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10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | is associated with a particular borrower and the risk of that borrow's project. FIs protect themselves against firm-specific credit risk by diversifying their assets | Firm specific credit risks | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | is associated with general economic conditions that affect all borrowers worldwide. - Asset diversification does not reduce systematice credit risk. | Systematic Credit risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | is the risk that sudden w/d might force teh FI to liquidate assets quickly at low prices. - they contribute to liquidity risks by limiting their cash holdings | FI's Liquidity Rish | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | by losing confidence in the bank or by experiencing unexpected needs for cash | FI's liability holders can create liquidity risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | when all or many liability holders w/d their funds at the same time, often resulting in the bank's failure | a run on a FI occurs | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | the risk that the FI mismatced assets and liabilities will produce and demand different rates of return. - interest rates are affected by teh Feds monetary policy and by the increased level of financial market integration, which increases the swpeed of interest rate changes and transfers interest rate volatility among ... | FIs interest rate risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | 1. Refinance risk 2. reinvestment risk 3. present-value uncertainty | 3 types of interest rate risks | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | a FI loses money when it holds assets with longer maturities than its liabilities' maturities, adn the interest rate INCREASES - when the FI refi's its liabilities, the higher interes rate will cost the FI money | refinance risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | a FI loses money when it holds assets with shorter maturities than its liabilities' maturities and the interest rate DECREASES - when the FI reinvests in new assets the lower interest rate will cost the FI money | Reinvestment risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | - interest rate fluctuations change the present value of future cash flows associtiated with both assets and liabilities - when the FI holds assets with longer maturities than its liabilities maturities an increas in interest rates reduces teh present values of the FIs assets by a larger amount than it does the present... | Present-value risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | the risk that changing interest rates, exchange rates, and other prices will affect the trading prices of assets and liabilites - a FI that actively trades in securities faces the risk that trading prices will change downward unexpectedly costing the FI money | FIs Market risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | is the risk that activities related to contingent assets and liabilities will cause the FI to lose money | FIs Off Balance Sheet Risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | 1. letter of credit (an insurer's or bank's guarantee to make some payment upon the occurrence of a future even -- usually the default of the buyer of the letter) entails that the issue will have to make the promised payment 2. loan commitments 3. mortgage services 4. positions in derivative securities | FIs off balance sheet activities | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | the risk that changing exchange rates will affect the value of foreign-denominated assets and liabilities - A FI is exposed due to activities such as trading in foreign currencies, making foreign currency loans, buying foreign issued securities of issuing foreign currencies | Foreign Exchange Risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | the risk that a foregn gov't will interfere with repayments by that country's foreign borrowers. - Businesses that lend US dollar denominated money to foreign borrowers avoid currency risk but no soverign risk - when foreign borrowers default on a loan due to governmental intereference, FIs usually have little recourse... | Country or Sovereign risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | the risk that technological investments will not produce their expected cost savings - sometimes occurs through diseconomies of scale such as excess capacity, redundancies and bureaucratic inefficiencies that worsen as the FI grows - impairs the FIs efficiency and ability to compete | Technology risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | the risk that existing technological systems will break down - a specialized form of technology risl - the trend toward computer based and other electronic based systems since the mid 70s has increase the operation risk in the financial sector exponentially | operational risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | the fisk that a FI might lack enough capital to offset a sudden decline in the value of its assets - a FI become insolvent when its owners' equity approaches or equals zero - regulators like FIs to have low leverage because low leverage increases their ability to withstand decline in asset values. | Insolvency risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | 1. changes in taxation 2. changes in regulations 3. stock market crashes 4. major political events (wars, revolution) 5. crimes against the FIs 6. general macroeconomic changes (changes in inflation rate and/or the unemployment ratio) | What outside factors can affect FI's risks | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | 1. Liability side liquidity risk 2. Asset side liquidity risk | 2 types of liquidity risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | liability holders might w/d their financial claims (deposits) creating a need for cash | Liability side liquidity risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | are particulary prone to w/d which is why depository institutions have a high liquidity risk exposure. - demand deposits are composed of core deposits and the net deposits drain | Demand deposits accounts | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | are rarely w/d providing a stable long term source of funds | Core deposits | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | is the amount by which deposit w/d exceed deposit additions. - because there are always core deposits, a bank does not need to be prepared to convert all of its demand deposits into cash every day | The net deposit drain | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | savings accounts - they are less prone to w/d | Time deposit accounts | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | is the withdrawing funds from banks to then reinvest them elsewhere to earn higher interest rates | Disintermediation | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | holders of off balance sheet commitments might excercise those commitments converting them into assets that must then be balanced by add'l liabilities | Asset side liquidity risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | - cash raised through money market, either by borrowing funds from federal fund market or the repo agreement market or by issuing CDs, notes, or bonds | Purchased liquidity | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | only affects balance sheet liabilities, it doesn't affect the asset side of the balance sheet. Therefore, the business can maintain its current size while still raising cash. | purchased liquidity - ADVANTAGES | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | are not covered by deposit insurance - can be expensive because the buyer must pay the market interst rates for funds | purchased liquidity - DISADVANTAGES | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | cash raised through cash reserves adn the sale of assets | Stored liquidity | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | is less expensive than purchased liquidity | Stored liquidity - ADVANTAGES | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | the cost of stored liquidity is the opportunity cost of not investing stored cash in interest bearing assets - when used, it decreases the bank's assets | Stored liquidity - DISADVANTAGES | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | 1. Net liquidity statement 2. Maturity ladder 3. Peer group ratio comparisons 4. Liquidity index 5. Financing gap | 5 measures of liquidity | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | lists sources and uses of liquidity, and thus provides a general measure of liquidity | Net Liquidity statement | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | compares cash inflows and outflows on a daily basis and/or over a longer period to determine daily and cummulative net funding needs. - a bank with a short term funding might use a 5 day maturity ladder - a bank with less dependency on short term funding might measure liquidity over a longer period | Maturity ladder | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | compare the banks dey rations to those of similar banks | Peer group ration comparisions | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | heavy reliance on the short term money market | high loans/deposits ratio and/or high borrowed funds/ total assets ration indicates... | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | a need for high liquidity | A high commitments-to-lend/ assets ratio indicates.... | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | compares fire-sale asset prices and fair market prices to measure the potential loss from a sudden sale of assets at fire sale prices. | Liquidity index | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | equals average loans minus core deposits - if the gap is positive, the bank must liquidated assets or borrow funds to bridge the gap | financing gap | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | the financing gap plus liquid assets - the amount must borrow to finish bridging the financing gap once liquid assets have been exhausted - widening financing gap indicates future liquidity problems, and may be caused by increase deposits w/d and/or increased exercise of loan commitments - as a bank increases its money... | The financing requirement equals | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | Banks have 3 sources of cash: 1. the sale of liquid assets 2. borrowed funds 3. excess cash reserves A banks maximum borrowed funds limit is an internal guideline based on the bank managers assessment of the credit limits the market is likely to impose on the bank | How banks manage liquidity | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | lets a bank set its borrowing priorities before liquidity problems arise, lowering the bank's cost of funds and minimizing its excess reserves | Liquidity planning | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | 1. managerial details and responsibilities 2. W/d patterns 3. w/d sizes and sources of funds 4. Internal borrowing limits | 4 components of liquidity plan | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | appoint managers responsible for interacting with regulatory agencies and disclosing information to the public, in the event of a liquidity crisis | Managerial details and responsibilities | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | identify which fund providers are loikely to w/d their funds in the event of a liquidity crisis - map the likely pattern of w/d | Withdrawal patterns | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | - estimate the likely sizes of w/d over various time horizons (1 week, 1 month, 1 quarter, 1 year) - identify the sources of funds for each time horizon | Withdrawal sizes and sources of funds | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | - decide how much each subsidiary and brank may borrow. - determine acceptable risk premiums for market borrowing - this section of the liquidity plan also contains the sequence in which assets may be liquidated | Internal borrowing limits | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | is a sudden, unexpected w/d of deposits from a bank | A bank run | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | 1. concern about the bank's sovency 2. the failure of a related or nearby bank 3. sudden changes in investor preferences - if a bank does not have deposit insurance, depositors who fear that bank may be in financial trouble will want to get to the bank fast and w/d their deposits before the bank runs out of cash | A bank run may be triggered | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | when depositors lose their faith in the banking system as a