FIN 360 EXAM STUDY GUIDE
accrued interest - Answers - Interest accumulated on a bond since the last interest
payment.
actuarial probabilities - Answers - Calculations of life expectancy based on past
experience with respect to age, gender, and similar factors.
adjustable rate mortgage - Answers - A mortgage in which the interest rate and
payments change periodically during the life of the loan.
adverse selection - Answers - A problem of asymmetric information that occurs, in the
case of a debt contract, at the origination stage because lenders can not differentiate
between high and low quality borrowers.
aggregate demand (supply) - Answers - The total amount of goods and services
demanded (supplied) in the economy.
allocational efficiency - Answers - The tendency of market prices to reflect all
information affecting the underlying value of securities.
amortize - Answers - To pay off the principal of an indebtedness, along with the
interest, during the life of a loan.
angel financing - Answers - Financing provided by high net worth individuals (called
"angels") who invest in the equity of start-up (new) companies.
annual return - Answers - Value of an investment and its proceeds at the end of one
year, less the value at the beginning divided by value at the beginning. See also total
return and yield to maturity.
annuity - Answers - A contract to pay an amount of funds in the future in a series of
periodic payments.
appreciate - Answers - To increase in value, especially referring to foreign currency.
arbitrageur - Answers - One who engages in arbitrage, or buying something in one
market and simultaneously selling it at a profit in another market.
asked price - Answers - The price a dealer charges when selling to the public.
asset - Answers - An item owned that has value; an item on a balance sheet showing
the value of property owned or receivable.
assumption method - Answers - A procedure, used in cases of bank failure, in which
the failed bank is merged with a healthy one.
,asymmetric information - Answers - A situation that occurs in any type of contracting
when the seller has more information than the buyer.
auction market - Answers - A market where buyers and sellers bargain directly with
each other.
automated clearinghouse (ACH) - Answers - An electronic system for making regular
payments or receiving regular credits.
automated teller machine (ATM) - Answers - A card-operated facility for making bank
deposits and withdrawals.
autonomous spending changes - Answers - Changes in spending that are independent
of GDP.
balance of payments (national) - Answers - A record of payments that one country
makes to and receives from all other foreign countries.
balance sheet - Answers - A summary statement of an individual's or a business's
financial condition on a given date.
bank - Answers - See commercial bank.
bank examination - Answers - An audit of the financial condition and overall safety and
soundness of a bank by its regulators.
bank failure - Answers - Situation in which a bank goes out of business because it
cannot meet its obligations. See also assumption method and payoff method.
bank holding company - Answers - A holding company that owns one or more banks
and possibly other (nonbank) subsidiaries.
banking-orientated system - Answers - A financial system such as Germany or Japan
in which the banking market is large relative to the stock and bond markets.
Bank Insurance Fund (BIF) - Answers - Fund, operated by the FDIC, that insures
deposits at commercial banks and most savings banks.
bank (or depository institutions) reserve equation - Answers - A formal statement of
factors affecting bank reserves: Fed assets minus all Fed liabilities and capital
accounts, other than those Fed liabilities that constitute bank reserves, plus Treasury
currency in bank vaults.
bank reserves - Answers - See reserves.
,basis point - Answers - One-hundredth of a percentage point (0.01 percent, or 0.0001).
Yields change by one basis point when interest rates go from 9.00 percent to 9.01
percent.
bear market - Answers - A financial market in which prices are falling.
bid price - Answers - The price a dealer will pay when buying from the public.
bid-asked spread - Answers - The difference between the price a dealer is willing to
pay for a security (bid price) and the price at which the dealer is willing to sell the
security (asked or offer price).
blue-chip stock - Answers - Stock of a high-quality corporation with a good record of
earnings and stability.
Board of Governors of the Federal Reserve System - Answers - Seven individuals
appointed by the President to run the central bank. See also Federal Reserve System.
bond - Answers - A liability issued by a government (government bond) or a business
(corporate bond) promising to pay the holder a fixed cash amount at a specified maturity
date and (usually) to make regular interest payments in the interim. See also municipal
bond and zero-coupon bond.
bond-anticipation notes (BANs) - Answers - Short-term municipal securities issued to
raise stopgap funds and paid off when long-term bonds are issued.
bond equivalent yield - Answers - See coupon equivalent yield.
Bretton Woods - Answers - The New Hampshire town where fixed exchange rates and
the International Monetary Fund were established by international agreement in 1944.
