Financial system > Related Articles
From Citizendium, the Citizens' Compendium
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Index
See the related articles subpage to the article on economics [1] for an index to topics referred to in the economics articles.
Parent articles
Subtopics
Related topics
Glossary
(For definitions not shown below, see the economics glossary [2])
- Adverse selection [r]: a partial market failure that occurs when there are traders who take advantage of asymmetric information, raising uncertainty and leading to a reduction in the value of its products. [e]
- Asymmetric information [r]: a situation in which a seller has information that is not available to potential buyers - or vice-versa. [e]
- Bill (finance) [r]: a document providing evidence of the indebtedness of one person to another (see also Treasury bill). [e]
- Bond (finance) [r]: a fixed-interest security issued by governments, companies, banks and others. [e]
- Bretton Woods [r]: an international conference held in 1944 at which the "Bretton Woods System" of fixed exchange rates was agreed and supporting international institutions were created. [e]
- Broker [r]: an individual or firm that acts as an intermediary between a buyer and seller in return for a commission. [e]
- Bubble (economics) [r]: A surge in prices that raises irrational expectations of further increases, so generating further increases, and so on: a process that continues until confidence falters, the bubble "bursts" and prices suddenly revert to a rationally-based level. [e]
- Capital adequacy ratio [r]: The ratio of a bank's capital to its assets. [e]
- Carry trading [r]: the practice of borrowing at a low interest rate in order to invest at a higher interest rate, or of selling the currency of a country that has low interest rates and buying the currency of a country that has high interest rates. [e]
- CDS [r]: Credit-Default Swap. An insurance agreement that guarantees protection against a bond default in return for a fee. [e]
- CDS spread [r]: the annual percentage charge for a credit default swap (unlike a yield spread, not the excess over a risk-free rate - unless so stated) [e]
- Central Bank [r]: A government agency that is responsible for monetary policy and the support of the banking system (for example the Federal Reserve Bank and the Bank of England). Usually responsible for controlling a country's monetary policy and preserving the value of its currency. [e]
- Complex interactive system [r]: a system that is both interactive in the sense that an event in one of its components can have significant repercussions in many other components; and complex in the sense of being able to exist in more states than can be enumerated. [e]
- Commercial paper [r]: unsecured debt instruments that are issued by corporations to meet short term financing needs (usually repayable after 3 months). [e]
- Contracyclical regulation [r]: a policy of raising banks' statutory minimum capital asset ratios when asset prices are rising and relaxing them when asset prices are falling. [e]
- Credit crunch [r]: the failure of the banking system to satisfy the economy's need for credit. [e]
- Credit risk [r]: the risk that the value of a loan-based security will fall as a result of defaults on the part of borrowers. [e]
- Dark pool [r]: An electronic trading system that does not publish trading prices. [e]
- Debt_instrument [r]: a formal obligation assumed by a borrower to replay the lender in accordance with the terms of an agreement. Debt instruments include bonds, debentures, promissory notes, leases and mortgages. [e]
- Deflation [r]: a persistent sequence of reductions in the general level of prices. [e]
- Derivative [r]: In finance, an asset whose agreed value depends upon the expected value of another asset. A typical example is a futures contract which is an undertaking to buy a stipulated asset at a stipulated price at a stipulated future time. Other examples are options and futures contracts. Some derivatives can be used for hedging against risk. [e]
- Direct investment [r]: investment in a company's foreign operations. [e]
- Discount_rate [r]: (i) The percentage by which the current value of an asset (to a person or to a commercial organisation) exceeds its value in a year's time. For a person, it is equal to that person’s marginal rate of substitution between consumption in the two successive years. For a financial asset it is the ruling risk-free interest rate. For a commercial organisation, it is equal to that organisation’s cost of capital. (ii) The rate at which banks may borrow at their central bank's discount window. [e]
- Efficient market hypothesis [r]: the hypothesis that all of the information that is relevant to the value of a quoted financial asset is already embodied in its stock exchange price. [e]
- Feedback [r]: a characteristic of a system such that an output affects the agent that produces it in such a way as to increase that agent's output (positive feedback), or decrease it (negative feedback). [e]
- Financial_Intermediary [r]: A go-between organisation that obtains finance from investors (or savers) and lends it to corporations (or other borrowers). Financial intermediaries include banks, building societies (or savings and loans associations) , life insurance companies and credit unions. [e]
- Financial_regulator [r]: The United States Securities and Exchange Commission gives as its mission "to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation". Financial regulators in other countries have similar responsibilities. [e]
- Haircut (finance) [r]: the difference in a repo transaction between the market value and the value to be repaid. [e]