whole, creating many simultaneous bank runs | A bank panic occurs | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | 1. deposit insurance 2. discount windows | The banking system has 2 major liquidity risk insulation mechanisms | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | guarantees the repayment of deposits - prevents bank runs by making depositors feel safe about their deposits even when banks are in financial trouble - the level of deposit insurance coverage per depositor is capped at $100K per account, so each depositor can get more coverage by use of separate accounts and even sepa... | Deposit Insurance | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | provides short term loans to banks at the discount rate | Discount window | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | is that portion of the poicy value the insurer must pay if the policyowner cashes in the policy before it matures | Life Insurers liquidity risk exposures: The surrender value nof a life insurance policy | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | 1. selling more policies to generate more premium income 2. relying on returns from current assets 3. selling liquid assets 4. selling assets at fire-sale prices | In order of preference, life insurers raise cash to pay surrender values by ....(4) | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | insurers pay claims as they arise and are settled. - because claims are impossible to predict perfectly and because payments, once settled, must be paid promptly, PC insurers hold lots of short term liquid assets - disasters that create many claims can deplete a PC insurers liquidity | P&C insurers liquidity risk CLAIMS | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | policy cancellations and nonrenewals reduce the PC insurer's premium income, possible creating a liquidity crisis. - This theoretical risk (many, many cancellations within a few days) rarely arises in practice | PC insurers liquidity risk CANCELLATIONS | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | 1. state funds are run and administered by insurers themselves 2. Insurers pay into the fund only when another insurer has failed (except NY) 3. The size of required contirbutions varies from state to state 4. there is a delay between recognizing the need to pay PH and actually paying them | State Guarantee funds differ from deposit insurance in 4 ways | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | - Open end fund must be ready to buy back shares from investors - investors can create a run on a mutual fund similar to a bank run - potential mutual fund insolvency is less of an incetnive to sell shares than falling asset values, because in the event of a mutual fund's failure, investors share asset losses equally | Mutual Funds' Liquidity Risk Exposures | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | - a bank run based on percieved financial trouble the last depositors in line get nothing - a mutual fund run, the last investors in line get the same amount of cash per share as all other investors. - on the other hand, if asset values are falling the longer the mutual fund investors wait to sell their shares, the mor... | Bank run vs. Mutual fund run | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | - channel funds from those with surplus funds to those that need funds - allow indirect transfer of funds in which buyers and sellers deal with an intermediary instead of with each other | Roles of FIs in financial markets | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | Buyers and sellers would engage in direct transfer of funds in with corporations sell: 1. equities (common & preferred stocks) 2. debt (commercial paers and bonds) directly to investors | Without FIs | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | 1. Monitoring costs - invoestors must constantly monitor the use of their funds 2. Liquidity costs - loss of liquidity upon invesment, especially long term projects 3. Price risk - investors take the risk that an asset's sale price will be lower than its purchase price | 3 disadvantages to direct invesment | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | as delegated monitors, FIs monitor the use of all their investors funds by the ultimate user of those funds for far less money that it would take all investors to monitor their own investments seperately. | FIs reduce monitoring costs | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | By buying corporations securities and issuing them as secondary securities that can be bought and sold quickly, financial institutions increase liquidity and decrease the price risk of those assets, making them more attractive to investors - FIs reduce their own investment risks & pass those reductions along to investo... | FIs transform assets | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | Conduct transactions more efficiently than individual investors by using "economies of scale" (cost reduction from increased efficiency) | FIs reduce transaction costs | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | - FIs can purposely mismatch matuirities to offer both buyers and sellers the maturities they want - a typical mismatch has the FI funding a longterm mortgage loan w/funds from a short term savings and checking deposits - The FI essentially assumers the interst rate risk that small investors can't handle | FIs act as maturity intermediaries | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | - FIs can by assets sold in very large denominations and sell shares of those assets to small investors who otherwise wouldn't be able to afford the minimum investment - EX: a FI can buy a negotiated CD @ the minimum sale of $100K and then sell shares of the DC to small investors through a mutual funds. | FIs act as denomination intermediaries | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | The size of the money supply is determined largely by band and/or thrift deposits | FIs transmit monetary policy | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | - Control the money supply and thus control the rate of inflation | The federal reserve uses it control over depository institutions to: | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | the measure of the money stock in a nation | Money Supply | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | - FIS can extend credit to those sectors of the economy