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