Financial Assets
Anything that has value
What is an asset?
A situation in which the outcome is unknown, but it is possible to form expectations about the outcome because the probability distribution is known.
What is a risky situation?
The three types of financial risk.
What are investment risk, funding risk, and systemic risk?
Who the ultimate bearer of risk in the financial system is.
What are households?
The three types of institutional investors.
What are insurance companies, pension funds, and collective investment vehicles?
A financial asset that provides a stream of fixed payments
What is a debt instrument?
A situation in which the both the outcome and the probability distribution of possible outcomes are unknown.
What is an uncertain situation?
The risk of an investment losing value because the prices of all goods and services rise.
What is inflation risk?
Most of the organizations who still have defined benefit pension systems.
What are governments?
Institutional investors who pool money and invest it in start-up businesses.
What are venture capital firms?
A financial asset that provides a residual claim on assets after the debt is repaid.
What is an equity claim?
Risk that is diversifiable.
What is idiosyncratic risk?
The type of price risk that you face if you are short the asset.
What is the risk of the price rising?
The market players who conduct transactions (buy and sell financial assets) on behalf of their clients.
Who are securities brokers and dealers?
Transforming assets purchased in the market into a new, more preferred type of asset.
What is financial intermediation?
How easy it is to convert an asset to cash.
What is liquidity?
What you have done if you take out an insurance policy with a 0% deductible.
What is transfer the risk?
The leverage multiplier if you buy a house using a mortgage and you make a 20% down payment.
What is 5?
Financial market participants who take deposits and use those deposits to make investments, often (but not always) in the form of loans.
What are depository institutions?
Borrowing short and using the borrowed funds to make longer-term investments.
What is maturity intermediation?
The ability of an asset to act as a medium of exchange.
What is moneyness?
What you have done if you build your house on stilts to protect it from flooding.
What is neutralize the risk?
The risk of the entire financial system collapsing or failing.
What is systemic risk?
Financial market participants who sell stocks and/or bond to finance business activities.
What are non-financial corporations?
The type of retirement benefit that the Thrift Savings Plan (TSP) is.
What is a defined contribution plan?