim or contractual rights to future payments; examples include stocks, bonds, cash, CDs, and bank deposits.

Real Investments

Purchase of tangible assets with the expectation of income or appreciation; examples include real estate, collectibles, tangible assets, and businesses.

Valuation

Process of determining the fair value of a financial asset; value is the present value of expected cash flows.

Depository Institutions

Financial entities that accept deposits from individuals and businesses and use them to make loans and provide financial services.

Commercial Banks

The most common type of depository institution offering a wide range of financial services.

Savings and Loan Associations (S&Ls)

Thrift institutions focused on savings accounts and real estate loans.

Credit Unions

Non-profit, member-owned institutions offering financial services, often with higher deposit rates and lower loan rates.

Mutual Savings Banks

Depository institutions owned by depositors, primarily focused on savings and home mortgages.

Equity Capital

Minimum level of equity capital depository institutions must hold to absorb losses (includes common stock, preferred stock, retained earnings, and reserves).

Deposits

Primary funding source for banks, including demand deposits, savings accounts, and time deposits.

Interbank Loans

Short-term loans between banks to manage liquidity.

Securitization

Pooling of various types of debt and selling the consolidated debt as bonds or securities.

Reserve Requirements

Central Bank mandates requiring banks to hold a portion of deposits as reserves to meet withdrawal demands.

Reserve Ratio

Fraction of deposits that must be held in reserve; set by the central bank and can vary by deposit type.

Deposit Insurance

Protection of deposits by government agencies up to a limit (e.g., FDIC in the U.S., PDIC in the Philippines); premiums paid by depository institutions.

FDIC

Federal Deposit Insurance Corporation; U.S. agency that insures deposits up to a limit to prevent bank runs.

PDIC

Philippine Deposit Insurance Corporation; provides deposit insurance and supervises banks in the Philippines.

Bangko Sentral ng Pilipinas (BSP)

The central bank of the Philippines; regulates banks, maintains financial stability, conducts monetary policy, and oversees payment systems.

Securities and Exchange Commission (SEC)

Regulates non-bank financial institutions and market participants; oversees securities markets.

Investment Houses

Segment of banking that helps raise capital and provides financial consultancy; intermediaries between issuers and investors; roles include underwriting and asset management.

Underwriting

Process where an underwriter buys or guarantees sale of new securities in the primary market, earning a commission and managing risk.

Primary Market

Market for new securities issued to raise capital; underwriters set price ranges and oversee sales.

IPO (Initial Public Offering)

Example of a security issued on the primary market; private company goes public and sells shares to the public.

Underwriter

Financial institution that purchases unsold shares or guarantees sale of new issues; may earn commissions; may buy all unsold shares if needed.

Syndicate

Group formed to handle a bond or stock issue, typically consisting of large investment banks or institutional investors.

Direct Placement

Selling a new issue not publicly, but placing with institutional investors (private placement).

Direct to Consumer

Sales strategy where manufacturers sell directly to customers rather than through retailers or wholesalers.

Institutional Buyers

Pension funds, insurance companies, mutual funds, and hedge funds that purchase securities.

Market Making

Banks provide liquidity by buying and selling securities to facilitate trading.

Secondary Market

Market for trading previously issued securities among investors; provides liquidity and price discovery.