Essential Concepts in Banking`

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  • Created by: Fez_xx
  • Created on: 24-03-19 18:49
Financial Markets promote economic efficiency?
Channeling funds from savers to investors
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Well-functioning financial markets promote
growth
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The process of indirect finance using financial intermediaries is called
financial intermediation
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The price paid for the rental of borrowed funds (usually expressed as a percentage of the rental of $100 per year) is commonly referred to as the
interest rate
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Assume that you borrow $2000 at 10% annual interest to finance a new business project. For this loan to be profitable, the minimum amount this project must generate in annual earnings is
$201
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Securities are---for the person who buys them, but are --- for the individual or firm that issues them
assets;liabilities
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When an investment bank---securities, it guarantees a price for a corporation's securities and then sells them to the public
underwrites
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Secondary markets make financial instruments more
liquid
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A debt instrument sold by a bank to its depositors that pays annual interest of a given amount and at maturity pays back the original purchase price is called
a certificate of deposit
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A liquid asset is
an asset that can easily and quickly be sold to raise cash
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A financial market in which only short-term debt instruments are traded is called the --- market
money
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A debt instrument sold by a bank to its depositors that pays annual interest of a given amount and at maturity pays back the original purchase is called
a certificate of deposit
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A short-term debt instrument issued by well-knows corporations is called
commercial paper
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The primary liabilities of depository institutions are
deposits
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---- institutions are financial intermediaries that acquire funds at periodic intervals on a contractual basis
contractual savings
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Banks, savings and loan associations, mutual savings banks and credit unions
have been adept at innovating in response to changes in the regulatory environment
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The time and money spent in carrying out financial transactions are called
transaction costs
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Reducing risk through the purchase of assets whose returns do not always move together
diversification
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Banks can lower the cost of information production by applying one information resource to many different services. This process is called
economies of scope
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A Financial crisis is
a major disruption in the financial markets
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The primary purpose of deposit insurance is
prevent banking panics
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When DGAP > 0 what are the possible solutions to reduce interest risk?
Shortening asset duration e.g. buy short term securities and sell long-term securities
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Another possible solution for when DGAP>0?
Lengthening liability durations e.g. issue longer term CD's, obtain more core transactions accounts from stable sources
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When DGAP <0, what are the possible solution to reduce interest rates?
lengthening asset durations (e.g. sell short-term securities and buy long-term securities…)
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Another solution for when DGAP<0 ?
shortening liability durations (e.g. issue shorter-term CDs, use short-term purchased liability funding from federal funds and repurchase agreements…)
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Other cards in this set

Card 2

Front

Well-functioning financial markets promote

Back

growth

Card 3

Front

The process of indirect finance using financial intermediaries is called

Back

Preview of the front of card 3

Card 4

Front

The price paid for the rental of borrowed funds (usually expressed as a percentage of the rental of $100 per year) is commonly referred to as the

Back

Preview of the front of card 4

Card 5

Front

Assume that you borrow $2000 at 10% annual interest to finance a new business project. For this loan to be profitable, the minimum amount this project must generate in annual earnings is

Back

Preview of the front of card 5
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