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Unformatted text preview: Brennan Turner PC 09 Midterm #1: Page 1 Midterm #2: Page 27 Rest of Semester: Page 51 Foundations of Financial Institutions & Markets Vocabulary + Key Points Chapter 1: Introduction Asset Broadly speaking, any possession that has value in an exchange Call Option An option that grants the owner of the option the right to buy a financial asset from the other party (the writer) at a specified price (the strike price) Capital Market The financial market for equity instruments, and for debt instruments with a maturity greater than one year Debt Instrument The claim that the holder of a financial asset has that is a fixed dollar amount. E.g. Loans and bonds Default/Credit Risk The risk that the issuer or borrower will default on its obligation Derivative Instrument a contract that gives the contract holder either the obligation or the choice to buy or sell a financial asset at some future time. E.g. Options and futures Domestic Market A classification of the global financial market. Its the financial market of a country where issuers domiciled in the country issue securities and where those securities are subsequently traded. Its the part of the internal/national market. Equity Instrument/Residual Claim A financial asset in which the issuer agrees to pay the holder an amount based on earnings, if any, after holders of debt instruments have been paid. E.g. common stock. External/international/offshore/Euro Market Classification of the global financial market. This financial market includes securities with the following distinguishable features: 1. at issuance they are offered simultaneously to investors in a number of countries, and 2. they are issued outside the jurisdiction of any single country. Financial/intangible Asset An asset that represents a legal claim to some future benefit. The terms financial asset, financial instrument, & security are used interchangeably. Financial Market A market where financial assets are exchanged (traded). Fixed-income Instrument Debt instruments and preferred stock that pay a fixed dollar amount. Foreign-Exchange Risk The risk of an adverse foreign exchange rate movement. Foreign Market A classification of the global financial market. Its the financial market of a country where the securities of issuers not domiciled in the country are sold and traded. Its part o the internal/national market. Information Costs Costs associated with assessing the value of a financial asset Internal/National Market A classification of a global financial market, composed of 2 parts: the domestic market and the foreign market. Money Market The financial market for short-term debt instruments....
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- Spring '08