in need of financing - Policymakers decide which secotrs need financing and then encourage FIs to extend credit | FIs allocate credit | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | Pension and life insurance funds let savers trasnfer wealth from their youth to their old age, or from ongeneration ot the next | FIs can act as time intermediaries | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | Depository institutions provide check clearing and wire transfer services to speed up the payment process amoung buyers and sellers | FIs provide payment services | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | - reduce monitoring costs - transform assets - reduce transation consts - act as matuirty intermediaries - act as denomination intermeidiaries - transmit monetary policy - Allocate credit - act as time intermediaries - provide payemnt services | FIs do these 9 things through indirect transfer | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | regulates financial markets by: 1. emphasizing full and fair disclosure of information 2. monitoring markets for evidence of insider trader | The Securities and Exchange commission (SEC) | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | - Financial markets in other countires, denominated in currencies other than US dollars - risk depreciation of that foreign currency relative to the dollar | Foreign Exchange Markets | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | - Trades newly issued securities - Corporations can rais money by selling newly issued stocks to investors | Primary Market | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | Arrange primary market transactions by buying a corporation's entire new issue at a set price and then selling that new issue to investors at a slightly higher price | Investment Banks | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | A corporations first public issue of financial instruments | Initial Public Offering (IPO) | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | - Trades previously issued securities. The original issuer of the security is not involved in the trade - Trade in stocks, bonds, financial instruments backed by mortgages and other assets, foreign exchange and derivative securities | Secondary Market | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | securities whose payoffs are linked to other previously issued securities | Derivative securities | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | Providing information on the current value of its previously issued securities, which in turn reflects the corporations current value and influencing the likely selling price of any new issue | Secondary markets benefit both buyers and sellers by | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | - trades money market instruments which are debt securities with maturities of less than one year - Price fluctuatiosn in the money market are small - US money markets are called (OTC) over the counter markets because they don't operate in a specific location but do trade via phone, wire transfer, and computer | The Money Market | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | trades capital market instruments which are debt and equities instruments with maturities of more than one year (or no maturity at all) - Price fluctuatiosn are larger than with money market instruments | The capital market | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | 1. credit rsk 2. Foreign exchange risk 3. country or soverieng risk 4. interest rate risk 5. market risk 6. off balance sheet risk 7. liquidity risk 8. Technology risk 9. Operational risk 10. Insolvency risk | 10 riskes face by FIs | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | the risk that promised cash flows from loans and securities held by FIs will not be paid in full | Credit risks | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | the risk that fluctating exchange rates will adversly affect the values of assets and liabilities located abroad if the dollar depreciates or the foreign currency appreciates | Foregin exchange risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | the risk that repayments from foreign borrowers will be interrupted due to interference from foreign government | Country or sovereign risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | occurs when the baturities of the FIs assets and liabilites are mismatches | Interest rate risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | the risk that changes in interest rates, exchange rates and other prices will result in trading losses | Market Risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | the risk that the FI will lose money due to activities related to contigent assets and liabilities | off balance sheet risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | the risk that a surge in liabilitiy withdrawals will force the FI to liquidate assets a low prices | Liquidity risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | the risk that technological investments won't produce the expected savings | Technology risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | the risk that existing technology or support systems will break down | Operational risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | the risk that the FI won't have enough capital to offset a sudden decline in the value of its assets | Insolvency risk | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | - Foreign countries have more $ to invest in other countries - international investors have been very interest in buying inot US and private pension as the value of public pension in Europe has decreased - The internet and other technological advances have made interational investmenst easier to research - FI encourage... | 5 factors that have caused the globalization of financial markets | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
10224d08_cpcu_560_Flashcards___Cram_com__nfluence_their_country_s_rates | - dollar denominated bonds issued in Europe - They are not regulated by the SEC - They account for over 80% of new issues in the international bond market | Eurodollar bonds | [] | cpcu 560 Flashcards - Cram.com | Central banks influence their country's rates | http://www.cram.com/flashcards/cpcu-560-975473 | 50/1438042985647.51_20150728002305-00022-ip-10-236-191-2_370580553_0.json |
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