ECON 2035 Chapter 2
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