Overview of Financial Markets and Securities

Community Depository Institution Advisory Council

12 members from savings banks; meets biannually.

Community Advisory Council

15 members focus on low-income financial needs; meets biannually.

Risk Premium

Additional yield required for higher credit risk.

Credit Ratings

Assess issuer's creditworthiness and default risk.

Robo-advisor

Automated investment service using algorithms.

Algorithmic Trading

Automated trading using algorithms for efficiency.

Member Banks

Banks that are part of the Federal Reserve System.

Federal Reserve

Central bank responsible for monetary policy in the U.S.

Aggregate Supply of Funds

Combined supply from all sectors and Fed policy.

Integration of Theories

Combines expectations, liquidity, and segmented market theories.

Federal Open Market Committee

Committee that manages U.S. monetary policy.

Beige Book

Consolidated report on regional economic conditions.

Derivative Securities

Contracts deriving value from underlying assets.

Interest Rate

Cost of borrowing money expressed as a percentage.

M1 Money Supply

Currency and demand deposits; most liquid form.

Jerome Powell

Current Chair of the Federal Reserve.

Mortgage-Backed Securities

Debt obligations backed by a pool of mortgages.

Bonds

Debt securities requiring repayment at maturity.

Blockchain Technology

Decentralized ledger for secure financial transactions.

Foreign Demand for Loanable Funds

Depends on interest rate differentials between countries.

Tax Status

Determines if bond yields are taxable or tax-exempt.

Commercial Banks

Dominant depository institutions facilitating loans.

Liquidity

Ease of selling securities without losing value.

NASDAQ

Electronic market primarily for technology stocks.

Rating Agencies

Evaluate and assign credit ratings to securities.

Crowding Out Effect

Excessive government demand reduces private fund demand.

Liquidity Premium

Extra yield demanded for less liquid securities.

Financial Institutions (FI)

Facilitate funds flow from surplus to deficit units.

Monetary Policy

Fed's actions affecting money supply and interest rates.

Open Market Operations (OMO)

Fed's buying/selling of securities to influence rates.

Overnight Reverse Repurchase Agreement (ON RRP)

Fed's tool to manage short-term interest rates.

FOMC

Federal Open Market Committee; meets eight times yearly.

Securities

Financial assets representing ownership or debt claims.

Money Markets

Financial markets for short-term liquid assets.

Insurance Companies

Firms investing premiums to manage risk and returns.

Prime Brokers

Firms providing liquidity and leverage in trading.

Forward Rate Formula

Formula to calculate future interest rates.

Pension Funds

Funds managing retirement savings until withdrawal.

Foreign Exchange Market

Global market for currency exchange transactions.

Soft Landing

Gradual economic slowdown without recession.

Yield Curve

Graph showing relationship between interest rates and maturities.

Household Demand for Loanable Funds

Higher demand when interest rates are lower.

Default Risk Premium

Higher yield required for securities with default risk.

Supply of Loanable Funds

Households are the largest suppliers of funds.

M2 Money Supply

Includes M1 plus savings accounts and small deposits.

M3 Money Supply

Includes M2 plus large time deposits and institutional funds.

After-Tax Income

Income remaining after taxes are deducted.

Economic Growth

Increase in the production of goods and services.

Inflation Impact on Interest Rates

Increases demand for funds while decreasing supply.

Economic Conditions

Influence stock market performance and investor behavior.

Government Demand for Loanable Funds

Insensitive to interest rates; relies on expenditures.

Debt Securities

Instruments representing borrowed funds to be repaid.

Equity Securities

Instruments representing ownership in a company.

Dynamic Open Market Operations

Intended to have lasting economic impact.

Discount Rate

Interest rate Fed charges banks for emergency loans.

Federal Funds Rate (FFR)

Interest rate banks charge each other for loans.

Pure Expectations Theory

Interest rates determined by future rate expectations.

Loanable Funds Theory

Interest rates determined by supply and demand for funds.

Mutual Funds

Investment vehicles pooling funds to buy securities.

Segmented Markets Theory

Investors choose securities based on cash needs.

Liquidity Premium Theory

Investors prefer liquid securities, affecting yield curves.

Securities Act of 1933

Law ensuring full disclosure of financial information.

Securitized Loans

Loans converted into tradable financial instruments.

Stable Prices

Maintaining low inflation and price stability.

Federal Funds Market

Market for interbank lending of reserves.

Secondary Market

Market for trading existing securities among investors.

Primary Market

Market where new securities are issued and sold.

Active Secondary Market

Market where securities are frequently traded post-issuance.

Financial Market

Marketplace for buying and selling financial assets.

Capital Markets

Markets for long-term securities transactions.

Reserve Requirements

Minimum reserves banks must hold against deposits.

Credit Unions

Non-profit financial cooperatives serving members.

Board of Governors

Oversees the Federal Reserve, consisting of six members.

Deficit Units

Participants needing funds beyond their income.

Surplus Units

Participants with excess funds available for investment.

Equilibrium Interest Rate

Point where supply and demand for funds meet.

Behavioral Finance

Psychological factors influencing financial decision-making.

Interest on Reserves Balance (IORB)

Rate banks earn for holding reserves at the Fed.

Tax Leakage

Reduction in returns due to taxation.

Consumer Financial Protection Bureau

Regulates financial products post-2010 Financial Reform Act.

Sarbanes-Oxley Act of 2002

Regulation mandating accurate financial reporting.

Office of Credit Ratings

Regulatory body established by the Financial Reform Act.

Term Structure of Interest Rates

Relationship between maturity terms and yields.

Federal Advisory Council

Represents banking industry; meets with governors quarterly.

Financial Assets

Resources with economic value owned by individuals or firms.

Yield

Return on investment expressed as a percentage.

Credit Risk

Risk of issuer defaulting on debt obligations.

Economic Growth Impact

Shifts demand for loanable funds outward.

Defensive Open Market Operations

Short-term adjustments to stabilize the economy.

Money Market Securities

Short-term debt securities with high liquidity.

T-bills

Short-term government securities with maturities under one year.

Inverted Yield Curve

Short-term rates exceed long-term rates, indicating recession.

Systemic Risk

Spread of financial problems causing market collapse.

FOMC Statement

Summarizes conclusions of FOMC meetings.

Fintech

Technology that enhances financial services and transactions.

Term to Maturity

Time remaining until a debt security's principal is repaid.

Regulatory Technology (RegTech)

Tools for automating regulatory compliance processes.

Aggregate Demand for Loanable Funds

Total demand from all sectors at given interest rates.

District Banks

Twelve regional banks under the Federal Reserve System.

Interest Rate Fluctuations

Variations in interest rates over time.