See also fixed exchange rates and International Monetary Fund.
broker - Answers - An institution (or individual) who arranges purchases and sales of
securities for the account of others and receives a commission on each transaction.
brokerage house - Answers - A financial institution that acts a broker; dealer, and
underwriter of securities. See also broker, dealer, and underwriting.
brokered market - Answers - A market where a person (or institution) called a broker is
employed to find the other side of the trade.
bubble - Answers - An event in which prices do not represent the intrinsic value of the
underlying asset and typically rise rapidly and then suddenly crash.
bull market - Answers - A financial market in which prices are rising.
, callable - Answers - See call provision.
call option - Answers - An option contract in which the option buyer has the right (but
not the obligation) to buy a specified quantity of the underlying asset at a specified price
until the expiration date of the option.
call provision - Answers - A stipulation in a bond that allows the bond issuer to pay off
part or all of the bond before the scheduled maturity date.
capital account - Answers - The account that represents all transactions between
domestic and foreign residents involving a change of asset ownership. A foreign
investor acquiring a domestic asset represents a domestic capital account surplus.
capital adequacy - Answers - The sufficiency of a bank's capital to protect the
depositors (and the FDICS) against losses.
capital gain - Answers - The difference between the price paid for an asset and the
higher price at which it is sold. If the selling price is lower than the purchase price, there
is a capital loss.
capital market - Answers - The market for stocks and long-term debt instruments.
captive finance companies - Answers - A finance company that is owned by a parent
company and whose principal activities are associated with financing the products sold
by its parent company.
cash-balance approach - Answers - A version of the quantity theory of money that
focuses on the demand for money. See also demand-for-money equation.
cash items in the process of collection - Answers - Checks drawn on one bank and
deposited in a second bank but not yet cleared.
caveat emptor et venditor - Answers - Buyer and seller beware.
central bank - Answers - A governmental "bank for banks," generally responsible for
national monetary policy. See also Federal Reserve System.
certificates of deposit (CD) - Answers - Deposits with specific maturities, also referred
to as time deposits.
checking (checkable) deposits - Answers - Accounts at a financing institutions
(checking accounts) that permit the account holder to transfer funds to a third party via a
check (an order to pay).
accrued interest - Answers - Interest accumulated on a bond since the last interest
payment.
actuarial probabilities - Answers - Calculations of life expectancy based on past
experience with respect to age, gender, and similar factors.
adjustable rate mortgage - Answers - A mortgage in which the interest rate and
payments change periodically during the life of the loan.
adverse selection - Answers - A problem of asymmetric information that occurs, in the
case of a debt contract, at the origination stage because lenders can not differentiate
between high and low quality borrowers.
aggregate demand (supply) - Answers - The total amount of goods and services
demanded (supplied) in the economy.
allocational efficiency - Answers - The tendency of market prices to reflect all
information affecting the underlying value of securities.
amortize - Answers - To pay off the principal of an indebtedness, along with the
interest, during the life of a loan.
angel financing - Answers - Financing provided by high net worth individuals (called
"angels") who invest in the equity of start-up (new) companies.
annual return - Answers - Value of an investment and its proceeds at the end of one
year, less the value at the beginning divided by value at the beginning. See also total
return and yield to maturity.
annuity - Answers - A contract to pay an amount of funds in the future in a series of
periodic payments.
appreciate - Answers - To increase in value, especially referring to foreign currency.
arbitrageur - Answers - One who engages in arbitrage, or buying something in one
market and simultaneously selling it at a profit in another market.
asked price - Answers - The price a dealer charges when selling to the public.
asset - Answers - An item owned that has value; an item on a balance sheet showing
the value of property owned or receivable.
assumption method - Answers - A procedure, used in cases of bank failure, in which
the failed bank is merged with a healthy one.
,asymmetric information - Answers - A situation that occurs in any type of contracting
when the seller has more information than the buyer.
auction market - Answers - A market where buyers and sellers bargain directly with
each other.
automated clearinghouse (ACH) - Answers - An electronic system for making regular
payments or receiving regular credits.
automated teller machine (ATM) - Answers - A card-operated facility for making bank
deposits and withdrawals.
autonomous spending changes - Answers - Changes in spending that are independent
of GDP.
balance of payments (national) - Answers - A record of payments that one country
makes to and receives from all other foreign countries.
balance sheet - Answers - A summary statement of an individual's or a business's
financial condition on a given date.
bank - Answers - See commercial bank.
bank examination - Answers - An audit of the financial condition and overall safety and
soundness of a bank by its regulators.
bank failure - Answers - Situation in which a bank goes out of business because it
cannot meet its obligations. See also assumption method and payoff method.
bank holding company - Answers - A holding company that owns one or more banks
and possibly other (nonbank) subsidiaries.
banking-orientated system - Answers - A financial system such as Germany or Japan
in which the banking market is large relative to the stock and bond markets.
