Glossary – Financial Markets & Institutions
A bank's borrowings from the Federal Reserve System. Also known as discount loans. adverse selection
The problem created by asymmetric information before a transaction occurs: the people who are the most undesirable from the other party's point of view are the ones who are most likely to want to engage in the financial transaction. agency theory
The analysis of how asymmetric information problems affect economic behavior. American depository receipts (ADR)
A receipt for foreign stocks held by a trustee. The receipts trade on U.S. stock exchanges instead of the actual stock. American option
An option that can be exercised at any time up to the expiration date of the contract. amortized
Paid off in stages over a period of time. Each payment on a loan consists of the accrued interest and an amount that is applied to repay the principal. When all of the payments have been made, the loan is paid off (fully amortized). anchor currency
The currency to which a coutry fixes its exchange rate.
An insurance product that provides a fixed stream of payments. appreciation
Increase in a currency's value.
Elimination of a riskless profit opportunity in a market.
A financial claim or piece of property that is a store of value. asset management
The acquisition of assets that have a low rate of default and diversification of asset holdings to increase profits. asset market approach
Determining asset prices using stocks of assets rather than flows. asset transformation
The process by which financial intermediaries turn ricky assets into safer assets for investors by creating and selling assets with risk characteristics that people are comfortable with and then use the funds they acquire by selling these assets to purchase other assets that may have far more risk. asymmetric information
The inequality of knowledge that each party to a transaction has about the other party. audits
Certification by accounting firms that a business is adhering to standard accounting principles. automated banking machine (ABM)
An electronic machine that combines in one location an ATM, an Internet connection to the bank's Web site, and a telephone link to customer service. automated teller machine (ATM)
An electronic machine that allows customers to get cash, make deposits, transfer funds from one account to another, and check balances. B
balance of payments
A bookkeeping system for recording all payments that have a direct bearing on the movement of funds between a country and all other countries. balance-of-payments crisis
A foreign exchange crisis stemming from problems in a country's balance of payments. balance sheet
A list of the assets and liabilities of a bank (or firm) that balances: total assets equal total liabilities plus capital. balloon loan
A loan on which the payments do not fully pay off the principal balance, meaning that the final payment must be larger than the rest. bank failure
A situation in which a bank cannot satisfy its obligations to pay its depositors and other creditors and thus goes out of business. bank holding companies
Companies that own one or more banks.
The simultaneous failure of many banks, as during a financial crisis. bank supervision
Overseeing who operates banks and how they are operated.
A short-term promissory note drawn by a company to pay for goods on which a bank guarantees payment at maturity. Usually used in international trade. banks
Financial institutions that accept deposits and make loans (such as commercial banks, savings and loan associations, and credit unions). Basel Accord
An agreement that requires that banks hold as capital at least 8% of their risk-weighted assets. Basel Committee on Banking Supervision
A committee that meets under the auspices of the Bank for...
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