Money and Banking Ch 2

Eurobond

bond denominated in a currency other than that of the country in which it is held

Exchanges

borrowers and sellers of securities meet in one central location to conduct trade

Over-the-Counter Market

dealers at different locations who have an inventory of securities stand ready to buy and sell securities "over the counter" to anyone willing to accept the prices to pay

Liquidity

easier and quicker to sell

Primary Market

financial market in which new issues of security, such as bonds or stock, are sold to initial buyers by the corporation or government agency borrowing the funds

Money Market

financial market in which only short-term debt instruments are traded

Secondary Market

financial markets in which securities that have been previously issued can be resold

Diversification

investing in a collection(portfolio) of assets whose returns do not always move together

Capital Market

market in which long-term debt and equity instruments are traded

Intermediate-term Bonds

maturity is between 1 and 10 years

Short-term Bonds

maturity is less than a year

Long-term Bonds

maturity is longer than 10 years

Maturity

number of years until instrument's expiration date

Financial Intermediation

primary route for moving funds from lenders to borrowers

Transaction Costs

time and money spent in carrying out financial transactions

Risk

uncertainty about the returns investors will earn on assets

Liabilities

(IOU or debts) are for the individual or firm that sells them

Equitites

(common stock) claims to share in the net income (income after expenses and taxes) and the assets of a business.

Risk Sharing

Financial intermediaries create and sell assets with risk characteristics that people are comfortable with and the intermediaries then use the funds they acquire by selling these assets to purchase other assets that may have more risk