Bank Insurance Fund (BIF) - Answers - Fund, operated by the FDIC, that insures
deposits at commercial banks and most savings banks.
bank (or depository institutions) reserve equation - Answers - A formal statement of
factors affecting bank reserves: Fed assets minus all Fed liabilities and capital
accounts, other than those Fed liabilities that constitute bank reserves, plus Treasury
currency in bank vaults.
bank reserves - Answers - See reserves.
,basis point - Answers - One-hundredth of a percentage point (0.01 percent, or 0.0001).
Yields change by one basis point when interest rates go from 9.00 percent to 9.01
percent.
bear market - Answers - A financial market in which prices are falling.
bid price - Answers - The price a dealer will pay when buying from the public.
bid-asked spread - Answers - The difference between the price a dealer is willing to
pay for a security (bid price) and the price at which the dealer is willing to sell the
security (asked or offer price).
blue-chip stock - Answers - Stock of a high-quality corporation with a good record of
earnings and stability.
Board of Governors of the Federal Reserve System - Answers - Seven individuals
appointed by the President to run the central bank. See also Federal Reserve System.
bond - Answers - A liability issued by a government (government bond) or a business
(corporate bond) promising to pay the holder a fixed cash amount at a specified maturity
date and (usually) to make regular interest payments in the interim. See also municipal
bond and zero-coupon bond.
bond-anticipation notes (BANs) - Answers - Short-term municipal securities issued to
raise stopgap funds and paid off when long-term bonds are issued.
bond equivalent yield - Answers - See coupon equivalent yield.
Bretton Woods - Answers - The New Hampshire town where fixed exchange rates and
the International Monetary Fund were established by international agreement in 1944.
See also fixed exchange rates and International Monetary Fund.
broker - Answers - An institution (or individual) who arranges purchases and sales of
securities for the account of others and receives a commission on each transaction.
brokerage house - Answers - A financial institution that acts a broker; dealer, and
underwriter of securities. See also broker, dealer, and underwriting.
brokered market - Answers - A market where a person (or institution) called a broker is
employed to find the other side of the trade.
bubble - Answers - An event in which prices do not represent the intrinsic value of the
underlying asset and typically rise rapidly and then suddenly crash.
bull market - Answers - A financial market in which prices are rising.
, callable - Answers - See call provision.
call option - Answers - An option contract in which the option buyer has the right (but
not the obligation) to buy a specified quantity of the underlying asset at a specified price
until the expiration date of the option.
call provision - Answers - A stipulation in a bond that allows the bond issuer to pay off
part or all of the bond before the scheduled maturity date.
capital account - Answers - The account that represents all transactions between
domestic and foreign residents involving a change of asset ownership. A foreign
investor acquiring a domestic asset represents a domestic capital account surplus.
capital adequacy - Answers - The sufficiency of a bank's capital to protect the
depositors (and the FDICS) against losses.
capital gain - Answers - The difference between the price paid for an asset and the
higher price at which it is sold. If the selling price is lower than the purchase price, there
is a capital loss.
capital market - Answers - The market for stocks and long-term debt instruments.
captive finance companies - Answers - A finance company that is owned by a parent
company and whose principal activities are associated with financing the products sold
by its parent company.
cash-balance approach - Answers - A version of the quantity theory of money that
focuses on the demand for money. See also demand-for-money equation.
cash items in the process of collection - Answers - Checks drawn on one bank and
deposited in a second bank but not yet cleared.
caveat emptor et venditor - Answers - Buyer and seller beware.
central bank - Answers - A governmental "bank for banks," generally responsible for
national monetary policy. See also Federal Reserve System.
certificates of deposit (CD) - Answers - Deposits with specific maturities, also referred
to as time deposits.
checking (checkable) deposits - Answers - Accounts at a financing institutions
(checking accounts) that permit the account holder to transfer funds to a third party via a
check (an order to pay).