- Hedging [r]: Protecting against price changes by simultaneously buying(/selling) an asset and making a futures contract to sell(/buy) it. [e]
- Hedge fund [r]: a limited-membership, agressively-managed investment fund, often escaping regulation. [e]
- Herding (banking) [r]: A tendency to base decisions upon the actions of others - on the part of bankers, depositors or investors see also Panic (banking). [e]
- Interest rate risk [r]: The risk that the value of a fixed-rate security or loan will fall as a result of a rise in interest rates. [e]
- Lender of last resort [r]: An institution, that is prepared to lend money to any solvent bank that encounters a serious liquidity risk, or a threatened bank run. (The term is not applicable to financial assistance to avert insolvency). [e]
- Leverage [r]: The use of debt to make investments. The ratio of a company's debt to its capital assets. (the same as British "gearing") [e]
- LIBOR [r]: (London Interbank Offer Rate) the rate of interest at which a group of banks (16 banks from seven countries, including the United States, Switzerland and Germany) are willing to lend to each other for periods ranging from a day to a year . [e]
- Liquidity [r]: The quantity of available assets in its possession that an organisation could rapidly exchange for cash (assets that cannot be exchanged for cash at a particular time are considered to be "illiquid" at that time). [e]
- Liquidity risk [r]: the risk that assets cannot be sold at time when cash is needed to meet a commitment. [e]
- Liquidity spiral [r]: a situation in which falling asset prices can prompt banks to reduce the supply of credit, causing further falls in asset prices. [e]
- Margin account [r]: an arrangement that enables customers to buy securities with money borrowed from a broker, subject to a minimum maintenance level related to the market values of the securities. [e]
- Margin call [r]: a demand for the additional securities required to maintain the minimum maintenance level of a margin account when security prices fall. [e]
- Market risk [r]: The risk that the value of an investment in a financial product will fall as a result of a fall in the market for thae product. [e]
- Mark to market [r]: the accounting convention that values a security at its current market price. [e]
- Money market [r]: a market for short-term debt instruments (generally of maturity after less than one year) such as certificates of deposit, commercial paper, and Treasury bills. [e]
- Moral hazard [r]: Motivation to take an otherwise unwarranted risk because the cost of an unfavourable outcome would be borne by someone other than the risk-taker. [e]
- Option [r]: A right, but not an obligation, to buy (or to sell) an asset, usually at a stipulated price (termed the "exercise price") and at a stipulated time. An option to buy is called a "call option" and an option to sell is called a "put option". [e]
- Panic (banking) [r]: a self-fulfilling fear of default. [e]
- Pareto-efficient [r]: An optimum situation in which it would be impossible to make anybody feel better-off without making somebody feel worse-off (see economic efficiency). [e]
- Perfect competition [r]: The property of a hypothetical market in which no producer or consumer has the power to influence prices, each producer and each consumer acts independently, all products have identical qualities that are known to everybody, and there are no barriers to entry (see competition). [e]
- Portfolio [r]: in finance, a managed collection of securities. [e]
- Portfolio insurance [r]: A way of protecting a portfolio against market risk by selling short on the share index futures exchange, or by buying put options on the share index. [e]
- Repo [r]: (repurchase agreement) an agreement made at the same time as the sale of an asset, to repurchase the asset at a specified price on a given date (the equivalent of taking out a loan and using the asset as collateral). [e]
- Securitisation [r]: the conversion of a cash flow into a marketable security (usually the offer for sale of claims upon debt repayments, and often categorised according to the expected risk of default. Examples include colateralised debt obligations (CDOs) and structured investment vehicles (SIVs).) [e]
- Selling short [r]: Selling borrowed stock in the expectation that its price will fall, and with the intention of subsequently buying it back and returning it. [e]
- Sovereign spread [r]: the CDS spread on a government's bonds. [e]
- Spread see Yield spread
- Sovereign wealth fund [r]: a government investment vehicle that invests in foreign currency-denominated assets, and whose management is distinct from that of official reserves. [e]
- Structured investment vehicle [r]: (SIV) a fund that borrows money - usually at LIBOR rates - by the issue of asset-backed commercial paper and uses it to finance longer term loans at higher interest rates. [e]
- Subprime lending [r]: Lending at interest rates above the prime rate because of an above-minimal risk of default. [e]
- Swap contract [r]: An agreement to exchange financial obligations between two organisations with complementary needs, for example an agreement to swap fixed interest obligations for variable interest obligations. [e]
- Tight coupling [r]: a characteristic of a system such that a malfunction of one component leads to significant malfunctions of other components. [e]
- Wholesale banking [r]: transactions other than those with a bank's retail customers. Includes trading in derivatives and in the interbank markets, stock markets and foreign exchange markets. [e]
- Yield spread [r]: the difference between the annual percentage yield on an asset and a notionally risk-free rate such as the rate on US Treasury bonds (but see CDS spread). [e]
