ECON 2035 Chapter 2

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Bond, Stock

A _______ is an example of a security and a _______ is an example of a equity

Negotiable Certificate of Deposit

A debt instrument sold by a commercial bank to its depositors that pays an annual interest of a given amount and at maturity pays back the original purchase price

a corporation

An investment bank helps ______ issue securities

municipal

Bonds issued by state and local governments

consumer loans

the primary assets of credit unions

Contractual savings

_______ institutions are financial intermediaries that acquire funds at periodic intervals on a contractual basis

deposits

the primary liabilities of a commercial bank

finance company

an investment intermediary that lends funds to consumers

asymmetric information

arises when one of the involved parties has better knowledge than the other

moral hazard

conflicts of interest are a type of ________

capital

equity instruments are traded in the ______ market

money market

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

depository institutions

institutions that accept deposits and make loans

Commercial Banks

issue savings, time and checkable deposits to acquire funds

federal funds

loans made by banks to each other

U.S. Treasury Bills

most liquid of all money market instruments, default-free

money market instruments

primary assets of a money market mutual fund

corporate bonds and stock

primary assets of a pension fund

deposits

primary liabilities of depository institutions

underwriting

process where an investment bank purchases securities from a corporation at a predetermined price then resells them in the market

increase info available to investors

purpose of SEC (Securities and Exchange Commission)

diversification

reducing risk through purchase of assets whose returns do not always move together

Commercial Paper

short-term debt instrument issued by well-known corporations

Repurchase agreements (repos)

short-term loans in which Treasury bills serve as collateral

Credit Untions

small cooperative lending institutions organized around a particular group, acquire funds from deposits called shares, primarily make consumer loans

Adverse Selection

where banks may give out loans to risky borrowers due to asymmetric information


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