CAPITAL MARKET

ASSYMETRIC INFORMATION - occurs when buyers and sellers do not have PROFESSIONAL LIABILITY COVERAGE - insurance protects professional such
access to the same information. Sellers usually have more information than as doctor, financial advisor, nursing and so on against financial losses from
buyers, especially when the sellers produce or own the asset to be sold. lawsuit filed against them by their clients or patients.

CAMELS - rating aims to detemine a bank’s overall condition and identify its PUTABLE BONDS - can be turned in and exchanged for cash at the holder's
strengths and weaknesses financially, operationally, and managerially. option.
-each element is assigned a numerical rating based on the five key
components. REINVESTMENT RISK - arises as a result of interest rate/market price risk. It
is a risk that earnings from a financial asset need to be reinvested in lower-
C – Capital adequacy yielding assets or investment because interest rates have fallen or decreased.
A – Asset quality
M – Management
E – Earnings RISK - refer to chances that the outcome of an event is unfavorable or
L – Liquidity undesirable.
S – Sensitivity to risk ` - possibility that actual returns will deviate or differ from what is
expected. If you expect prices to go up and you buy securities, you are taking
CERTIFICATE OF PARTICIPATION - instrument that entitles the holder to a a risk because prices could go either up or down. If prices go up, you gain; if
proportionate equitable interest in the securities held by the issuing firm or prices go down, you lose.
an entitlement to a pro rata share in a pledge revenue stream, usually lease
payments.
RISK STRUCTURE - is the relationship of the interest rates on bonds with the
CORPORATE BONDS - Certificates of indebtedness issued by corporations same term to maturity. Embedded in the yields of risky securities is a
who need large amount of cash. premium to compensate for the risk that goes with the security, such as
market or interest rate risk, liquidity risk, default or credit risk, and the like.
DIRECT FINANCE - a borrower-lender is the typical direct finance relationship The magnitude of this premium varies widely among different securities in
or transaction, accordance with the risks involved with these different securities.
- a bank and a bank borrower are engaged in direct finance. Theoretically, this magnitude (spread) can be estimated by comparing the
- there is no need a financial intermediaries, yield on the risky security versus the yield on a similar risk-free security.

FINANCIAL INTERMEDIARIES - are the financial institutions that act as a SECURITIES BROKERS - are only compensated by means of commission.
bridge between investors or savers (surplus units or SUS) and borrowers or
security issuers (deficit units or DUs). SYSTEMATIC RISK - also called undiversifiable risk or market risk. Systematic
risk results from the general market and economic conditions that cannot be
GOVERNMENT BONDS - - issued by a national government and is diversified away.
denominated in the country own currency
TRANSACTION COST - all fees, commissions, and other charges paid when
buying and selling securities.
HOLDING PERIOD - is the time the investor holds the investment from the
time of acquisition to the time of sale generally prior to maturity. TRUST COMPANIES - as corporations organized for the purpose of accepting
and executing trusts and acting as trustee under wills, as executor, or as
guardian.
HOLDING PERIOD RETURN - rate of return measured for a given period
which can be in a month or in a year. UMBRELLA LIABILITY POLICY - is also special type of insurance that provides
coverage over and above one’s automobile or homeowner’s policy. Damages
INFLATION RISK - is the risk of increase in value of goods and services due to an accident or injuries sustained by somebody else on someone’s
reducing the purchasing power of money to purchase goods and services. property may exceed the limit set on one’s automobile or homeowner’s
property. This is the time an umbrella liability policy will kick in.
INTERNAL RATE OF RETURN - metric used in capital budgeting measuring
the profitability of potential investments. It is a discount rate that makes the UNSYSTEMATIC RISK - sometimes called divesifiable risk, residual risk, or
net present value (NPV) of all cash flows from a particular investment equal company-specific risk. This is the risk that is unique to a company such as a
to zero. In computing for the IRR of the investment, the present value of the strike, the outcome of unfavorable litigation, or a natural catastrophe.
expected cash flows is taken into account.
VARIANCE - is s measure of how spread out numbers era, that is how far
JUNK BONDS -speculative, below investment grade, high-yielding bonds. each value in the data set is from the mean.

LIFE INSURANCE - - are financial intermediaries that sell life insurance - is a measure of how close the scores in the data set are to the
policies. middle of the distribution.
- plovy holders pay regular insurance premiums. There premiums
are used to purchase investments so that they can pay cash as needed. VOLATILITY - is a basic measure for risks associated with a financial market’s
- they can provide protection over contracted period on term, instrument . It represents an assets price fluctuation and is accounted as the
which may be a year, 5 years, or for a lifetime. difference between maximum and minimum prices within trading session,
trading day, month, and the like.

LONG-TERM CARE INSURANCE - is defined as a need for assistance with WINDSTORM INSURANCE - is also a special type of insurance that protects
someone of the activities of daily living (often called ADLs). homeowners and business establishments from devastation caused by
- is designed to cover long term services and supports, including windstorms and hurricanes. It is special in the sense that homeowners and
personal and custodial care in variety of settings such as your home, adult business establishments need to secure additional coverage, either though a
day health centers, hospice care, respite care, assisted living facilities or separate policy of a rider to their existing homeowners or commercial
residential care facilities, or nursing homes. insurance policy.

MACRO - rating was used by the regulatory agencies to gauge credit standing YIELD CURVE - is a graphical representation of the term structure of interest
of banks: rate of a particular point in time.
M – Management
A – Asset quality INVERTED YIELD CURVE - means that short term rates are higher than long
C – Capital Adequacy term rates which can happen under certain market condition.
R – Risk management
O – Operating results

OFF-BALANCE-SHEET RISK - -Off-balance-sheet transactions are usually

engaged in by financial institutions. These transactions are those that do not
appear in the financial institutions balance sheet but represent transactions
that pose contingent assets or contingent liabilities on the financial
institution

PAWNSHOP - agencies where people and some small businesses "pawn"

their assets as collateral in exchange of an amount much smaller than the
value of the asset.

PORTFOLIO - is a collection of financial assets or investments such as stocks,

bonds and cash.